“Some Economists are Idiots;” no argument from this one

“Some Economists are Idiots;” no argument from this one

Andrew pointed me to this article lamenting the use of anonymous-but-still-to-be-trusted “some economists” in a New York Times article on taxation of oil companies:

Large oil companies typically pay high rates, but some economists say that the high rates do not cover the pollution costs imposed on society.

Pic by ribarnica

“Some economists” are likely referring to the idea of externalities: market activity can occasionally create costs or benefits that are borne or enjoyed by people other than the buyer and seller. In this case, the production or consumption of oil apparently creates pollution costs that neither oil companies nor oil consumers are obliged to pay for. The cost of the pollution, though, is borne by society and so, the argument goes, in order to equate the oil companies’ private costs (which don’t include pollution) with their true social costs (which do include pollution) the oil companies should be assessed pollution taxes. If the oil company were forced to pay the tax, the argument goes, then it would produce less oil and therefore less pollution.

A few flaws seem to surface:

  1. As the article makes clear, oil and gas companies already pay a pretty hefty corporate income tax as it is, compared to other industries. (As a sidebar, it seems to contradict the principle of justice when companies in different industries pay different tax rates. Even presuming that oil and gas pollutes and that its high tax rate includes a pollution tax, does oil and gas pollute more than industrials, which pay a 13-percentage-point lower tax rate? Is it just to penalize some businesses way more than others? Why and/or when?)
  2. It is notoriously difficult to quantify the amount of cost imposed by this pollution. Again, to satisfy justice, the pollution tax should be proportionate to the cost imposed by the pollution. It might be easy to calculate a property tax because you could add up the cost of local schools, police, fire, sewer, etc.; but how can you accurately calculate a pollution tax? How many dollars of harm does it cause?
  3. From whence comes the pollution that this pollution tax is meant to alleviate? I don’t follow the pollution trends, but I would guess that more green anger arises from oil and gas consumption than production; driving cars is always painted as one of the most polluting things you can do, though I rarely hear about oil and gas extraction as being significantly polluting. If true, then a tax on oil companies seems misplaced; we really should be taxing gasoline consumption. Oh wait…
  4. You will be shocked to hear this, but the real effect of most laws can be quite different from the intentions of lawmakers. Even if the law says “oil companies will pay X% tax” the actual burden of the tax may be completely different. Economists (all, not just “some”) call this the tax incidence, and it is virtually certain that a tax meant to punish oil companies will be heavily borne by consumers.
  5. Do we tax oil companies because they are, well, companies? Even though gasoline consumers are the polluters, do we avoid taxing them because they are people like us? Exxon makes billions in profit, but Joe down the street with his blue-smoke-spewing jalopy is a “working poor” and thus deserves a preferential option. Do we tax corporations for no better reason than envy and a misplaced distrust of profit?
  6. The concept of a corporate income tax is annoying to me anyway, since it amounts to double taxation. A corporation is just a bunch of people who already have to pay taxes on income, dividends, capital gains, etc. Why is it just to tax the same activity twice? People who work at an oil company produce a barrel of oil that they sell; the company pays the corporate income tax on that sale, and when the remaining revenue from that sale gets distributed to the workers of the company as income they have to pay tax again.

To put it in perspective if the economics is boring you, would you consider it fishy if the Times ran a story that said “some Catholic theologians” believe that women can be priests? Would you presume that the “some” prefix indicates that the Times picked a group biased toward a particular position? Perhaps a more accurate way to phrase it would have been “some economists who believe that oil companies pollute too much say that the high rates do not cover the pollution costs imposed on society.”

I am not saying that oil production and consumption is not polluting, nor that those contributing toward this pollution shouldn’t bear a price. Again, to satisfy justice, those imposing harm should be forced to pay according to the harm imposed. But a corporate income tax on oil companies doesn’t seem to be a good way of doing this, no matter what some economists might say.

1 Comment

  1. It would, of course, presumably make sense to impose the costs directly on the public via taxation, since their demand for gas creates the conditions for pollution. Hmmm. I wonder why Congress opts instead to funnel that taxation through corporations that consequently raise their prices and cause an outraged public to call their Congressmen and haul industry executives in front of a panel of people who, in any sane society, would be figuratively branded with a sign reading “DYSFUNCTIONAL SOCIOPATHS” whenever they opened their gobs? Why indeed?