Tax Pollution, Not Jobs
by David Morris
September 12, 1995
Ecological tax reform. The concept is catching on, in part because it’s so easy to understand. Our current tax system, proponents argue, is inefficient. We tax “goods” rather than “bads”. By doing so we therefore raise the price of activities we would like to encourage, like work and investment. Meanwhile we don’t tax or tax at very low levels, many activities we would like to discourage, like resource degradation or pollution.
The solution to this problem? Reverse the equation. Impose stiff taxes on pollution and reduce taxes on work and investment. This process, called tax shifting is well underway in several European nations. Some of those nations have economies and populations not much larger than Minnesota’s. Yet they have been willing to act unilaterally rather than wait for a Europeanwide agreement. Why? Because they believe that by raising pollution taxes and lowering taxes on labor or capital their national economies will become more productive. And they insist that the change in the tax structure will stimulate new resource efficient industries whose products and knowledge will become an increasingly important part of those countries’ exports in coming years. Indeed in some countries the business community is leading the fight for ecological tax reform.
Economists have always noted that the price we pay for many goods does not reflect the full environmental costs of those goods. For example, our electric bills do not reflect the cost of the damage done to Minnesota lakes by mercury emissions. Increasing numbers of lakes carry fish advisories. The single largest source of mercury pollution in these lakes is coal fired power plants. How much should Minnesotans pay to keep Minnesota lakes clean?
The Minnesota Public Utility Commission is attempting to answer this question by estimating the environmental cost of many types of pollution from electric power plants. State agencies have developed their own estimates. If we take these as a starting point for discussion and apply them to pollution generated from any source, like cars and factories and buildings, rather than just from power plants, we discover that the total amount of environmental damage in Minnesota ocurring each year is over $1 billion.
Why not require us to pay this cost and use the revenue from pollution taxes to reduce other kinds of taxes? For example, the $1 billion from pollution taxes could allow us to reduce residential property taxes by 50 percent or to virtually eliminate commercial and industrial property taxes.
A pollution tax is a politician’s delight. It challenges us to become more efficient. As Buckminister Fuller once observed, “Pollution is nothing more than an unharvested resource”.
Moreover, environmental taxes, as Jonathan Rowe of Redefining Progress notes, “makes tax avoidance legal and socially useful”. Today the only way to lower your taxes is to cheat or reduce your income. But you could lower your pollution taxes simply by improving your efficiency or shifting toward renewable resources. Both actions would not only put more money in your pocketbook but would enrich the state and local economies as well.
Indeed, ecological tax reform may become a bipartisan issue. The Environmental Quality Board, the state agency whose Board of Directors consists of the heads of all other state agencies, issued a strategic plan a few days ago that recommends ecological tax reform. Members of the Minnesota Senate, like Steve Novak and of the House, like Ann Rest, are initiating efforts to examine how to restructure and extend the state sales tax. These efforts should examine pollution taxes as part of their mandate. After all, a sales tax is a tax on consumption. So is a pollution tax. The difference is that a pollution tax makes a distinction between negative and positive forms of consumption.
Minnesota groups like Minnesotans for an Energy Efficient Economy and Clean Water Action, as well as individual state agencies like the Pollution Control Agency, are looking at pollution taxes. The business community seems interested but only if such a tax can be designed to minimize the burden on some Minnesota industries while maximizing the benefit to the economy as a whole.
On October 5th a conference will be held in Saint Paul on ecological tax reform. Hosted by the Minnesota Environmental Initiative, the conference promises to be the kickoff to what may become one of the most fascinating and productive debates about taxes that we’ve had in Minnesota in many years.