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The Dumbest Words I Read A Few Weeks Ago, Dog Tax Edition…

October 6th, 2009 · 7 Comments
Incentives · Policy

I have to admit that I was a bit confused when I saw the headline “Massachusetts RAISES TAXES ON DOGS” on the Drudge Report Twitter feed– my initial thought was “How can Massachusetts raise a tax that as far as I know doesn’t exist in the first place?” Apparently I have a contraband pooch:

(He was hiding from the law, obviously.)

The Boston Herald reports:

State Republicans are howling mad over yet another tax hike being slipped through the Legislature that would slap an annual $3 state surcharge on municipal licensing fees canine owners pay for their pet pooches.

Annual license fees range from $6 a year in Boston for neutered or spayed canines (and $17 for unfixed dogs) to a flat $20 in Plymouth. Angry GOP senators are pushing to name the bill “Toby’s Law,” after Gov. Deval Patrick’s wriggling Labrador puppy.

Ah, so it’s technically a licensing fee rather than a tax. (Whee, semantics.) The article continues:

But state Sen. Pat Jehlen (D-Somerville) argued the fee is necessary to fund a state spay-and-neutering plan meant to snip the state’s out-of-control problem with strays.

(I would argue that the real out-of-control problem is the overuse of bad puns in this article.)

Okay, so let’s discuss some incentives here, both good and bad. On the good side, I like that Boston has a lower fee for spayed or neutered dogs, since an incentive for making it so your dog can’t knock up another dog (or get knocked up) and potentially have the puppies end up in a shelter is a decent thing. Furthermore, having some sort of official dog registry doesn’t seem like a terrible thing, and the fee doesn’t seem to be prohibitively high.

BUT…the higher licensing fee isn’t a total win. For one thing, it’s going to discourage people from registering their dogs. (Before you start with the “but it’s only $3” action, consider that at some point $3 has to tip the scale between consuming and not consuming- otherwise you’re like the frog in the boiling water and end up paying $1,000,000 for a dog license or something equally absurd.) If there are benefits to the cities to having a high percentage of dogs registered, it should push back on the state using the license as a source of revenue, since the city wouldn’t see the extra revenue but it would bear the cost of the reduction in the number of registered dogs. In fact, the cities would see less revenue than before because of the reduction in the number of registered dogs. If the city then had to cut licensing benefits as a result, it would likely see a further reduction in the number of licenses and so on and so on, creating a vicious cycle.

In addition, economists are very careful to point out that there need not be a coincidence between the market that is taxed and what that tax revenue is used for. For example, while it may make sense that cigarette taxes are used to fund anti-smoking programs (you could argue that smokers encourage other people to smoke, which is a “bad” activity), a lot of markets don’t have this sort of match. What *should* alcohol taxes be spent on? Property taxes? See, it’s not always clear. It’s also the case that a lot of taxes just end up in a general pool for spending rather than being earmarked for a particular program or project. (Some project funding is like ground beef in that way- it comes from a lot of different places.)

Economists would argue that if you’re going to tax a market, you should spend the tax revenue on projects that are most needed. Again, these most needed projects may not “match” with the market being taxed, but it’s poltically popular nonetheless to match things up taxation and spending in this way. Unfortunately, sometimes this matching goes awry and even results in perverse incentives. Let’s think about the situation above: Somebody adopts a dog, which means that that dog is taken out of a shelter. This is a good thing, since the dog gets a home and there is now a lower burden on the shelter. This dog surcharge, rather than rewarding the dog adopter for doing a good thing, charges the dog owner instead. The proponents of the surcharge then argue that it’s important to provide for the animals in the shelters (and to spay and neuter them, though if they are in a shelter I would hope that they aren’t getting their groove on even if they could), which is arguably true. But why charge exactly those people who are already doing their part to help? Logically speaking, wouldn’t you want to impose a surcharge on everyone who hasn’t adopted a dog, since they are technically one reason that the shelters are full?

I’m not suggesting that this actually happen, but it would at least be in a more logical direction than what is actually on the table. I can’t tell whether policymakers don’t think enough about the laws that the propose or if they just hope that other people don’t think enough about them.

Tags: Incentives · Policy

7 responses so far ↓

  • 1 Rev. Pfloyd // Oct 6, 2009 at 5:39 pm

    Here in Omaha, it’s $12 per year per cat and $20 per year per dog, both being fixed. Unaltered animals drive this cost up to a whopping $50 per animal per year.

    I own three cats (insert crazy cat man joke here) who stay indoors 24/7 and therefore do not get licensed because, well, I certainly have better things to spend $36 a year on (that’s like 50 economics books from Half-Priced Books, talk about utility!) so you’re right, at some point a “$3 tax hike” does eventually become too much, especially when the fine for non-compliance is $25. To me, with a very low risk of my animals ever getting outside, it seems worth the risk. After all, if I got away with no having my pets licensed for four years (which I have thus far), I have still ultimately saved myself money in the long-run if I do get caught.

    A hot button issue in Omaha today is the prospect of banning pitbulls because of a string of recent attacks. In a lot of cases these animals are not licensed either and, considering the income level of the neighborhoods where these attacks seem to most often occur, I’m sure it’s largely because licensing a dog is to some degree cost-prohibitive to these dog owners (at least insofar as the amount of utility the owner would get from having a license vs. not having one, which is to say probably “zero”). One of the “compromise” proposals to avoid banning the animals is by requiring pitbull owners to own insurance policies for their animals. A lot of people seem to think this is our best idea but you can already see the conflict of incentives in implementing this sort of policy; we’d probably just end up with a lot more unregistered and undocumented pooches.

    That is, of course, unless you up the penalty in such a way that just makes it prohibitive to own the animal in the first place but I’m not sure how effective even THAT would be.

    Any thoughts?

  • 2 josh frank // Oct 6, 2009 at 11:48 pm

    In support of Jodi’s point, the data suggests that dog licensing rates in most communities run about 10 to 20 percent (there are regular surveys of pet ownership/guardianship rates by the AVMA and others, and very roughly half of homes have them, but registration rates give a number many times lower). It is possible to get registration rates up and a few communities have tried it by vigorous animal control enforcement and heavy fines, which may help get spay/neuter rates up, but it also could lead to more animals relinquished to shelters.

  • 3 Ben // Oct 8, 2009 at 5:18 pm

    “In fact, the cities would see less revenue than before because of the reduction in the number of registered dogs.”

    I think you’re missing a rather important assumption about elasticity of demand here. I have a hard time believing it’s that rigid.

  • 4 Rev. Pfloyd // Oct 8, 2009 at 5:24 pm

    I don’t think there is much demand in the “consumer” end for dog registration, that’s kind of like charting the demand curve for taxes. 😉

  • 5 josh frank // Oct 8, 2009 at 6:30 pm

    “demand” for dog registration comes in three forms: 1) people who follow the law just because they always follow the law 2) people who follow the law because they fear the consequences 3) people who follow this law because they believe dog registration is important (a lot of animal advocates, which are a decent sized group fall here). The way I see it, group 2 is elastic, groups 1 & 3 are highly inelastic. (By the way a couple surveys also suggest that some people do not register because they have no idea they are supposed to do so).

    Sidenote: Another factor in dog registration is rabies vaccination. You can’t register without vaccination. If you don’t believe in vaccination, you may not register (I believe rabies vaccination is BS but do it anyway and register). (And if you believe in rabies vaccination, then higher registration fees can also lead to greater risk of the spread of rabies)

  • 6 econgirl // Oct 9, 2009 at 5:06 am

    @ Ben: The statement holds as long as the elasticity of demand is greater than zero. In other words, even if one fewer dog gets registered, the city loses money. This is because the cities don’t (directly) see any of the price increase, since it goes to the state.

    @ Rev. Pfloyd: I think I was under the impression that dog registration confers some benefits to the owner, like perhaps your dog is easier to find if it gets lost or something. Perhaps warm fuzzies because you get to feel like you are doing the “right” thing. I dunno. Regardless of the reason, it is likely that the number of dog registrations goes down as the price increases.

    @ josh: I was in the “didn’t know” category until I started reading about this. Marketing fail, imho.

  • 7 Rev. Pfloyd // Oct 9, 2009 at 8:44 am

    Around here you can pay to microchip your pet (and I believe the Humane Society does it automatically for any animal they have adopted) so if your pet runs away you have that option. Of course, at the same time, I imagine if you didn’t license your pet that year and he ran away and had to be found through such means, you’d have to pay the fine for failing to register them. To me, I’d rather pay the fine and take the risk, especially given my particular situation.

    Of course, I offset any guilt in not handing a government bureaucrat my licensing fee by donating money to the Human Society (and the ASPCA) because, well, I like animals and prefer to give them such money directly instead of through an intermediary. Of course, the convenience of that is that I also don’t feel compelled to give them EXTRA money just because a “pet tax” went up (especially in Omaha where our tax-happy mayor has been putting such wonderful new revenue streams on the table an Entertainment Tax [not helpful to us musicians], more property taxes, and the delightfully hilarious “Satellite Dish Inspection Tax”).

    The long-run price elasticity in this city is getting more and more horizontal. But I’m not bitter, really! 😉

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