Gun Violence is Expensive, So Internalize the Costs

Over the weekend, I estimated the economic costs of (only) the deaths attributed to gun related violence in the United States up to Friday. Now we should figure out what to do with that information. In economics, we call these large costs, borne by third parties, externalities. Externalities are those costs and benefits that are involuntarily forced on others who had nothing to do with some original transaction. Externalities, for instance, are common in environmental economics. As you purchase (then burn) fuel, the byproducts released into the atmosphere are an externality imposed on everyone.

Because nobody associated with the transaction bears more than a de minimis amount of the cost associated with an externality, that costs does not factor into the utility estimation made when purchasing a product. That’s one reason why we impose special taxes on things, to force the original parties to a transaction to pay for, or internalize the costs. In other words, we want people to stop and think, “Is it really worth spending this much on this thing when I see the full cost?”

The obviously solution here is to tax something, but the obvious answer isn’t guns, but rather ammunition. Guns are not perishable. They can be reused many times, over many lifetimes. Ammunition cannot, generally. You get one shot per round, as it were. So let’s tax that. The first blush approach to taxation is to impose the full cost of the externality on the entire market. I can’t find the amount of ammunition sold in the United States, but I do know there’s about 12 billion rounds produced each year, worldwide. So let’s just assume these all come to the United States.¹

There’s already, in the United States, an 11 percent tax on ammunition collected by the ATF. That is not much at all, though it is greater than sales tax. Dividing $111 billion by 12 billion leads to an even $9.25 per round.

This is a box of 50 rounds of .32 ACP ammunition.. It’s not particularly interesting but if you don’t know anything about weapons, this would be a round James Bond would use in his Walther PPK. Small, cheap, and common. It’s $16.14 for 50 rounds (you are a member of the Buyer’s Club, right?). With the full externality imposed, that would be 50 times 9.25 plus 16.14 = $478.64 for a box of 50.

As high as this number is, several analytical decisions here push this number down. First, that’s global ammunition production. That goes to other countries and the military. If we only had U.S. civilian sales figures, the estimated tax would be substantially higher. While this isn’t even a good first blush estimate, it does give the scale of the problem.

Of course, this is hardly an original idea.

Image by U.S. Army Environmental Command / Flickr.