Cost and Choice: An Inquiry in Economic Theory

The predictive science of economics postulates that men behave “economically.” They act so as to minimize “cost” in some objectively identifiable sense. By a curious inversion, economists have applied the postulate of behavior that has proved helpful in deriving positive predictions as a
norm in a theory of choice. Throughout applied economics, the theory of economic policy, or welfare economics, we find norms that are defined in terms of specified relationships between “costs” and “prices,” relationships that embody conceptually measurable objective magnitudes. In effect, though perhaps inadvertently, the applied economist and the welfare theorist alike accept the behavior of
Homo economicus as a value criterion. In their zeal to apply economic theory not to an analysis of institutional interactions but to real choice, they indirectly propose that decision-takers, singly or in the aggregate,
should minimize objectively measurable outlays. This error is fundamental, and it extends from the estimation of national income to the economics of defense.
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Only a few of the many applications can be discussed in detail here, but these will perhaps be sufficient to indicate the importance of the methodological distinctions that I have emphasized. Somewhat arbitrarily I shall limit my discussion to three separate areas. In this chapter, I shall examine the various problems that arise when the concept of “cost” is applied to public or collective goods. A discussion of some of the difficulties in Pigovian welfare economics and in nonmarket decision-making follows this.

The Theory of Tax Incidence

The theory of tax incidence commands a lion’s share of attention in neoclassical public finance, especially among English-language scholars. A cursory examination of this literature suggests that the aim is to answer the questions: Who pays for public goods and services? Who bears the final burden of payment under specified tax instruments? How does the allocation of “cost” or “burden” differ under different taxes?

The two words “cost” and “burden” seem to be used almost interchangeably. The presumed objectivity of these magnitudes has more or less been taken for granted. The revenues collected by the treasury can, after all, be counted. Someone must be subjected to this “cost”; someone must release command over purchasing power which represents, in its turn, real resources. Certain taxes generate “excess burdens” over and above the actual revenue collections, but these, too, are objectively quantifiable, at least conceptually. There has been little or no attention paid to the possible relationship between taxes as the costs of public goods and taxes in choices for public goods.

Shifting and incidence analysis examines the choice behavior of individuals and firms, but this is not the choice behavior that involves either the financing of public goods or the selection among taxing alternatives. The individual or firm is assumed to be subjected to an imposed change in the alternatives of
private or
market choice. Here, taxes can affect cost in a choice-influencing context, and, indeed, incidence theory would be empty if this were not the case. Consider the familiar benchmark, the lump-sum tax. No shifting takes place here; incidence is not in question. But surely there is a “cost” of public goods borne by individuals, and “choice” must be made. Contrast this with an excise tax, say, on liquor. Here the tax, if shifted by the seller, modifies the alternatives that the prospective buyer confronts, because the “cost” of buying liquor increases. It is here that the predictive or positive theory is at its strongest. Since both the object of consumption and the numeraire can be readily identified as “goods” in the individual’s utility function and since, before the tax, the individual’s rates of purchase for all “goods” could be assumed to be in equilibrium, the objectively measurable increase in cost, as reflected in the tax-induced price rise, can be seen as representative of the increase in subjective cost that actually inhibits consumer choice for the taxed commodity. It is erroneous, however, to relate the tax-induced increase in a consumption-goods price—hence, in its “cost” to the buyer—with the wholly different “cost” of the public good which the tax revenues somehow represent. This leads us back to the initial questions. As traditionally developed, does incidence theory really aim at locating the cost of public goods? Orthodox tax-shifting and incidence analysis is concerned almost exclusively with tax-induced changes in the costs of undertaking
private activities of production, investment, and consumption and with predictions of the effects of such changes on behavior.

If the analysis yields no information about the costs of public goods, what value does it have for anyone? If the economist can with confidence trace the full effects of a tax, he is able, presumably, to array this tax against others on some postulated scale of equity or efficiency. In this task, he conceives his role as that of advising the decision-maker, hence indirectly influencing the choice that is made among tax instruments. This seems straightforward enough until the sometimes weird results of presuming the objective measurability of cost are recognized. In assessing the consequences—or predicted consequences—of a tax levy, is the economist seeking to determine the measurable changes in the values of empirically descriptive variables such as prices, quantities, and employment levels? Or is he seeking to determine the individuals’ evaluations of these changes?

Consider a simple example. Suppose that the pre-tax price of liquor is $10 per bottle and that an individual is observed to purchase 10 bottles per year for a total outlay of $100. A specific excise tax of $1 is imposed; the retail price is observed to rise by the full amount of the tax to $11; and the individual’s annual rate of purchase falls to 9 bottles, for an annual outlay of $99. Assuming a linear demand curve over the relevant range, the economist says that the “burden” of the tax is computed at $9.50, with $9 being channeled through to the treasury and 50¢ being an “excess burden.” On familiar grounds, the individual is simply assumed to “prefer” a lump-sum tax that would require him to pay only $9. On “welfare” principles, therefore, the economist suggests the desirability of the lump-sum tax as a substitute for the excise tax.
*51 To reach this conclusion, the economist must assume that the taxpayer is exclusively interested in the post-tax changes in his position and that he is indifferent among tax instruments otherwise. But there are obviously many reasons why the taxpayer may not evaluate alternative tax instruments in the same way that the applied welfare economist evaluates them. The taxpayer might, in the first place, prefer to suffer the higher measurable cost imposed by the excise tax because of the wider range of personal options that this form of tax allows. This option feature may well outweigh the excess burden. In the second place, the taxpayer may prefer the excise tax on liquor for sumptuary reasons even though he knows that he, too, bears an excess burden. The tax-induced reduction in liquor purchases by others may be more than enough to modify the relative standing of this tax on his preference scale.
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Even if the applied economist is uninterested in the evaluations of taxpayers in any sense relevant to their possible participation in fiscal choice and relies instead on an externally derived “social welfare function” in establishing his array of tax instruments, the difficulties raised above do not disappear. He would be hard put to defend the objectively measurable “cost” emerging from the orthodox tax-shifting analysis as a criterion for arraying tax devices if such a “cost” did not in some way relate to individuals’ own reactions and evaluations.

Costs and Fiscal Decision-Making: The Democratic Model

What are the “costs” of public goods in the genuine opportunity-cost, or
choice-influencing, sense? This question itself ties costs directly to choice and immediately requires some identification of the choosing agent. The connection between the political decision structure and public finance cannot be avoided. Traditional incidence theory is presumed useful in providing bases for better informed choices of tax instruments. But it is not possible to discuss these choices without identifying the choice-maker. Who decides? The answer depends on the way in which political decisions get made. This is obvious enough, but what is so often overlooked is that “costs” vary significantly over the many different decision structures.

Let us consider first a simplified collective-decision model, which we can associate with de Viti de Marco. Here the individual who makes the fiscal decision is both the prospective consumer-beneficiary of public goods and the prospective taxpayer. This model has been variously called “individualistic,” “cooperative,” and “democratic” by different scholars. The great advantage of this model is that the choice within it closely resembles that made by the individual in his market behavior. He chooses to tax himself in order to secure the benefits of the public good. What does the individual forego in making a choice? In making a choice, the individual foregoes the possibility of avoiding the actual tax outlay; and consequently he foregoes the enjoyment of those goods which might have been purchased with this predicted outlay. The subjective value placed on these alternative goods is a relevant
choice-influencing cost. This much seems apparent, but is there any reason for thinking that the money outlay, even if this could be accurately predicted, reflects the subjective barrier to the individual’s decision?

As our earlier analysis indicated, for this anticipated outlay to measure, even indirectly, the subjective cost, it must be assumed that no profit opportunities exist elsewhere in the economy,
including the public sector. But there is an additional complication that must also be recognized, one that was mentioned earlier but not discussed in detail. Collective goods are not purchased individually. Each person cannot adjust his own desired purchases; all must accept the
same outcome. At best, the tax side of a fiscal decision is a vector, the components of which represent the levies on
each member of the group. Consider, then, the decision calculus of the person who participates in such “democratic” fiscal choice. He “votes for” an outlay on a public good that is to be shared by all members of the community. What are the costs that will influence this choice? What are the genuinely foregone alternatives that he rejects? By not approving the proposed budgetary outlay, the individual’s own tax outlay can be avoided, and, under the rigidly restrictive assumptions about the absence of profits elsewhere, this anticipated outlay can be taken to reflect indirectly at least one part of cost. In rejecting the budgetary proposal, however, the individual also avoids, or chooses to avoid, all other consequences of the collective decision. On the cost side, these anticipated consequences are the tax payments made by
others than the particular individual whose choice we are examining. If he positively evaluates the foregone enjoyments that others might purchase with these outlays, some cost element emerges. Choice-influencing cost as an obstacle to the individual’s approval of a public-goods decision can be measured by his own expected share in the tax payments only in the extreme case where he places no value at all on the relief of others from “suffering.”

If this applies for one participant in a group choice, it must apply to all. Hence, the total tax payment that is anticipated, measured in money terms, may be a grossly inaccurate estimate of the “social” cost of the budgetary outlay that is considered. The choice-influencing cost to each participant, and hence to all participants in some additive sense, may far exceed the estimate produced by the simple summation of individual shares.

This does not imply that the group-decision aspects are limited to the cost side. For precisely the same reasons, the individual will reckon the prospective benefits from a proposed public-goods outlay to include not only those that he expects to secure privately and individually, but also the value that he places on the anticipated benefits flows to others as their share in the commonly consumed good. Just as with the cost side, any measure of anticipated benefits derived from a simple summation of separate shares is likely to be grossly in error.

A recognition of these points suggests the limited relevance of modern cost-benefit analysis, which seems aimed at providing some measures of genuine “social” costs and benefits from proposed projects. The assumption that anticipated costs, as measured, will equal anticipated benefits, as measured, implies that the group should somehow be on a margin of indifference in its collective or “social” choice for or against the project. As we have demonstrated, however, there is not the remotest reason for making any such inference, even apart from the important distributional issues that have not yet been raised at all. If the proposed tax should be levied equally on all persons and the proposed benefits shared equally, there would still be no presumption that a measured cost-benefit ratio of unity should imply indifference in group-choice.

Costs and Decision-Making: The Authoritarian Model

Choice-influencing costs of public goods differ with the location of effective decision-making power in the collectivity. Even in the most naive of democratic models in which the decision-maker is assumed to be both the prospective taxpayer and the prospective beneficiary in some “representative” sense, genuine opportunity costs must include the individual’s evaluation of enjoyments foregone by others. The fact of
collective decision requires this. It is clear that when more complex models of decision-making are introduced, this nonpersonal aspect of costs becomes more significant. To illustrate this, we may shift attention to the nondemocratic extreme of the spectrum and examine an authoritarian decision-structure.

Assume that all decisions for the collectivity are made by a single person who has dictatorial powers. Limiting analysis to public finance, what are the choice-influencing costs in such a setting? What are the obstacles to the dictator’s decision on the levy of a tax to finance a specific governmental outlay? In the limit, he will not personally bear any share of the prospective tax to be imposed. The “costs” that might be avoided by a decision not to impose the tax are, therefore, exclusively represented in the dictator’s evaluation of the enjoyments which others than himself might secure in the absence of the tax. In such a decision context as this, it seems almost meaningless to use anticipated outlay or payment as an indirect representation of that cost which influences choice. As mentioned above, cost-benefit analysis may produce wildly inaccurate estimates even in the most unsophisticated of democratic models, because the collective aspects of both costs and benefits are ignored. The results of such analysis are not, however, without some relevance. By contrast, cost-benefit analysis of the orthodox variety when applied to the authoritarian model becomes absurd since
no part of the anticipated outlay, as measured, is expected to be borne by the man who makes the choice.

Costs and Decision-Making: Mixed Models

In any real-world political setting, collective decisions are made through institutional processes that usually reflect some mixture of the purely democratic and the purely authoritarian models. Most individuals participate, directly or indirectly, in the formation of group decisions, but some persons participate more fully than others. That is to say, the effectiveness with which particular individuals and groups influence decision-making is widely variable. In such a setting, the costs that influence the choice calculus of an individual participant depend, first, on his own personalized or individualized share in an anticipated payment or outlay and his evaluation of this outlay in terms of his own foregone enjoyments. In addition, he must evaluate the enjoyments that he thinks others must forego as they are subjected to the taxing process. Only if each participant in the group-decision process should evaluate the foregone enjoyments of all others as equally important with his own would the
distribution of the anticipated tax payments make no difference in the “costs,” as these influence or modify decisions. If
each individual, no matter what his power over collective decisions, should subjectively value the prospective tax dollar paid by
each other person equally with his own, then
neither the distribution of decision-making power
nor the distribution of tax shares would modify the costs which are the obstacles to choice. In such a limiting case, orthodox cost-benefit measurements might be reasonably accurate representations of choice-influencing costs and benefits. Merely the requirements of such a model are sufficient to indicate its manifest absurdity.
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Defenders of cost-benefit estimation may respond here by stating that collective decisions, however and by whomever made,
should be guided by the project comparisons that the estimates reveal. The purpose of cost-benefit analysis, this argument suggests, is not that of ascertaining genuine opportunity costs in a choice-influencing context, but rather that of laying down rules for choice. But why should objectively measurable costs be taken to reflect “social cost” under any reasonable meaning of this term? The evaluations of individuals should be relevant in any attempt to derive normative statements, but these evaluations bear little direct relationship to measured outlays for the several reasons noted, the most important of which are, of course, distributional.

At this point, the defender of cost-benefit orthodoxy may reject the implied limitation of his estimation procedure to objectively measurable cost and benefit streams. He may suggest including in predicted costs and benefits some estimates for subjectively valued, but objectively immeasurable, characteristics of alternatives. With this step, however, the whole analysis is subtly converted from one that can claim potential agreement among competent scientists to one that is purely subjective, not to the actual decision-makers, but to the economist who offers his normative advice. The cost-benefit expert cannot have it both ways. He cannot claim “scientific” precision for his estimates unless he restricts himself rigidly to objectively observable magnitudes. But if he does this, he cannot claim that his estimates reflect reasonable norms upon which “social” choices should be based.

The Choice Among Projects

To this point, attention has been limited to the cost side of a possible decision to impose a tax for the purpose of financing a specific government project. This particular choice involves a cost, but one that is quite different from that which arises when different choices are considered. One of these is the selection of one from among many public projects. Here the choice-influencing cost will be quite different from that involved in the decision to impose the tax. To each particular decision there is attached a unique opportunity cost and this depends on the particular characteristics of the decision.

Economists have often noted that the genuine opportunity costs of projects undertaken during periods of massive unemployment are nonexistent. Care must be taken, however, to specify the precise meaning of this conclusion and to examine the particulars of the decision in question. First, consider the decision as to whether or not to issue new currency to finance any new spending, public or private, during a period of deep depression. The alternatives are, first, those of doing nothing about the deficiency in aggregate demand and, second, financing new spending from taxation or public loans. Since, by assumption, unemployed resources are available, the issue of currency promises to generate no inflationary pressures. To the decision-maker who is properly informed, there are no “real costs,” in the sense of enjoyments to be foregone either by himself or others. Since either of the alternative courses of action, even if the identical benefits stream is promised, will impose such real costs, he will tend to choose currency issue. For this choice, it is correct to say that there is, or should be, no cost obstacle. If, however, despite the presence of unemployed resources, taxation is selected as the financing device, the choice here necessarily involves a cost. The alternative uses to which money paid out in taxes might be put are foregone by the decision-maker and others once taxation is decided upon; and these foregone alternatives must be evaluated at the time of choice. The existence of unemployment may cause even these choice-influencing costs to be low relative to the choice-influencing benefits of the new spending, but there is no denying that “real costs” exist.

The financing choice, that which is involved in a potential decision to issue currency or to finance new spending through other means, must be sharply distinguished from the spending choice, which arises when a selection among projects must be made. There is, first, the choice between using the funds to expand private-sector or public-sector spending. The choice of a public-sector project involves an opportunity cost that is represented in the anticipated foregone enjoyments from the possible expansions in private-sector spending that might be generated by the same funds. Once the option has been made for a public-sector project, still another choice must be confronted, and this also involves a choice-influencing cost, an obstacle to decision. Once currency has been issued, and the decision has been made to expand public-sector spending, the choice among separate public employments of the funds must be faced. The choice-influencing cost of the new post office building is the subjective value that the decision-maker places on the new school building that might be constructed instead. The familiar statement, “The post offices built during the 1930’s cost very little in terms of sacrificed alternatives” tends to be misleading. These projects did involve genuine opportunity costs to the decision-makers, and these were represented as the prospective values of other public and private projects that were never undertaken. The issue of currency, to the extent that this was carried out in the conditions of the 1930’s, was the choice that should have cost very little in terms of sacrificed alternatives.

The Costs of Debt-Financed Public Goods

Nowhere has the elemental confusion in cost theory been more in evidence than in the sometimes acrimonious discussion of public-debt incidence. Indeed, it was precisely through my own involvement in the modern debt-burden controversy and my subsequent attempt to reconcile my notions with those of respected fellow economists that my attention was directed to cost theory.
*54 The debt-burden problem illustrates the necessity of distinguishing between choice-influencing and choice-influenced cost on the one hand, and the necessity of relating cost directly to choice on the other.

Consider, first, the view that was very widely held by sophisticated economists prior to 1958. It was alleged that the “real burden” of debt-financed public goods, the genuine opportunity costs, must be experienced during the time period when the real resources were actually used. In the case of the debts of World War II, the steel was used to make guns in 1943 and not in some later period. It seemed manifest nonsense, a violation of the most elementary opportunity-cost reasoning, to claim that public-debt burden was “shifted to future generations.”

As difficult as it may seem in 1969 to hold such a view (despite its continued espousal in nonsophisticated textbook discussion), orthodox opportunity-cost reasoning, which measures real costs in terms of real resources objectively quantified and which concentrates on costs
independently of the particulars of decision, leads quite logically to this conception.
Who gives up command over the real resources that are secured for public use under debt financing? The obvious answer is those who purchase the debt instruments from the treasury. These bond purchasers are not at all concerned about the decision to issue debt; their choice is simply whether to purchase debt or to purchase privately available investment or consumption goods. These bond purchasers surely do not participate in the fiscal choice as such. They cannot be said to bear the “cost” of the public goods that the debt issue finances. To locate the genuine cost of public goods, a cost which influences fiscal choice, we must look at the fiscal alternatives. What is avoided if debt is not issued and the public goods not provided?

If public debt is not created, if bonds are not marketed, the decision-maker, along with others in the collectivity, avoids the necessity of servicing and amortizing the debt in
future periods. The costs of debt issue, in the way that they may influence a decision among fiscal alternatives, must be reflected in the decision-maker’s subjective evaluation of these subsequent outlays. In the choice-influencing sense, these costs are concentrated in the moment of choice and not in the later periods during which the actual outlays must be made. But the choice-influencing, subjective costs exist only because of the decision-maker’s recognition that it will be necessary to make future-period outlays. The concentration of choice-influencing cost in the moment of decision arises from the simple fact that a decision is made; this cost has no relationship whatsoever to and is not influenced by the fact that resources are used up in the initial period.

The choice-influenced costs of debt-financed projects, the losses in utility as a result of choice, are borne exclusively in periods subsequent to decision. These actual payments, which may also be measured in money, may reduce the utilities of others than those who participate in the decision. In one sense, this burden of debt is always deadweight, and its location in time has no relationship whatever to the time period during which the public projects yield their benefits.

Some of the contributors to the modern discussion of public-debt theory have acknowledged that, by comparison with tax-financing, debt issue does impose a relative “burden on future generations.” They reach this conclusion, however, because debt-financing is alleged to reduce private capital formation to a relatively greater degree than tax-financing. Hence, “future generations” inherit a somewhat smaller capital stock under current public-debt financing than they would under current tax-financing for similar public outlays. This line of argument, which can be associated with Vickrey and Modigliani,
*55 is also based on the failure to relate cost to choice. Whether or not private capital formation is or is not relatively reduced by debt-financing is irrelevant to the location of debt burden in periods subsequent to choice. Even should all funds for the purchase of bonds be drawn from current consumption, the subjective costs of debt issue still consist in the decision-maker’s evaluation of the enjoyments that must be foregone, by himself and by others, in future periods when the outlays for servicing and amortization must be made. The decision of a prospective
bond purchaser is, of course, relevant to the rate of private capital formation, but this is not the same decision as that of the prospective
bond seller. If the bond purchaser draws down private investment, he does impose a “burden” on his heirs in future periods, and the recognition of this will be the obstacle to his choice. If he draws down current consumption, no such burden is imposed. But the point to be emphasized here is that his choice is quite a separate and different one from that made by the debt issuer. The emphasis on the capital-formation aspects of public debt seems to arise from a confusion of the results of not one, but two decisions, and the calculus of not one, but two sets of decision-makers.

Ricardo’s Equivalence Theorem

Ricardo advanced the theorem that a rational person should be indifferent between the levy of an extraordinary tax and the issue of a public loan of equal value. In his model, he assumed that the individual held an infinitely long time horizon and that capital markets were perfect in the sense that the individual could borrow at the same rate as the collectivity. Under such conditions, the individual could without cost transform one of these two fiscal alternatives into the other via transactions in the capital market. It follows that he should be indifferent between them.

As such, the analysis is elementary and obvious. But a similar analysis could be extended to any act of individual choice. If, for example, the individual is informed that he may always exchange one orange for one apple through the market, he will be indifferent between a gift of an orange and an apple because of the possibility of costless transformation. This does not imply, however, that one orange will be equal to one apple in the individual’s subjective evaluation. The latter equality emerges only if the individual is allowed to adjust quantities bought and sold to a point where behavioral equilibrium is fully attained. In isolated, nonequilibrium situations, no such subjective-valuation equality may be presumed. Hence, as applied to the public-loan-taxation alternatives, the individual remains indifferent because he can make the costless transformation, not because the two alternatives are of equal value in his subjective consideration of them.

The recognition of this simple point suggests that the conversion of the public-loan alternative to a present-value equivalent may not accurately measure, or represent, the genuine choice-influencing cost that the debt issue embodies. If the individual is observed to opt for the public-debt alternative, it is an indication that its cost is
below that of the tax alternative, which is defined to be equal to the present value of future debt-service and amortization charges. It cannot be inferred that the choice of the individual is marginal. The choice-influencing opportunity costs, the subjective evaluation of the sacrifice of future-period enjoyments, may be substantially below the figure represented by the current capitalized value of the necessary payment obligations. Only if it is presumed that the individual has fully adjusted his spending-saving patterns so as to bring his own rate of time discount into equality with the market rate, can it be alleged that the individual should be on a subjective margin of indifference between the two fiscal instruments. Indeed, it is precisely the differences among the subjective valuations of equal present-value instruments with differing time dimensions that causes the individual to behave so as to move toward full equilibrium. From a methodological point of view, it is surely illegitimate to derive implications for choice among equal present-value instruments, assets or liabilities, from the characteristics of the equilibrium toward which such choice behavior aims.

Tax Capitalization

The Ricardian theorem is related to a separate fiscal-theory application that consistent cost theory may clarify. What, precisely, do fiscal theorists mean when they say that a tax may be fully capitalized under certain conditions? The arithmetic is straightforward: the present value of the asset subjected to a newly imposed tax is written down to reflect the weight of expected future taxes as charges against income. A purchaser of the asset, after the moment of capitalization, will not bear any part of the tax burden; this will rest exclusively on the owner of the asset at the time of imposition.

There is nothing wrong in this summary statement of the orthodox analysis provided that the conditions where capitalization can occur are carefully specified. The presumption is often made, however, that the “burden” of the tax is experienced, subjectively,
only in the period when the asset’s capital value is written down and that no further sacrifice of utility is involved. This is based on elementary confusion. The moment of capitalization corresponds to the moment of choice in our earlier discussion of cost, and it may clarify the analysis to think of an asset owner’s making a choice which involves giving up, either in taxation or in some other form, a claim to a part of the asset’s future income stream. There will be a choice-influencing opportunity cost here, a purely subjective evaluation of the alternatives that must be foregone by the fact of the abandonment of future-period claims to income. However, just as with debt issue, this subjective cost arises only because of the expectation that, in future periods, some payment must be made from income, that some potential enjoyment from the use of income must be foregone. Once the choice is made and the tax or other claim against the asset’s income is imposed, consequences follow, and these include the contracted necessity of making the required payments. These become the
choice-influenced costs of the decision taken earlier, and these can be measured objectively as well as evaluated subjectively. The owner of the asset experiences utility losses in such later periods. These cannot be eliminated by the process of capitalization since, in fact, the anticipation of these future-period utility losses is the only basis for the subjective costs experienced at the moment of choice or of capitalization.

There has been here some confusion between the transfer of burden among asset owners and the temporal location of this burden. Capitalization concentrates the tax burden on the owner of an asset at the moment of the initial levy. But “at the moment” refers to the ownership pattern, not to the tax burden. Even if the owner should sell the asset immediately after full capitalization, he will still experience the choice-influenced costs in subsequent time periods.

In tax capitalization, as in ordinary economic choice, there are two costs, not one, and it is necessary to keep these distinct. Fully analogous to the choice-influencing cost of any decision, there is the purely subjective realization that future income streams are reduced. This is experienced in the sensation of evaluating the future enjoyment of opportunities that have suddenly been foreclosed. Analogous to choice-influenced cost, there is the experienced utility loss that was anticipated and which has its objective equivalent in the payment obligations made. The asset owner cannot, therefore, fully capitalize future tax payments in the sense of suffering all real burden at the moment of imposition under any conditions. There is nothing at all contradictory in this conclusion once the duality of cost in any choice is fully recognized. An anticipated cost is not and cannot be a substitute for a realized burden, nor can these two be dimensionally equivalent. “The coward dies a thousand deaths” before he dies.