If we need taxes, why not pollution taxes?
By Brad Plumer,
Let's start with the obvious: Most Democrats (and, for that matter, most of the bipartisan deficit panels that are churning out endless white papers right now) agree that we can't tackle our long-term debt issues through spending cuts alone. Some sort of tax reform that raises revenue will have to get thrown into the ring. So why not do that through a tax on carbon pollution or other assorted environmental unpleasantries? After all, if we have to raise revenue, we may as well slap higher taxes on behavior we'd like to discourage (like pollution and congestion) rather than, say, labor, no?
At least in rarefied think-tank circles, that idea's gaining favor. Four of the six groups that recently sketched out deficit-reduction plans for the Peter G. Peterson Solutions Initiative ended up advocating a new carbon tax as part of their proposals — including, note, the conservative American Enterprise Institute. And here's another reason to consider a shift: According to a new IMF paper with the irresistible title, "Reforming the Tax System to Promote Environmental Objectives: An Application to Mauritius," the United States gets, by far, the lowest percentage of revenue from environmental taxation of any OECD country:
In case that graph's too tiny, America's way over there on the far left, getting slightly less than 3 percent of its revenue from measures to discourage pollution. The average industrialized country gets about 6 percent. That's mainly due to the fact that many European countries put higher levies on gasoline. Still, compared with the rest of the world, we vastly undertax pollution. And changing this doesn't have to cripple the economy: Congress could always do things in a revenue-neutral manner, swapping in higher taxes on greenhouse gases (say) in exchange for lower payroll taxes.
The IMF paper, by the way, notes that there are a whole slew of different tax schemes to try to remedy dirty air, urban congestion, and greenhouse gases. If you want to deal with global warming directly, then a cap-and-trade system or carbon tax that affects the entire economy is your best bet. (This is different from a simple gas tax: Since a carbon tax is spread out evenly among the transportation, industrial and electric sectors, it tends to have a very modest effect on pump prices.)
If governments wanted to address externalities from cars directly (or try to curb oil use), there's the always-unpopular gas tax, sure, but there still are other options. Congestion pricing — charging people who drive during rush hour and take up valuable space — can unclog the roads. Feebates — extra fees on gas-guzzlers combined with rebates for, say, electric cars — can steer people toward more efficient vehicles. Then there's the old Dean Baker favorite, tax incentives to promote pay-as-you-drive insurance, in which your insurance premiums are set based on how many miles you travel in a year. (That last one doesn't necessarily raise revenue, but it does give people motivation to drive less if they can, which might push gas prices down a smidge.)
Point is, there are plenty of options for green revenue boosters, and most of them have the advantage of boosting our overall quality of life (and nudging us away from environmental disaster) in addition to closing the deficit. They're just not getting a lot of attention at the moment. Maybe if there was some billionaire as savvy (and as obsessive) about pushing his or her pet issues into the mainstream as Peter G. Peterson has been, things might be different.
Brad Plumer is an associate editor at the New Republic.