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Replace Taxes with Sales of Public Goods January 3, 2007

Posted by federalist in Economic Policy, Government Spending, Taxation.
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Today’s breaking views notes that the Pennsylvania Turnpike could be worth as much as $30BB in a lease to private firms. Contrast this to annual state revenue of $12BB, which comes from taxing productive activities like Personal Income, Sales, and Corporate Profits.

Government could claim a lot more legitimacy if it derived its revenue from public goods instead of confiscating private property and enterprise. Consider the extensive and valuable public goods that can be tapped for public revenue:

  • Radio Spectrum
  • Fisheries
  • Logging on public land
  • Fossil fuels and minerals

At present there is some public revenue derived from these resources, but if such commons were a significant source of funds for government operations — and traditional taxes were correspondingly lowered or abolished — they could certainly generate a lot more money. For example, we know from Europe that people can adapt to paying $4/gallon in gasoline taxes. If people were freed from sales and income taxes they may readily assent to paying many times more for raw materials and cell phone bandwidth. Especially since it seems more morally parsimonious to charge for access to limited public goods than to arbitrarily tax private property.

Government could also create public revenue by auctioning off naming rights to public works and public places — which could include everything from streets to parks to hard currency. For example, maybe Ted Turner wants to make a substantial contribution to the federal government in exchange for his portrait appearing on the $20 bill. Maybe San Francisco would agree to go by the name “Cisco” if Cisco Systems funded their police and roads.

Another opportunity is to establish premium levels of access to public goods in exchange for payments to the public purse. For example, there is some number of people who would pay almost any amount of money for an exclusive speed lane for commuting, airport security, etc.

Auctioning off public goods in this fashion has the added benefit of economically optimizing their allocation. Consider public roads as an example: Right now they are essentially rationed by queue. People or corporations who would be willing to pay significant sums to jump the queue have no way of paying others to get out of their way. If access to a restricted express lane were sold on commuting highways it could very well pay for the entire road, thereby subsidizing all the other users who do not want or need to pay a premium for unfettered travel.

[Addendum: It probably would have been more accurate here to use the term public assets, not public goods.  Public goods need to be produced, and conventional wisdom suggests that only government can reliably produce public goods.  However, Alex Tabarrok proves that Assurance Contracts are a plausible mechanism for enabling profit-seeking entrepreneurs to efficiently provide public goods.]

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1. federalist - January 25, 2007
2. federalist - June 23, 2007

Now we’re talking: WSJ reports on how congestion pricing for freeways is catching on. Typically a restricted HOV (High-Occupancy Vehicle) lane is upgraded to allow any vehicle to use it by paying a HOT (High-occupancy Toll), which is automatically raised as sensors determine the lane is reaching its capacity.

3. federalist - August 5, 2007

Steven Malanga details privatization of infrastructure, and notes how private investors can extract more value of infrastructure than public entities:

For starters, private financiers in these deals — mostly managers of international pension funds with enormous sums to invest — often have a greater taste for risk than the typical conservative investor in municipal bonds. The winning consortium in the Chicago Skyway auction estimated that traffic would grow annually by about 3%. The city’s own study used a more conservative 1% growth rate. The small difference, stretched out over decades, resulted in a vastly greater valuation.

Moreover, the Skyway sale transfers risk from the taxpayer to the private owner. If the road’s traffic doesn’t grow as anticipated, investors must accept a lower rate of return. Thus incentivized, the Skyway’s new owners quickly installed an electronic toll-collection system and assigned additional collectors during rush hour to reduce wait times and expand use of the road.

4. federalist - October 15, 2007

Wikipedia attributes this philosophy to Henry George:

Georgists argue that all of the economic rent (ie, unearned income) collected from land, broadcast spectrum, mineral extraction, tradable emission permits, fishing quotas, airway corridor use, seignorage, space orbits, etc. and extraordinary returns from “natural monopolies” should go to the community rather than the owner and that no other taxes or burdensome economic regulations should be levied.

5. federalist - December 27, 2007

WSJ reports: The Interior Department’s Minerals Management Service “is the third-largest revenue source for the U.S. government, behind the Internal Revenue Service and the Social Security Administration….” It collects revenue by selling the rights to develop oil, natural gas, and other minerals on federal land. Even though it is allegedly being mismanaged, last year the service collected more than $11 billion.

6. federalist - November 19, 2008

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