The Law of Intended Unintended Consequences: Gun Buy-back Edition

January 16, 2013

This week Rep. Rosa DeLauro (D-CT) proposed an assault weapon buy-back program that would operate through the tax code:

"The SAFER Streets Act creates a $2,000 refundable tax credit ($1,000 for two consecutive years) for an assault weapon owner who turns in their firearm to the state police."

Gun buy-back programs are usually done at the local level, and are typically limited to some budgeted amount.  A recent program in New Albany, Indiana to buy assault rifles for $300 and shotguns for $200 blew through the allotted $50,000 budget in 90 minutes.  The problem, or intention I suppose, is that everyone has an incentive to bring in guns that are worth less than the buy-back price.  Since the guns are then destroyed, it amounts to a price floor if allowed to run its course. 

This assumes the gun manufacturers cannot produce additional guns as fast as the old ones are destroyed, and that they cannot be produced, at this rate of production, cheaper than the buy-back price.  I have no sense of the market price of guns, but the internet tells me that assault weapons go for much less than $2,000.  That means prices would soon be bid up to $2,000, but the gun manufacturers would be hard at work to satisfy this new artificial demand. Smith and Wesson and the gang would end up employing a much larger share of the work force than they do now, and their profit margins would shoot through the roof.

This helps explain why gun stocks have been on a tear lately.  Smith and Wesson is up 9 percent today, following President Obama’s call for more gun control legislation.

Follow William McBride on Twitter @EconoWill

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