Re: AltInst: Tax Inferred Ability to Pay

alger.-@ei.com wrote:
> >1) Reduce the load for these taxes by taxing actions with negative
> >externalities or where efficiency benefits from trading are now absent
> >due to prohibition.
> > a) Tax the hell out of sin: alcohol, cigarettes, marijuana, heroin,
> >cocaine, prostitution, X-rated activities. ...
>
> Robin Hanson wrote:
> What are the negative externalities or prohibition problems with these?

Marijuana, heroin, cocaine, and prostitution are typically prohibited, so that
the value to the consumers and sellers that competitively provided services
would generate are not earned. Further, when these goods or services are
offered on the black market, business disputes do not now have access to the
courts and they are settled by force, a more expensive option. That is the
crux of the prohibition "problem."

As far as I know, only cigarettes have traditional negative externalities:
second-hand cigarette smoke has detrimental effects on those not smoking.
Given the costs of overcoming privately-held, and costly-to-obtain
information, a couple others can be viewed as having traditional negative
externalities: increasing alcohol use, tends to increase drunk driving, and
even competitively priced heroin and cocaine would lead some users to more
crime.

More importantly, though, all of these products or services clearly face
extensive negative externalities, as many people (think of the self righteous
"moral majority") feel worse off when they know someone else uses, or
increases its use of, such a product or service. Such a person has preferences
where the utility function representing these preferences must depend, not
only their own goods and services consumed and possibly other people's
utilities, but also specific goods and services that other people consume.
Different people such as this feel worse off if they know another person
increases their use of alcohol, cigarettes, marijuana, heroin, cocaine,
prostitution, and X-rated activities. There are also many of these people, as
it is their collective force that drives the laws that prohibit the sale of
some of these goods and services.

If these services were sold competitively but taxes were set to maximize
revenue, they would generate 100s of billions of dollars of revenue and many
billions of lower spending (aprox. 70% of our prisoners are there for drug
related offenses). Would a majority of voters feel those negative
externalities sufficiently at this point to vote to increase taxes above this
point? Taxes above this point might be needed to lose the majority for some of
the examples above (heroin?), but you might lose the majority below this point
for others (alcohol? cigarettes?). In any event, such an approach would
generate big money and big savings.

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Received on Wed Sep 1 12:44:31 1999