BEWARE THE TAX WEDGIE.

At a social gathering the other evening, I ran into someone who says he doesn’t use Uber as a matter of principle. Why? Because Uber doesn’t pay taxes. Which of course means its customers don’t pay its taxes, since businesses don’t actually pay taxes but instead, in a competitive environment, pass them along.

You get this kind of thing a lot when professors gather socially. I know of another prof who, despite living near the border, won’t buy gas in the U. S., also on principle, this time that American gas is less taxed than Canadian gas and she shouldn’t try to avoid paying for the social services she quite happily consumes.

Such self- denying high- mindedness is admirable in a way. But I’m with another professor friend who responded to the comment about Uber and taxes with “Oh, but the price!”

Uber prices aren’t below regular taxi prices solely because of tax “slipperiness” (a polite term for Uber’s circumventions). In many of the agreements Uber is making with local governments there is now full provision for payment of sales taxes. And drivers have always been liable for income taxes. Uber’s other main price advantage comes from breaking the cartels that taxi operators and the commissions that regulate them have connived in.

But it’s true: the prices are great and the service is better — as it always is when suppliers have to compete for consumers’ business.

With cheap cabs available in large numbers at the click of an app, lots of people are using taxis much more than they used to. Members of my family, younger ones, even use them to have fast food delivered. If I wanted to make a collectivist argument in favour of increased taxi use, I’d mention the reduced incentive to own a car and the more efficient use of the existing stock of cars, both of which likely have helpful environmental effects. But I prefer the old- fashioned individualistic argument that paying less allows you to consume more. The great success of Uber is proof that, as we economists would put it, the demand curve for taxi services slopes downward, meaning in ordinary English that demand grows as price falls.

Just how much demand grows is a measure of the harm the old high- tax, tight- regulation, restricted-entry taxi regimes cost us. For economists, the tax itself is only part of the cost of taxation, and not always the greater part. The tax transfers resources from you to the government, which hurts. But there’s also destroyed enjoyment from things you end up not buying, including more taxi rides, because of the spike in their price from taxation and restricted entry.

Last week Stat-Can published a short history of milk and cheese consumption in Canada over the last few decades. This is part of a series of special studies honouring Canada’s 150th birthday. Yes, that’s right: celebratory milk data (we all pay homage in our own way). The study shows that milk production peaked in 1966 and has been basically flat ever since. In 1966, as a famous 100th birthday song proclaimed, we were 20 million. Now we’re 35 million. And we’re still producing, and so consuming, the same amount of milk.

No doubt there are many reasons why milk production and consumption have been stagnant. Do you suppose high regulated prices might be one? High dairy prices create a cash transfer from consumers of milk and cheese to producers, and for most of us that’s really annoying: who likes to have their income hijacked? But high prices also prevent us from consuming more milk and cheese, maybe lots more milk and cheese, and that’s the real economic cost of supply management.

Last week the OECD published its annual report, Taxing Wages, together with an interactive chart that lets you survey the “tax wedge” indicator of your choice.

The tax wedge is the difference between a worker’s gross and net wage. For childless single people making their country’s average wage, the tax wedge is 54 per cent in Belgium. It’s a wonder anyone is employed in Belgium. The OECD’s average tax wedge is 36 per cent. In Canada, it’s only 31.4 per cent, which is actually a little lower than in the U. S., where it’s 31.7 per cent.

Having a tax wedge lower than the OECD average might seem reassuring. It shouldn’t be. Tax wedges create even greater discomfort than the ordinary wedgies we used to give each other in high school. (If you don’t know what I’m talking about, Wikipedia will tell you. Google Books finds the first use of “wedgie” in 1924.)

Just ask yourself: If labour were to cost 31.4 per cent less, how much more of it would I employ? All those people who think Uber’s uber- rapid growth is mainly a result of its not paying taxes provide the answer.

GOVERNMENT MARKUPS STOP US FROM CONSUMING MORE MILK AND CHEESE. ALSO TAXIS AND LABOUR.