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Comment by blueline | Hacker News Reader

taxes aren't a silver bullet. if the affected companies were to just pass the extra cost to consumers (why wouldn't they?), then you effectively have implemented a regressive tax that affects the poorest consumers the most.

clearly there's more to it than that, but assuming that the market can address any negative externalities just with taxes is pretty naive IMO

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I heard of this first with respect to a carbon tax, but one solution is to evenly redistribute the collected tax among all citizens. This way, the market can internalize the externality while keeping the average person no poorer.

You set the price of the tax equal to the mitigation cost. In this way consumers pay to mitigate. If mitigation is coat prohibitive, consumers substitute products that are not harmful.

Edit: W.r.t. regressive taxation... No one has the right to force their externalities on someone else. Just because you are poor doesn't mean you can dump your garbage on my lawn because it's cheaper than paying to haul it to the dump.

That isn't how pigouvian taxes work. The point is adjusts the price so that it correctly includes all external costs not already reflected in the costs. It is not about raising revenue to deal with the problem, but changing relative incentives.

For this reason, if the tax is regressive, its perfectly OK for the revenue to be redistributed in tax breaks to lower income.

Affected Company A passes the 1% cost increase of the tax to the consumer.

Affected Company B changes their packaging, e.g. to recycled paper, to avoid the tax at a 0.1% cost increase and passes it to the consumer.

You tell me what happens next.

Problem is company B increased their costs by 5% to avoid the tax. Plastics are so cheap compared to alternatives that this is a real situation.

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