The Externality of Externalities

George Rebane

OK boys and girls, time for a little review of an arcane notion of economics that is the darling of socialists cooking up ever more ways to make our lives miserable.  An externality of some good or service traded at market price is the attributed added cost to society that the consumption of such a good or service entails.  For example, consider the hamburger you had for lunch.  The progressive sees that hamburger as being the source of all kinds of additional costs that are not reflected in the price you paid for it, costs like treating diseases resulting from national obesity to costs of manmade global warming resulting from all the cow farts collecting in the upper atmosphere.

As you might guess, the progressives’ solution to this ‘problem’ is to increase the hamburger’s price by a tax levied to pay for fixing all the subsequent externalities that might arise due to the consumption of hamburgers.  In their enlightened brave new world, such additional costs would be added to the trade of every item in an economy onto which they can pile some externalities.  According to their thinking, this type of accounting would pay for itself by finally making the purchase of goods and services ‘externalities neutral’.  Light thinkers at this point begin to feel fuzzy and warm all over – why didn’t they think of that?

The problem, of course, with charging for externalities at the point of purchase is that no one with a solid 3-digit IQ has been able to come up with a reasonable way to 1) identify attributable externalities to any given good or service or GoS, 2) determine the cost of the GoS’s externalities,  3) allocate that GoS’s share of each externality’s cost, 4) set up an inter-jurisdictional system to administer, collect, and manage such taxes, and 5) distribute appropriate sums of such collected monies to certified programs set up to mitigate and/or eliminate the attributed externalities.  There’s more, but you get the idea.

But such factors never penetrate the brain bones of progressives, be they of the environmentalist or national nutrition police variety.  Their solution to charging for externalities is the same approach they have to global warming science - use brown numbers and make it up as you go along.  (Everyone knows from which orifice brown numbers are pulled.)  Since their ends justify the means, tell all necessary lies at all levels to calm the sheeple.

Imposing externalities taxes on all of America’s goods and services is just another part of the collectivists’ bag of social engineering tricks to improve our lives (you know like what AB32 has done to California, and what Obamacare is doing to America’s healthcare – stay tuned for more on that).  Professor Jayson Lusk, an agricultural economist at Oklahoma State, goes into much more detail about externalities taxes applied to our food markets, especially meat consumption, and the current momentum of such efforts at various levels of the federal government.  In ‘Cheeseburgers Won’t Melt the Polar Ice Caps’ he makes clear that “the next targets of climate change enforcers will be livestock and all Americans who eat meat.”

To put a bow on it, the externality of dealing with such externalities is that every nostrum proposed by our indigenous socialists today straightens America’s path to a Soviet style economy.

Comments

[Gregory]

One of my favorite lines from NatLampCo's "Lemmings", a musical parody of Woodstock:
"POWER TO THE correct PEOPLE!"

The alarmist meme is folding in slo-mo. Much screaming left to endure. It does appear California's economic seppuku will remain as scheduled, with a big expansion of cap and trade into everyone's pockets in January, when motor fuels start getting taxed heavily (well, more heavily, already there's more tax than profit in a gallon of gas), and Californians will be screaming bloody murder.

The AB32 mantra was "we're all going to die without drastic actions, and California will, thanks to AB32, teach the world how to do it". Affordable, renewable energy. Only they didn't make a complete disclosure... to be affordable, your carbon footprint better be about what your ancestor's was in the mid 19th century, because costs will go through the roof.

Taking externalities into account is what government needs to do, but only real externalities need to be heeded. Imaginary ones must be ignored.

[RL Crabb]

And PG&E wants another couple ounces of flesh. I'm sure that after the election there will be a few dozen more bills to suck a little more blood from us turnips. They will never have enough. Never.

[fish]

…..but only real externalities need to be heeded.

But there is so much money to be collected through the imaginary ones.

[Gregory]

Another way to look at it... the Frisch's of the state are saying, let us judge the externalities, and give us the tax money raised in their name in order to mitigate those externalities.

Just say no.

[Brad]

I think you should refer to those progressives as burgermeisters.

[Walt]

Bovine internally produced methane ( cow farts to the high school dropout)
have been the target from PETA to the EPA and every subgroup in-between.
Some cow fart fear mongering is found here.
http://www.foxnews.com/science/2013/11/26/big-methane-burp-cows-refineries-spew-gas/
Then I find this group "Center for Research in Sustainable Systems in Agricultural Production" who put out this piece of work.
http://environment.yale.edu/blog/2012/01/cows-as-mobile-solar-powered-catalytic-converters-2/
Don't let SBC get a whiff of this. Grant money for the taking, and instantly knows more than a rancher.

[Barry Pruett]

Brown numbers...that is funny.

[Walt]

It gets better.
"Agriculture: In June, in partnership with the dairy industry, the USDA, EPA and DOE will jointly release a “Biogas Roadmap” outlining voluntary strategies to accelerate adoption of methane digesters and other cost-effective technologies to reduce U.S. dairy sector greenhouse gas emissions by 25 percent by 2020. "

From http://www.whitehouse.gov/the-press-office/2014/03/28/fact-sheet-climate-action-plan-strategy-cut-methane-emissions

Nothing the gov. mandates is EVER cost effective.

Nevermind that those evil burger joints are where the main LIB constituency calls the kitchen. It was the burger flippers that had the guaranteed jobs
during (and still)the great recession. Nice payback for being the only reliable employers. ( now tax the crap out of them)

[Brad Croul]

Walt, you are going to love this, "Cowspiracy" will be coming soon to the Del Oro theater in Grass Valley.

[Brad Croul]

Save the planet and keep the people's cholesterol numbers low - outlaw cows!:)

[Bill Tozer]

Better watch out. Mr. stevenfrish might come over here and start externalizing his internalies.

When cows are outlawed only outlaws will have cows. Until then, maybe SBC and other bushy eyed green NGOs sprouting up can get some of that State and Federal payola to hire our youth sucking farts out of the rears of cattle. Entry level summer jobs look good on a thin resume.

[Walt]

Just to add insult to injury, all the ranchers would have to replant with a government approved, low gas producing, genetically altered ( to keep litigators employed for life) grasses and grains. Cost beneficial of course. What's a few two headed steers here or there?

[Walt]

Brad. I think "South Park" did that already. ( or was that KFC..??)

[Bill Tozer]

Ok, get rid of the cows and beefeaters and even Captain Beefheart. But how much is it going to cost me to rid our county, our State, our Nation, our planet of cockroach flatculence? I look into the crystal ball and it says it will cost me plenty with no tangible results. Less is more or is it more is less? Heck, they say cockroaches will be the only survivors of a global thermal nuclear war and I bet their flatculence will be radioactive as nuke juice. Quit trying to save us. The only reason we are on this mess now is cause of dinosaur flatculence according to esteemed scientists and researches at Dickhead U.

[Bill Tozer]

Wonder how long it will be before they charge a user fee on human flatculence? If the poop shute is causing so much damage, why in the name of Big Bubba's Bar-B-Que Ribs are they expanding the food stamp program?

Our dear friends on the left who never developed more than two brain cells simply are incapable of grasping an absolute such as for every action, there is an equal reaction. OK, I better give some of them more credit than that as they have devised some rather devious schemes knowing full well the consequences. The progressives always underestimate the costs and always minimize the damage their plans do. They minimize the harm caused by the direct result of implementing their Utopian Cuba model and always overestimate the blessing that their little designs and schemes and drug induced grand ideas will bestow up us little ones.

For a couple of examples from today's news, the CPI did not rise much because the increase in food and rent was offset by lower energy prices. What are the dirt worshipers going to do about that? Why, jack up the price of fuel, stop construction of Keystone, and make us all drive by algae powered tricycles? Solar panels do not get the working stiff's pickup to the job site, if he/she has enough spare change to get there. Economy killer. Might has well put a rattlesnake down your trousers. Now we are importing coal. Beam me up, Bubba.

Another example is the Cadillac Tax on employer sponsored health plans. The tax has nothing to do with health care, just 100% to tax and get money, a lot more money. So, since Obama has put this unpalatable tax off until 2018, employers will do what Obamacare does to the working single mom, .i e, raise deductibles, raise co-pays, lower coverage and raise the out of pocket expenses for little miss working single mom and old Pops. Research reveals that few if any will ever play the Cadillac 40% tax. Any employer who cares about his employees would have to be brain dead stupid not to spare his employees this whopping 40% progressive sponsored tax. The Progressives claimed it would bring in 137 billion over ten government speakese years, but since it got delayed to 2018, that 137 billion is now 87 billion which by 2018 will be reduced to zero and .....drumroll please....the Obamacare Tax Bill will not pay for itself as predicted by various evil conservatives like moi. Plus hidden in this year's taxes is a little thing called and employer sponsored tax that will hit each working stiff for an average of 198 smackers, not to even mention the usual increase in premiums.

The Marxist Progressive Liberal May Day marchers solutions are worse than the problems, much much worse.

[Gregory]

"Another example is the Cadillac Tax on employer sponsored health plans. The tax has nothing to do with health care, just 100% to tax and get money, a lot more money."

No Tozer, the Cadillac Tax has everything to do with health care, and if it wasn't for Democratic sacred cows, the issue would have been tackled FIRST. The big problem in health care has been too many bucks chasing too few available services, and the big driver of health care costs is the near unlimited money available when Company A is paying Provider B for services to Person C. Cadillac Plans are free to Person C, untaxed income; no federal income tax, no state income tax, no social security tax, no medicare tax. If Person C was buying their own insurance with their own after tax income you can be damn sure they'd get more value out of their dollar than their Company A is.

Cadillac plans, in other words, are among the most valuable compensations an employee can get. Untaxed, effectively unlimited health care for the employee and their families. As a recipient of such largess I can appreciate the immediate result (my first wife died of cancer when I was a Cisco employee and it cost the company a bundle as not a single bill was quibbled over, no treatment was denied payment for a year and a half) but it drives up the cost of care for everyone.

The Cadillac plans tend to be for union members and highly paid knowledge workers, and there is no reason for them to get unlimited, untaxed fringe benefits.

[Bill Tozer]

Mr. Gregory, I disagree with some of your argument. There is a reason to get unlimited, untaxed fringe benefits. It's to keep people like you on payroll. Well worth the expense.

A Cadillac plan is defined as a plan which the employer's cost is $10,500/year in providing an employee insurance, or 875 clams a month. Most every unionized employee from Safeway to GM pays a portion of their premiums, usually around 11-19% in pre-taxed dollars. Whether the employee pays 30% or zero of the cost of his/her premiums, somebody is paying for it and that somebody is the employee's agent being the employer in this case. It costs someone to pay the premiums.

I sense that your real beef is that there should be no pre-tax deductions for medical premiums, Cadillac plans or not. All premium payments need to be taxed is what I am hearing, sprinkled with a reason to be a good steward of a medical policy at the conclusion. What about deductions for HSAs?

Digression time. Once sat in court twiddling my thumbs and trying to get a feel for the judge, just in case. No pun intended. Just sat there listening to family law. A young rancher's helper was fighting what he thought was unfair child support levied upon him. The judge ruled that the value of the housing shack he was provided to live in on the ranch should be included in his income, which upped 500 bucks a month to his declarable income right then and there. Do you feel farm laborers' fringe benefits such as substandard employer provided housing should be taxed as income or just plain taxed?

[Bill Tozer]

Part 2. No one will be paying the Cadillac tax anyway so it is a moot point. I am neither highly skilled or unionized and have one. So do the employees who work as clerks at AARP. Cadillac plans are everywhere nowadays and the costs of Heath care insurance goes up. Just tweet the deductibles and up the employee's percentage of the premiums until it goes down under the 40% tax threshold. That is what caring employers will do to save their employes the 40% hit in the pocketbook.

Heck, I make under the median wage in Nevada County and in the
Great State of California and got me a this there shiny Cadillac plan. And I ain't skilled nor got any pieces of paper framed on the wall.

It just surprised me that you sounded so much like my dear close personal friend Brother Ben with you concluding sentence "The Cadillac plans tend to be for union members and highly paid knowledge workers, and there is no reason for them to get unlimited, untaxed fringe benefits." Just like there is no reason for someone to own 3 yachts or 9 cars or make a certain amount of "excess" money?

[fish]

I don't think any of you reprobates appreciate just how lucky we are to have valiant civil servants protecting our borders like these mentioned in the link.

Steve, JoKe…. I'm sorry I doubted your deep and abiding faith what a force for good the government truly can be.

http://www.steynonline.com/6531/the-punitive-bureaucracy-day-off

To be spared the scourge that is bagpipe music……sniffle...I need a moment….talk amongst yourselves….sniffle

[Gregory]

"There is a reason to get unlimited, untaxed fringe benefits. It's to keep people like you on payroll. Well worth the expense."

That's the reason a company provides the bennie, not the reason the tax code allows it, a hold-over from the earliest income tax statutes and WWII era wage and price controls. Fringe benefits really were fringe, not worth bothering with, and it was the likes of Kaiser Heavy Industries that decided to actually run health care facilities to lure in the tens of thousands of workers they needed to crank out ships and armaments, since they couldn't pay more due to the wage controls. After WWII, no one wanted to rock the health care boat and fix the problem which has festered since the early 40's. Figure that thirty six Congresses have come and mostly gone and the loophole is STILL there.

The individual market for insurance didn't disappear because evil insurance companies didn't want to sell it, it disappeared because the people who would most want to buy individual insurance policies with after tax income are folks who know they are facing big medical bills sooner or later... and the most desperate are the ones facing it soon, or NOW. What needed to be done is to fix that disparity.

Personally, I think Congress should make all fringe benefits taxable, with a one time adjustment in the tax tables to make it revenue neutral, and adjust downward the threshold of deductability for medical expenses on state and federal taxes.

Medical savings would be better handled as an extension of IRA's and 401k's, not the asinine current medical savings accounts where you have to beg a third party to pay a medical debt, and you lose everything you don't spend that year. Utter Madness.

[Gregory]

"In 1973, Martin Feldstein main-
tained that by treating employers’ contributions for health insurance as nontaxable income to employees, the government promoted “over-insurance.”1 At the margin, because income was taxed and employer contributions for health insurance were not, employees had the option of receiving a dollar in health insurance or $0.67 in income (for an employee whose marginal tax rate is 33 percent). Hence, rational employees would “overinsure” and purchase plans with rich benefits and limited employee cost sharing. This would reduce employees’ sensitivity to the cost of health care and thereby increase the use of services and medical spending. Critics of the “employer exclusion” argue that not only does it promote inefficiency, but that also it is unfair. A recent analysis by the staff of the Joint Committee on Taxation estimates that households earning $200,000–$499,999 per year receive tax benefits of $4,728 on average, whereas households earning $10,000–$29,999 receive $1,952 on average."
http://content.healthaffairs.org/content/29/1/174.abstract

Real Cadillac plans cost more than the Obamacare cutoff, and it remains unfair that a wealthy worker (including management) could get $30K or above in compensation without any taxes of any sort.

[Gregory]

"Tozer", this isn't about conspicuous consumption by the wealthy, this is about a regressive income tax code that takes from the poor and gives to the rich. One doesn't have to be a brain damaged Ben to think that's backwards.

[Bill Tozer]

Mr. Gregory, I hear ya. You have been out of the loop lately on small points, but the larger picture remains a valid point worth examining.
Small point: The use it or lose it HSA policy now can be rolled over. Do know one person alive that actually uses a HSA and she is quite the planner. Unusually frugal yet wise. Knows where every penny goes. She was upset that HSAs no longer cover over the counter aspirin. You win some, you lose some.
Small point #2: rounding off the stats you provided, someone making 200-500k receives 5k in tax benefits while someone making 10-30 k receives 2k in tax benefits. Percentage wise, looks like the lower income folks come way out ahead, especially looking at the low end as well as the high end. Pays to poor, at least on paper.

The larger issue may or may not be valid. The individual market sucks big time. And yes, I am just one more F Bomb away from joining the ranks of those who seek and obtain coverage on the individual market. Wonder how much it cost the company to send me to all those sensitivity retraining classes taught by a fine instructor with a great rack, but I digress.

The difference between myself and the others that make below the median pay grade is if I need knee surgery, I get knee surrey pronto, no questions asked and never miss a paycheck. The difference between me and Walt is I have a choice and refuse to ever step foot in a VA meat wagon facility....maybe someday and never say never.

I disagree with your premise that those with Cadillac plans don't watch the costs. We do at work cause we all know that overuse or abuse will cause next year's premiums to inch up, again and again. Next verse same as the first.

Take the knee surgery I had. Insurance co sends me a copy of the appointment with the fantastic sports surgeon/specialist. Just to see him for 15 minutes was 875 clams! I called the specialist's office with a WTF, even though it cost me the max co-pay we have, a whopping 25 buckaroos. The receptionist just laughed saying that is our rate but your insurance carrier will pay less than half the amount. This lowly peon had the big boys negotiating for me.
Mr. Gregory, I am fully cognoscenti that my small perception of the big wide world may not be norm. Why be normal? Oops, time to take a head med. will read your link later.