Monday, June 8, 2009

Taxing Drunk Drivers - What an Idea!

One of the biggest questions about enacting universal health-care is how to pay for it. Ironically, we could have paid for it a several times over if we hadn't had the war with Iraq! But that's not the hand that we are dealt.

Nate Silver has an interesting idea
about one way to gain revenue for health-care. His idea is taxing people who are caught driving under the influence a hefty tax of $8,000 per incident.

In 2006, there were 1.1 million arrests for drunk driving in the United States (source), not counting Florida which didn't report its statistics. Fine each of those people $8,000, and you'd have almost about $9 billion more to pay for health care every year. Why $8,000? Because that's the figure, according to a 2001 paper (.pdf) by Steve Levitt (the Freakonomics guy) and Jack Porter, that would be required to internalize the negative externalities associated with driving drunk.* By the way, if you're concerned that this tax might be regressive, you could scale it according to a person's income, as they do for traffic fines in Finland.

Of course, if you were actually to fine people $8K every time they got a drunk driving conviction, you wouldn't raise quite as much as $9 billion. Faced with a choice between an $8,000 fine or a $20 taxi fare, a lot more people would have Yellow Cab on speed dial, and you'd have fewer revenue-producing arrests.** But this is a feature of the policy rather than a bug -- you'd be stopping drunk driving. Moreover, it's exactly the same feature/bug problem you'd run into by raising alcohol taxes in general, or any time you were trying to use tax policy to disincentivize an undesirable behavior.

In some ways this reflects an approach of "liberal paternalism" as advocated by Richard Thaler and Cass Sunstein in their book - "Nudge".

I think this idea has merit!
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