Wednesday, April 09, 2008

"A Special Kind of Cowardice"

That's what NYC Mayor Michael Bloomberg termed the decision of New York State legislative leaders (i.e., Assembly Speaker Sheldon Silver) to kill the plan for "congestion pricing" in mid-to-lower Manhattan without even a floor vote. Bloomberg's full statement (available here via the Village Voice) describes the environmental and economic benefits that congestion pricing would have achieved, and vows both to pursue other options and one day to fight again. It's a good argument but one that doesn't seem to confront the root psychological cause of the defeat of the plan.

Congestion pricing was designed as a Pigovian tax: The marginal cost of each additional vehicle in mid-to-lower Manhattan is felt in part by each additional driver and her passengers, but in even larger part by others: more traffic means it takes longer to get to one's destination and more pollution. This is what economists call a negative externality. By making drivers pay extra to drive in the high-traffic-density zone, the congestion pricing plan would have made drivers internalize that cost. The revenue would then have gone to fund public transportation. That's win-win. The Pigovian tax discourages socially harmful activity while using the revenue for socially beneficial activity. (Investment in public transportation makes it a more attractive option, thus further reducing the number of motor vehicles on the roads.)

So why did it fail? One answer is that the benefits and burdens were not perceived as evenly distributed. The money would come principally from people living outside Manhattan (in the outer boroughs and the suburbs), but it would then go to make improvements in transportation largely within Manhattan. It's not clear that this was an accurate perception. Outer borough and suburban commuters use public transportation, and would do so even more with improvements to the public transportation system. Plus, those commuters who chose to drive and pay the congestion fee would benefit from less congestion due to some of their fellow commuters choosing to switch to public transportation. But whatever the reality, the plan was perceived by many non-Manhattanites as Manhattan taxing non-Manhattanites for the benefit of Manhattanites.

There is another possible (and possibly complementary) explanation as well. Despite the fact that Pigovian taxes make excellent policy sense, Americans resist them when they apply to activity they regard as essential. Exhibit A for this proposition is the pitifully low gasoline taxes we pay relative to other oil-importing countries. According to Gaspricewatch.com, the total of federal and state gas taxes in the state with the highest per gallon gas tax (Wisconsin) is 50.5 cents per gallon. According to the Wikipedia entry, in the UK it's effectively $4.84 per gallon, and in Germany it's effectively $7.61 per gallon. The environmental and national-security benefits of increasing the federal gasoline tax by $2 per gallon would be enormous, and would still leave Americans paying less at the pump than Brits and Germans. Yet proposing this would be suicide for any politician (except perhaps one with a 212 area code).

We might explain some of the resistance to a gas tax as rooted in the fact that it would be regressive---although the resistance persists even when proposals to increase the gas tax include plans to offset the effects for low-wage earners through an expansion of the earned income tax credit or in some other way. Accordingly, I would suggest that a substantial portion of the opposition to a gas tax---and more generally to all taxes---comes from Americans' tendency to see the burden but not the benefits of taxation. A proposal to add $2 to the price of a gallon of gasoline looks to consumers like a proposal to charge them more money for gasoline (which of course it is). That proposal naturally triggers resistance: Why would anyone want to pay more than they have to for gasoline (or anything else)? The answer can only be because they're getting something of equal or greater value: less traffic, better transportation, less global warming, cleaner air, less dependence on oil from volatile/hostile regimes.

Yet the fact that a substantial increase in the gas tax would be met with overwhelming opposition means that Americans have not been shown how the benefits of such a tax increase would outweigh the costs. Why not? Could it be because the politicians who are in a position to lead on this question have engaged in a special kind of cowardice?

Posted by Mike Dorf

12 comments:

Paul said...

This particular tax is a real irritant for me as a conservative. The externalities associated with pollution are undeniable. Some means of internalizing those cost should be a conservative mandate. To not do so is allowing a bunch of people a "free ride" by the government. It frustrates me to no end that conservatives are not almost universally behind this tax, so long as the tax dollars themselves can be mandated to reduce the externalities (by any number or combination of means - including public transportation, R&D grants for fuel alternatives, construction of more nuclear power facilities, etc.)

For once this is a situation where NOT taxing is resulting in government handouts to those who choose to drive and the corporations that directly benefit from those choices. Conservatives should be all over this issue and frankly the means to "educate" people are readily available and - relative to other forms of "education" used during campaigns - not terribly expensive.

Hinheckle Jones said...

If people do not trust the government, it is hard for the government to educate the people.

As it stands the federal part of the gas tax should amount to $100,000,000 per day( 300 million people times 33.33 cents per gallon times 1 gallon per day). Where is this money going?

Compared to thirty years ago, our air and water are amazingly pure. We did this while keeping the gas tax down. Greater use of hybrid cars will continue this trend.

Also, can we trust the government to use taxes the way Pigou would have them used?

Hamilton said...

Are there other ways to accomplish the same thing without calling it a tax? Maybe because I'm not educated with respect to the issue, but I feel like NYC or even more local Manhatten neighborhoods could ban all street parking, create a higher toll for all the bridges onto the island (or even for random portions of the city, say all the major intersections with 59th Street) or requiring a special license to drive into the city?

I get the impression that the real problem is the fact that the current plan was called a "tax" rather than something else.

egarber said...

A few questions / observations:

1. How exactly would congestion pricing work -- via some sort of tag that has to be purchased?

2. Is the proposal modeled after anything similar in the states or abroad?

3. I started to ask myself why this would be any different than say, hotel taxes. But with hotel taxes, it's largely out of staters who get hit, not one sect of New Yorkers vs. another. So it's not the same.

4. I wonder if this argument plays into it at all: "I know a lot of my *state* income taxes find their way to Manhattan in various ways, so I'm already subsidizing the city. Why should I pay MORE because of my work / shopping habits?"

Of course, don't people in the city pay an additional city income tax? So similar arguments exist on the other side.

5. For Paul, conservatives I know are repulsed by anything that sounds like "social engineering" through the tax code. Of course, many are hypocritical, since they support engineering on the tax CUT side -- e.g., oil company subsidies, healthcare savings accounts, etc. From an accounting standpoint, there's no difference in the effect; government is "engineering" an outcome.

In the end, it may just be that "congestion" is too vague a term for people to see tangible benefits in efforts to alleviate it.

BDG said...

It is cowardly. But, in very lukewarm defense of tax-averse politicians, there's decent experimental data that voters have a difficult time cognitively holding together a complete tax-benefit package in their heads at the time they make decisions like for whom to vote for or where to live.

Galbraith also thought that pervasive pro-market advertising by folks who competed with or were regulated by government drove down public perception of the value of government services, which weakened support for taxation. Seems plausible to me; for instance, there's decent data that, controlling for whatever you can think of, people support higher taxes when a president from their own party is in office.

By the way, these two facts (cognitive limitations, favoring taxes when you trust the folks who will spend them) are reconcilable if we think that people use heuristics, such as party in power, to stand in for their inability to process more detailed policy information.

Michael C. Dorf said...

in answer to just one of egarber's questions, London has congestion pricing. I was there in January and it seemed to work reasonably well.

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