Tag Archives: Josh Barro

Would You Rather Pay Fees or Taxes?

A little over a week ago, Matt Yglesias wrote a post on Slate about how to balance the budget while slashing taxes. The solution: call everything a fee.

Well we could solve an awful lot of problems that way. For example, I’d love to see us impose a greenhouse gas emissions fee to internalize the social cost of carbon dioxide. On top of that, I think a small additional fee on the use of gasoline would be justified. And of course road congestion fees on crowded highways. I used to think we should raise the alcoholic beverages tax, but now I think we should eliminate it entirely. Instead, let’s put an “alcohol fee” in place that just happens to be higher than the current tax. Do the same for cigarettes. Legalize marijuana, but subject its sale to a rather hefty fee. It actually turns out that we could replace most taxes on labor and capital with a land occupancy fee, especially if we call it a “land occupancy fee” rather than a “land value tax.”

After reading this post, it made me think of Michael Sandel’s chapter about fines versus fees. Maybe some of the things that Yglesias is talking about in this post should actually be labeled fines and not fees. For instances, if we’re talking about internalizing the social cost of carbon dioxide, isn’t there a moral piece to it? That is, shouldn’t we call this a fine, then? You may disagree, but the nomenclature in this case does matter.

It seems a bit absurd to think that people would be more amenable to paying money for something merely by changing the label from ‘tax’ to ‘fee,’ but labels matter.

While it’s certainly a creative idea to start charging fees and lower taxes, there is an important bit to consider here. Namely, the control of these fees. Have you ever had to pay a fee to get your license renewed? Do you know how much it costs the government to ‘actually’ renew your license? I don’t. But I know that I get charged close to $100 to renew it. Josh Barro solidifies the point:

Politicians tend to regard fees as more palatable than taxes, and more focused too. If a state needs to finance an infrastructure to oversee fishing, why shouldn’t fishermen foot the bill? But groups like the nonpartisan Tax Foundation in Washington worry that governments are now using fees to shore up budget shortfalls rather than cover specific costs incurred by specific users.

“When it comes to paying for bananas, you’ve got the market as a mechanism to make sure you’re paying a fair price,” says Josh Barro, a staff economist at the Tax Foundation. “But when it comes to getting your driver’s license renewed, the government has a monopoly, and you have no idea what it costs the state or what it’s doing with the money.”

The moral of the story: maybe taxes aren’t so bad after all.

Is It Time to Pay Politicians More?

A few months ago, I saw this very argument made in Slate. At first, I’m sure you’re doing a double-take? Why would we pay them more? They are hardly doing the job that we elected them to do in the first place. Why would we reward failure, stagnation, and an inability to get stuff done? That’s absurd!

All natural reactions, yes, but when you take a second to think about it, the idea isn’t that bat-crap crazy. For instance, consider the Governor of Virginia, Bob McDonnell. Josh Barro over at Business Insider makes the case that the Governor is underpaid. Why? Well, look to the incentives! The Governor of Virginia has a salary of $175,000, which is in the 90th percentile for Governors in the USA. That’s certainly a lot of money — almost triple the median income in Virginia. So, again, you may be thinking, why would we pay them more?

Well, consider the kinds of people that the Governor interacts with on a daily basis. Plutocrats. Governor McDonnell, on a daily basis, interacts with people who have income/wealth that far exceed the Governor’s “measly” $175,000 salary. You may be thinking, why is this a problem if the Governor got into politics for purely altruistic reasons?

Even if the Governor did do such a thing, research tells us that unethical behavior has to do with the kind of person you are and more to do with the situations you find yourself in. For instance, you may be the most ethical person in the world, but if you happen to find yourself in a bind financially and a whole host of other variables are weighing on you, there’s probably a situation that you may find yourself in where overlooking a conflict of interest may seem like an okay thing to do.

That’s the argument for increasing the salaries of politicians — to remove the incentive to be unethical. Of course, there’s still likely to be unethical behavior conducted regardless of what the salaries are raised to, but it may eliminate some of it. How much, I don’t know. What would be a fair salary?

The article in Slate discussed Sinagpore, which is known for being one of the most efficient governments in the world. He explained that in Singapore, the Prime Minister earns more than four times the salary of President Barack Obama and the President gets $400,000 a year! Government Ministers (akin to cabinet Secretaries), earn over $1 million a year. The highest paid cabinet Secretary (Secretary of the Treasury) gets approximately $190,000. So, government Ministers earn more than 5 times as much as their American counterparts.

I’m not advocating this particular raise, but I think it’s a conversation worth having.

I suppose the other option would be to remove the influential plutocrats from the equation. Although, I don’t know that with the American political system arranged in the way that it is, if that’d be constitutional. Larry Lessig, someone who’s been working tirelessly on the option of getting money out of politics was asked what a question about salaries for Congress. I’ll leave you with the question and his answer:

Question: You advocate in your book that congressmen should be paid much more than what they are right now (about $175,000/year). How much do you think they should be paid to make them lose the incentive to become a lobbyist? Does 250-300k sound better?

Lessig: Oh please don’t out me on this. Ok, but DON’T TELL ANYONE I SAID THIS: They are lawmakers. Why aren’t they paid as much as a first year partner at a DC firm? In Singapore, gov’t ministers get paid $1 million a year. Where is corruption in Singapore. NO-where.