Disadvantages of Green Taxes
The largest detraction to green taxation is the numerous and large information costs in setting and changing the tax, which are as follows:
- The regulatory agency must know every firm's MAC, which is hard to determine and is continually changing. The agency has to use an inexeact method of guessing the right tax rate, and then adjusting it by gauging the reaction of those taxed units.
- It also must try to equalize the MAC, which requires even more administrative costs.
- The agency must research about the physical nature of the toxin.
- A monetary valuation of the damage caused by the toxic waste in terms human health, lost business, and other costs is necessary.
There are other obstacles besides the considerable information costs
- Complex to apply to non-uniformly mixing polluntants. In order to prevent hot-spots, there must be progressive tax rates for brackets of pollution levels, or even totally different tax rates for different sources (Hanley).
- Tax is regressive in nature, as the extra cost is passed down to consumer. This harms low-income persons as they spend a higher proportion of their income on consumption of such goods as gasoline.
- If tax is set too high, the tax burden and subsequent deadweight loss will be too large for many firms and politicians to swallow. This will result when the tax burden exceeds the abatement costs. In this case, going back to a traditional command and control regulatory scheme would be less costly(Hanley).
- Many critics don't agree with the double-dividends affect. They believe that, as a tax, there still is distortion with these taxes, and even if they could cut down on other taxes, their effect would be minimal (Hanley, 27) .
Finally, the unpopularity of green taxes among politicians and their constituent individuals and firms is another negative. New taxes are never easy to pass, even if they're claimed to alleviate present taxes. "Taxes" remains a dirty word within most political circles and households of capitalist nations.
Response of the Pigou Club
Proponents claim that these environmetal problems need solutions anyway, and why not have one that gives the nation a source of revenue. Yes, it has costs, but those costs are offset by the revenue generation. Pigou Club
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