Posts tagged ‘hidden taxes’

Government Regulates to the Mean, Plus More on Hidden Taxes

One of the seldom discussed problems with government regulation is that typical regulation is aimed at the "mean"  -- the mean worker, the mean industry participant, the mean driver, whatever.  The problem is that there are 300 million of us with vastly different lives and different preferences.  One-size-fits-all regulations are often a poor fit for many of those regulated.

Take the Fair Labor Standards Act (which includes minimum wages, maximum work weeks, record-keeping requirements, etc).  The Fair Labor Standards Act is written for factory workers who come in the door at 9AM, punch a time clock, work under the direct supervision of management, and punch out at 5PM.

Many of my workers are running isolated campgrounds.  They work out of their home (their RV).  While they have scheduled tasks, like cleaning the bathrooms, many of their hours come in spurts (e.g. someone comes to their RV and asks them a question).  The nearest manager from the company might be hundreds of miles away, and there may not even be electricity to power a timeclock.  All of this adds up to a hugely awkward compliance problem for many of the details of the FLSA.  But comply we must.

Yesterday's new proposed CAFE regulations on car fuel economy is another example.   It appears that the average MPG requirement for new cars will increase from 27.5 today to 42MPG in 2016.  The obvious question is -- of all the actions we could take to reduce CO2 emissions, is this the least costly and/or most efficient?

Well, nobody knows, and I don't think that anyone in the "science-based" Obama administration has even tried to put pen to paper on this question.  And, even if they did, their answer would be largely irrelevant because they would likely, again, be regulating to the mean.

I am sure the folks passing this kind of stuff picture a mean commuter driving 25-30 miles each day each way to work.  But what about me?  I drive 2 (actually 1.9, but we will round up).  That makes a 4 mile daily roundtrip commute.  Assuming I drive a car at the CAFE standard, this new regulation will save me 0.05 gallons of gas per day, or ten cents per day at $2.00 gas prices.

Obviously, it makes zero economic sense for me to be regulated in this way.  The fuel economy of my car for my daily commute is virtually irrelevant, because I chose to locate my house and my business within a few miles of each other.  It is a terrible investment for me to pay, both in higher costs and lost features, for a car with higher MPG.  Though my decision-making was not driven by gas consumption (it was driven by my time, which is way more valuable to me than a gallon of gas**) one could argue that I have already made a huge gas-use-reduction investment in terms of the location of my home, and thus a further investment in gas-use-reduction via my car is not necessary.

On Hidden Taxes

We can tease one other lesson from this regulation.  In regulating CO2 in transportation, the Obama administration had another choice -- a carbon tax.   A carbon tax on fuel would easily cause CO2 emissions to be reduced over time from cars  (in fact, it probably would do a better job, as history has shown that higher MPG standards actually lead to increased driving and thus have equivocal impacts on CO2 emissions).

Further, a carbon tax would have the advantage of putting 300 million people to work figuring out the most productive ways to reduce emissions.  Those who drive most, or have the greatest ability to cut back on driving and shift transportation modes, are going to be the ones to preferentially reduce emissions.

So why not a carbon tax?  Well, the politicians have all explained this pretty directly -- because they do not want to pay the political cost of raising taxes, particularly on something like gas whose price gets so much media attention.  Having demagogued oil companies as evil for so many years for raising gas prices, politicians were not able to bear the irony of themselves being responsible for higher gas prices.

So instead, they will force cars to be built more fuel efficiently, which will almost certainly raise the price of cars (as well as reduce choice and certain features).  These higher costs and reductions in choice are most certainly a tax on consumers, but they are an indirect tax.  They show up as rising prices and perhaps falling attractiveness of auto makers' product lines, which consumers will blame on auto makers, not the Congress or Obama.

So Obama will continue to say he has never raised taxes on the middle class, when in fact he has just made their cars $1500 more expensive.  Some day, we may live in a world where politicians are called to task for this kind of bait and switch, but my guess is that Obama gets away with it.

** Postscript: The one constant of all leftish regulation is that it puts about zero value on my personal time.  Every regulation seems to be about my spending more of my time in exchange for conserving some other supposedly scarce resource.  But I have never panicked that we are going to run out of oil or tungsten or iridium or whatever.  But I do know that I am going to run out of time, just like everyone else.   It is the only commodity I am positive is zero sum.