Unity08. A people's movement to take our country back.

A different approach to taxation

Our tax system is a complicated mess. The core of the system is a progressive tax on earned income. This is augmented by a number of taxes on corporate income, gasoline, liquor and miscellaneous tariffs. Add to this state taxes on income, property, and sales.

There are a great many flaws in the system, the most egregious of which is the ability of special interests to obtain tax breaks that average people don't enjoy (although the deduction for home mortgage payments is a huge benefit to the middle class.)

Now, the basic philosophy behind the tax system is supposedly the notion of progressivity: rich people pay higher taxes than poor people. However, in the ninety years since the income tax was instituted, rich people have learned how to dilute the impact of this with all manner of special deductions. In net, our tax system is nowhere near as progressive as many people think.

The biggest objection to income tax, however, is that it punishes you for getting a job, working hard, and earning a good living. In effect, the greater the contribution the citizen makes to our economy, the more we tax them. That's just wrong.

I would like to propose a completely different approach to taxation. Instead of taxing people based on how hard they work, why not tax them on the basis of how much damage they do to the environment? You can earn as much money as you want, but when you spend it, we're going to make you pay for the damage you do to the environment.

The mechanics of doing this are not as difficult as they might seem. We tax every single emission at the source. At the outset, we start off with the big, easy-to-find emitters: power plants, factories, and so forth. Later on, we move to medium-sized emitters, and finally we get to small emitters.

The tax would be levied based upon two sets of measurements: the environmental impact of a pollutant, and the amount of that pollutant emitted by the source. Carbon dioxide is a good example. We set a tax rate for CO2, say $50 per ton. That tax rate applies to everything that emits CO2. At first we apply it only to big sources. They factor the cost of the tax into the price they charge consumers. Thus, the tax is indirect -- always a good thing politically.

We would also establish tax rates for other emissions: nitrous oxides, sulfur oxides, and so forth. Every now and then the government inspect drops by for a surprise visit and measures your smokestack emissions, and your tax rate is recalculated.

We can apply this to automobiles and levy the tax on gasoline. That does create a problem with cars that achieve gas efficiency by using fewer emission controls. This would raise some difficulties, but I believe they can be addressed fairly.

We could easily make the transition by phasing in the new tax regime over, say, a decade. Initially we apply it only to heavy industry, but the effects show up in higher prices rippling through the economy. At the same time, we lower income tax rates across the board, so that the net effect on the middle class is zero. With each passing year, we add to the list of industries affected by the new tax regime, and reduce the income tax rate even further. Done properly, we can make the transition to zero income tax smoothly.

Now, there are some gotchas with this scheme. One of the worst is the taxation of imports. Why should a car manufacturer purchase (taxed) American steel when they can purchase untaxed imported steel at a lower price? The answer here, I think is the application of tariffs based on comparable American products. In other words, if the average ton of American steel is calculated to require a tax of $120, then we apply a tariff of $120 to imported steel. Of course, this still creates incentives for American steelmakers to move their operations offshore where they can operate really dirty factories and pay on the average price of steel rather than the "true" price they'd have to pay if they were in the States -- but they already face this issue because they must comply with more stringent pollution laws in the USA anyway.

Remember, this system would eventually apply to every single product sold. Whatever it is you make, a Federal EPA auditor would have to come through and assess the amount of pollutants your operation releases. However, in a huge number of cases, there is no intrinsic emissions. A retail store has no intrinsic emissions -- all its environmental impact is already accounted for in the taxes it pays for electricity and the products it stocks.

There would always be some loopholes. For example, woodburning stoves generate lots of pollution, but there's not much we can do to track those down. They'd be like the underground economy -- beneath the radar.

One could of course object that this would require a huge Federal bureaucracy to implement. I think not. Remember, the IRS is already a huge Federal bureaucracy, and it would be eliminated by this new approach. Initially, when we're concentrating on only big emitters, the bureaucracy required to assess their emissions will be very small relative to the amount of revenue they generate. As we move down the economic ladder to smaller-scale operations, however, we'll have to increase the size of the bureaucracy. At some point, we'll conclude that the additional cost of all those inspectors isn't worth the additional revenue they generate. That's where we draw the line.

Here's one more nice feature of the system: it can be applied to government operations just as well as private operations. Not many people realize this, but our military is one of the worst polluters in the world, because they're exempt from most environmental regulations. They certainly have tried to clean up their act in the last thirty years, but they're still way behind. In this system, the EPA estimates their environmental impact, and that money has to be deducted from their overall budget. That would create the right incentives.

The basic concept of this taxation system is to use the price mechanism to encourage environmentally responsible behavior. If Joe Citizen wants to pursue his hobby, he should be free to do so -- so long as he pays for the damage he does.

Lastly, there is the question of how we determine the environmental costs of various emissions. This will be a hotly political issue. No matter what numbers we come up with, people want to go to court to change those numbers. So the really tough part of the system is coming up with a procedure that commands respect and is beyond the reach of lawsuits. That can be done, but it will require careful design.

There remain a great many details I have left out, but this post is already too long. I present it to the readership in the hope that they will find it worthy of consideration.