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France Taxes “Bad” Cars, Subsidizes “Good” Cars

By: Gerald Prante

Yesterday, the French government announced that it would actively engage in Pigouvian taxA Pigouvian tax, named after 1920 British economist Arthur C. Pigou, is a tax on a market transaction that creates a negative externality, or an additional cost, borne by individuals not directly involved in the transaction. Examples include tobacco taxes, sugar taxes, and carbon taxes. ation/subsidization in order to promote a better environment. From The Times Online:

France set itself on collision course with Brussels yesterday as it announced green taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on gas-guzzling cars and a state-funded discount for vehicles that emit small quantities of carbon dioxide.

Under the scheme, which may fall foul of European Union competition law, a tax of up to €2,600 ($3,822) will be slapped on 4x4s and high-powered sports cars, from next month. Purchasers of small cars will receive a government payment of up to €1,000 ($1,470) under the plan to curb greenhouse gas emissions in France.

“We are the first Western country to give a bonus to virtuous products,” Jean-Louis Borloo, the Ecology Minister, said.

I think many in America would disagree with Jean-Louis Borloo’s statement. For one, the National Assocation of Realtors has for years claimed the virtues of homeownership and thereby the justification for tax bonuses for owning a home. Nearly every presidential candidate and Midwest politician has argued that corn (and ethanol) produced in Iowa and elsewhere is virtuous and worthy of bonuses. The current tax code gives credits to people for going to college and for driving hybrid cars, as they were being implemented by people thinking that such activities were virtuous and worthy of subsidization. And then there is the biggest bonus for virtuous behavior in our tax code — the charitable deduction.

Our federal tax code give bonuses to old people, blind people, people with children, teachers, farmers, homeowners, first-time homebuyers in D.C., the environmentally-conscious, people who park at work, people who take public transit to work, charitable people, college students, parents with kids in college, people who move, workers with low incomes, and people with large medical expenses. And I’m sure I’m missing somebody.

At the state level, it’s often worse with exemptions and credits for various products. The entire justification for sales tax holidaySales tax holidays are periods of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back-to-school supplies, clothing, computers, hurricane preparedness supplies, and more. s is typically for government to give a break for parents to buy educational products, seen by most politicians as a virtuous policy. And then there is my all-time favorite — the Hawaiian Exceptional Tree Deduction, as blogged about here.