Introduce `Green' Tax
Tax on pollution creates revenue, discourages waste
NOW that the ``T-word'' is out of the bag and President Bush has changed his mind on taxes, we should explore creative alternatives for bringing down the deficit. Such alternatives include: a new group of user-fees and ``sin'' taxes providing government with a major stream of new revenues, without hiking income taxes (in fact, reducing them) and helping to avoid a recession. It also includes levying fees on polluters. Pollution levies, or ``green taxes,'' as they are called in Europe, are approved by governments and most businesses. The Paris-based Organization for Economic Cooperation and Development (OECD) which represents the world's 24 major industrial nations, recently surveyed the 85 different kinds of ``green'' fees on polluting on the books in Europe. These taxes both speed cleanups and increase revenues.Skip to next paragraph
Subscribe Today to the Monitor
These ``green'' fees range from deposits on returnables to car exhaust taxes and on such as carbon, sulfur dioxide, and depletion taxes. The Economist applauded all these measures as good economics and urged passage of them: ``The environment could be a way to cut public spending and to generate a whole new source of revenue.''
While governments in Europe are now seeing ``green'' fees as a major source of new revenue, business executives see them as much more palatable than bureaucracies and regulations. Most economists approve of ``green'' levies, since they provide correct price signals and improve markets' functioning. Some go so far as offering more dubious proposals to institutionalize the right to ``trade'' such pollution licenses in the marketplace, a decade-old practice now a feature of the Clear Air Act working its way through Congress. While markets cannot achieve the whole job, there are many cases when they can be effective - if fees for polluters are set high enough.
Economists like ``green'' charges: They help pay for the costs of pollution. Polluters are now ``free riders'' - passing on the costs of their activities to others. At last, after much resistance, this principle is being applied in many countries, including the US. Now is the time to fully extended it in our tax system.
Greening our tax code would also correct our national accounts: the Gross National Product, for example. GNP figures include the costs of cleaning up pollution and repairing damage and adds them into our accounts - instead of subtracting these costs to give a ``net'' GNP, as in Japan. For example, the cost of the cleanup of the Valdez oil spill was added to the GNP of Alaska, making 1989 look like a bumper year! Such costs should not only be subtracted from GNP, but the bills should go to the polluters. One doesn't have to be an economist to understand this. Polluting products would include costs of disposal and recycling. New markets for cleaner recyclable products would be able to compete more fairly. The ``Green Market,'' says Business Week, will grow in the 1990s from $56 billion last year to $174 billion by 1995 - creating new jobs.
Lastly, a ``green'' tax code, should include four environmentally-costly activities: pollution, waste, depletion of non-renewable resources, and deliberately-planned obsolescence. (An example: disposables, or hosiery that runs on the first wearing). The need to protect low-incomes is vital and is addressed in such countries as Germany by reducing taxes on personal incomes proportionately as the ``green'' fees are raised. This shifts the burden from low-income individuals to those activities which pollute and deplete the earth - while remaining ``revenue-neutral'' overall. Americans already approve of the fairness of ``sin'' taxes (tobacco, alcohol) to pay for their effects.
Most companies that pollute see the writing on the wall. Consumers and employees of such companies are bringing law suits for damages, and companies are being found liable for a wide range of new claims. Another benefit of ``green'' charges involve the less-polluting, substitute products and services already available. Their prices would also fall, since most are offered by small, fast-growing companies that don't have the market power to ``fix'' prices. In many cases, such low-polluting alternatives are already cheaper: cloth diaper services, or non-polluting detergents. In addition, many of the most-polluting products are out of reach to consumers: stretch limousines, luxury campers, motor boats. ``Green'' levies should be highest on luxury items.
Workers can be re-deployed and re-trained as companies shift to less environmentally-damaging operations. There is no substitute for spending new ``green'' revenues on re-training. Military-contracting is a ``sunset industry.'' The US economy is still too wasteful to compete: For example, we still use two and a half times as much energy to produce a unit of GNP as the Japanese. While they recycle over 50 percent of their ``waste,'' we throw away 90 percent of ours. The sooner we get on with tightening up, the more competitive we will be in the world. Let's begin by ``greening'' our tax code.