Taxes That Work

Tax cuts and tax reform are getting lots of attention as we enter this election year, but a proposal that really makes sense is being heard only on the fringes.

Researchers from the Center for Global Change at the University of Maryland, author Paul Hawken, and many others have been pointing out that if we are to move towards a more sustainable economy, a change far more profound than any of those being proposed in the mainstream political debate is needed. Taxes, they argue, serve to discourage that which is taxed. Why then, they ask, are we so focused on taxing wages and capital, which are things we should encourage, while we ignore, and often subsidize, wholesale depletion of natural resources?

The existing tax structure makes it cost-effective for companies to use ever bigger and more efficient machines to extract resources (such as wood from forests or ore from the earth), even while laying off workers to cut costs. If, on the other hand, the resource extraction was taxed but labor wasn’t, companies would be inclined to pay workers to derive maximum value from each resource.

A fundamental premise of Hawken’s

The Ecology of Commerce is that we are fighting an uphill battle in trying to regulate away excessive pollution and resource depletion while the financial incentives encourage such activities. A good system of green taxes can help solve the problem by bringing corporate economic incentives into harmony with the environmental imperatives. Ideally, such a system will make many existing regulations superfluous.

Various groups have proposed systems of green taxes to achieve such a goal. As many as 250 specific green tax measures already exist at the state level and are helping to reduce pollution and encourage efficient use of resources without added regulation. To gain the full benefit of such systems for both the economy and the environment, however, a more comprehensive approach is needed that will significantly reduce income taxes while pollution and non-renewable resource taxes are phased in.

While strong vested interests will oppose such a shift, many powerful companies are lining up in favor. According to the Worldwatch Institute, such a proposal in Germany has created a divide in the industrial sector, with companies that encourage efficiency and renewable resource use supporting the idea, and those dependent on non-renewable resource consumption opposing it. The U.S. Green Building Council, meanwhile, is developing its own proposal for green taxes. With the existing tax structure under siege, the time for a green tax revolt may be right!

– Nadav Malin