Ethics@Work: The high toll of taxes

Charging usage fees for yachts would excel in this category; building opera houses from lottery income would get a failing grade.

By ASHER MEIR
Is it fair to collect tolls on a road that was already built with taxpayer money? Gilad Erdan, chairman of the Knesset Economic Committee, doesn't think so. When the Transportation Ministry sought the committee's approval for a proposal to collect tolls on a number of existing public roads, in order to finance road maintenance, Erdan was indignant: "The government is shirking its responsibility." Erdan explained that "it's outrageous and idiotic to demand a toll on a road already paved at taxpayer's expense." Outgoing Finance Ministry Comptroller Yaron Zelicha also expressed opposition, but of a completely different kind. He was concerned about the proposed method of collecting tolls: the collection would be supervised by a private company. "Imposition of a toll amounts to a tax, and it is unthinkable to authorize a private entity to collect taxes from citizens on public property." Zelicha also expressed reservations about the high collection expenses, which are estimated at close to 30 percent of the revenue. (Collecting tolls, a nickel-and-dime procedure, is always very expensive. Collection expenses for regular taxes are generally no more than a third of that amount.) But the Transportation Ministry is not ready to back down. They explain that there is simply no other way to finance the maintenance of these roads, which would have a low priority based on the existing road maintenance budget. They even point to a letter from a number of Negev mayors who support the proposal, despite the fact that their citizens would bear the expense. Evidently their main concern is that there should be high-quality roads to their cities. So who is right? Is this a fair tax, or not? Taxes are often evaluated on the basis of two criteria. The equity criterion asks if the tax falls on those able to pay, and falls equitably on those who benefit from whatever the tax finances. Charging usage fees for yachts would excel in this category; building opera houses from lottery income would get a failing grade. The efficiency criterion asks if the tax minimizes any negative impact on economic activity. High taxes on personal income have been shown to reduce work activity; so while high taxes on high earners may be equitable, the very high personal tax rates of a generation ago have been abandoned almost everywhere as inefficient. How does the proposed toll add up? All usage fees are equitable in the sense that they fall only on those who benefit from the service; but there is still an equity problem because these tolls are not imposed equitably. Travelers from Jerusalem to Tel Aviv will still travel free, but those who drive to Kiryat Gat will have to pay. Most road maintenance is financed by the taxes on auto purchases (among the highest in the world) and taxes on gas (around 100% according to newspaper reports); only drivers on the designated stretches will have to pay a toll as well. What about efficiency? Tolls have a unique advantage and a unique disadvantage in this category. Their unique advantage is that they discourage an economic activity that we would like to discourage. The economy can never have too many hours of work, but it can have too many cars on the highway, leading to millions of lost hours and untold pollution due to backups. So if the result of the tax is that fewer people drive, that's good. The unique disadvantage is the one pointed out by Zelicha: tolls are very expensive to collect, much more so than income or sales taxes which are paid in large concentrated amounts or deducted automatically at very little cost. An opposite consideration is that lots of little taxes generally cause less mischief than a few large ones, so a toll is a good addition to the basket of taxes. In principle, collecting tolls on public roads is a useful contribution to the existing sources of financing for much-needed road maintenance. But there need to be equitable criteria for which roads demand payment, to avoid a situation where some drivers get road maintenance "free" (from existing taxes), while others have to make a burdensome additional payment. ethics-at-work@best.org The author is research director at the Business Ethics Center of Jerusalem (www.best.org), an independent institute in the Jerusalem College of Technology