Monday, July 25, 2011

Environmental Policy: Why Don't We Tax Pollution?

Switching taxation from income to pollution seems like the most obvious solution to most if not all environmental problems. After all it is widely acknowledged that if you want people to do less of something you tax it. The existence of sin taxes attest to the fact that policy makers agree that taxes inhibit undesired behavior in individuals. One of the main benefits to taxing pollution is that it can be applied to everyone equally, so that the government does not have to pick winners and losers as it does with current regulations and subsidies. The reasons that we do not tax pollution can be broken down into two categories: the practical and the political.

Practically speaking it is hard to put a price on the damage that pollution does and hence at what rate to tax it. However, even a rough estimate (and most likely an underestimate) would still give individuals and corporations an incentive to reduce their environmental foot print by finally putting a price tag on it. Additionally, implementing the tax would be no different from the common practice of taxing consumption except the tax rates would be based off environmental costs.

I suspect that the reason there is no serious debate in the United States about switching the tax burden from income to pollution is because politicians are boxed in by what they know. Both parties find taxing income a politically  convenient way of rallying their bases. Democrats like to argue that we should only tax the wealthy and Republicans fighting taxation altogether.   

However, it seems to me that Republicans would have the most to gain from promoting taxing pollution. It would play right into their narrative of not punishing hard work and ingenuity. I suspect that if Republicans could break their pathological aversion (and special interest pressure) to not tax anything they could gain a lot of mileage out of portraying Democrats as more willing to tax hard work and innovation then promoting a healthy environment.

J.A. Gibbons