we want a broad tax base in general—doubling the size of a tax quadruples its social cost, so it’s better to have lots of small taxes rather than a few big taxes
But why not do taxes that don’t have social costs? Taxes on land and land-like assets; taxes that internalize externalities (e.g. carbon taxes); taxes on zero-sum games (e.g. higher education); taxes where the dead-weight loss is intended (e.g. cigarettes).
These are good options when available. You should start by setting all the Pigouvian taxes at optimal levels then go from there. Having not thought about it very much, taxes on unimproved value of land seem good but can’t fund something like a modern government without major distortions, so you’ll end up with lots of other stuff in your basket.
I don’t think any taxes have zero social costs. Maybe you’re imagining that they have a net zero cost, i.e. where costs born by some people are offset by gains enjoyed by others?
It’s maybe off-topic, but I’m concerned by the accounting realities attendant to some of the taxes you mentioned, and similar ones, e.g. carbon taxes and cigarette taxes. It doesn’t seem likely that either would or are actually internalizing externalities in practice. Cigarette taxes are often ‘earmarked’ or allocated to entirely unrelated goods or services, e.g. schools, and that can be disastrous when smokers actually respond to higher taxes by buying fewer (legal, i.e. taxed) cigarettes. Similarly, it doesn’t seem like the costs of ‘carbon’ are actually internalized by the tax itself if the tax revenues themselves aren’t directly used to offset those costs by, e.g. capturing carbon, reimbursing losses incurred because of ‘carbon’, or, more sensibly, saving to offset the expected future costs.
“Social cost” in economics usually refers to the sum of private costs (wikipedia), such that a transfer from one person to another would have no social cost.
“Internalizing an externality” usually means making the private costs better reflect the social costs (so it’s not relevant what is done with the tax revenue).
Sure, and there are good reasons for that technical terminology.
But it’s weird to claim that any transfer between people, especially one that’s coerced, has “no social cost”. That’s perhaps an unreasonable objection, particularly in this context.
Is there another term then for something generally ‘beyond’ ‘internalizing an externality’? It just doesn’t seem likely to be effective to simply impose private costs equal in magnitude to other ‘social’ costs and then claim victory. Maybe I’m just conflating the economic concept with a kind of accounting-like generalization of the ‘match expenses to revenue’ principle.
In practice, it seems counter-productive to ignore how specific tax revenues are allocated. It certainly seems most natural to me to allocate those revenues to offset the relevant ‘social costs’ that inspired the taxes originally.
But why not do taxes that don’t have social costs? Taxes on land and land-like assets; taxes that internalize externalities (e.g. carbon taxes); taxes on zero-sum games (e.g. higher education); taxes where the dead-weight loss is intended (e.g. cigarettes).
These are good options when available. You should start by setting all the Pigouvian taxes at optimal levels then go from there. Having not thought about it very much, taxes on unimproved value of land seem good but can’t fund something like a modern government without major distortions, so you’ll end up with lots of other stuff in your basket.
I don’t think any taxes have zero social costs. Maybe you’re imagining that they have a net zero cost, i.e. where costs born by some people are offset by gains enjoyed by others?
It’s maybe off-topic, but I’m concerned by the accounting realities attendant to some of the taxes you mentioned, and similar ones, e.g. carbon taxes and cigarette taxes. It doesn’t seem likely that either would or are actually internalizing externalities in practice. Cigarette taxes are often ‘earmarked’ or allocated to entirely unrelated goods or services, e.g. schools, and that can be disastrous when smokers actually respond to higher taxes by buying fewer (legal, i.e. taxed) cigarettes. Similarly, it doesn’t seem like the costs of ‘carbon’ are actually internalized by the tax itself if the tax revenues themselves aren’t directly used to offset those costs by, e.g. capturing carbon, reimbursing losses incurred because of ‘carbon’, or, more sensibly, saving to offset the expected future costs.
“Social cost” in economics usually refers to the sum of private costs (wikipedia), such that a transfer from one person to another would have no social cost.
“Internalizing an externality” usually means making the private costs better reflect the social costs (so it’s not relevant what is done with the tax revenue).
Sure, and there are good reasons for that technical terminology.
But it’s weird to claim that any transfer between people, especially one that’s coerced, has “no social cost”. That’s perhaps an unreasonable objection, particularly in this context.
Is there another term then for something generally ‘beyond’ ‘internalizing an externality’? It just doesn’t seem likely to be effective to simply impose private costs equal in magnitude to other ‘social’ costs and then claim victory. Maybe I’m just conflating the economic concept with a kind of accounting-like generalization of the ‘match expenses to revenue’ principle.
In practice, it seems counter-productive to ignore how specific tax revenues are allocated. It certainly seems most natural to me to allocate those revenues to offset the relevant ‘social costs’ that inspired the taxes originally.