Externalities and Financing Government
Microeconomics Today -- What is a fair tax?
Tax the rich, give to the poor! Tax the gas-guzzling SUVs of the rich, and give the money to the poor! Or, at very least, give the revenue in the form of tax breaks to independent and corporate organizations attempting to make alternative fuel vehicles. In theory, it seems like an excellent idea. However, although a higher gas tax may seem like a pro-environmentalist policy and superficially progressive in its political tenor and tone, in fact a gas tax really functions in its application as a regressive tax, penalizing the poorer rather than the wealthier Americans. It goes contrary to the fair financing of government, one of the philosophical principles of this nation.
Application of Microeconomic Theory -- regressive taxation and economic incentives for changes in consumer behavior through changes in tax policy
Two of the most controversial issues facing American consumers today are what to do about the higher prices of gasoline and how to implement a fair tax system. Today's tax system has often been criticized as unduly regressive, in other words, that it penalizes the poorest members of society rather than the wealthiest. As delineated in the text, Microeconomics Today, in the chapter entitled, "Financing Government: What Is a Fair System of Taxation?" traditional economic conservatives are apt to accept this imbalance, hoping that a greater flow of private wealth into the economy will ultimately prove beneficial, despite the existence of some so-called 'tax breaks' for the rich. Liberals tend to advocate more government spending, and higher tax brackets for the wealthiest of Americans to fund social programs.
Yet, despite this polarization of liberal and conservative economic theorists in the politics of taxation, liberal economics are also apt to favor higher gasoline taxes as a way of protecting the environment, discouraging the waste of energy resources, and also to encourage corporations to develop alternative sources of fuel and vehicles and appliances that use, for example, electricity rather than gasoline. The argument is that by encouraging consumer demand for alternative fuel vehicles with a higher gas tax, the environment will be better protected, we as a nation will achieve greater long-term independence from foreign oil, and, as noted in the chapter "Dealing with Externalities: How Can We Save the Environment," ultimately a cleaner and healthier environment is better for all workers, consumers, and the long-term future of American businesses.
True, American businesses cannot really afford to be so dependant upon foreign oil as they are at present, particularly American car manufactures. But when considering the issue, one must keep in mind important microeconomic concepts, such as which population such a policy predominantly affects. The tax would be geographically disproportionate, as it would affect areas of the country where public transportation is limited -- mostly rural and Western areas. It would affect businesses negatively in the short-term, even while it might stimulate some businesses to explore alternative fuel sources, as businesses are dependant upon gas-driven trucks to transport goods.
The added cost to transport would disproportionately affect consumers and businesses counting every penny. Also, consumers would have less money to travel to different places to buy cheaper goods, again affecting the poorer consumer disproportionately to the wealthier consumer.
Assessment of Issue -- gas taxation as a regressive tax on the poor
In fact, the gasoline tax, as evidenced in a 1999 article in Fortune Magazine, is often more popular amongst conservative economists...
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