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openspace4lifeOkay, so the first one is obvious if you think about it. Some government subsidies distort the market by giving a blanket incentive for companies to do something that makes no economic or ecological sense:
"Because of special corporate income tax credits and deductions, oil companies pay an effective income tax rate of 11 percent, compared with an average of 18 percent for other companies. . . . On top of these tax preferences, the Department of Energy spends more than $100 million a year to develop and improve oil production techniques, while the Army Corps of Engineers pays for infrastructure improvements related to the shipping of oil. These and other subsidies help keep the price of oil artificially cheap.
"Water is also often heavily subsidized, especially for agriculture . . . Because the government does not charge the full price of the water it provides, farmers have not always had sufficient incentive to conserve or to install more efficient irrigation systems. And manufacturers have not had enough of a financial incentive to develop water-saving devices. . . . Especially in arid parts of the country like California and the Southwest, it is silly to have a subsidized price system that encourages inefficient use of such an important resource as water. . . . there is much to be gained by eliminating subsidies and setting the price of water accurately.
"Germany has addressed a more subtle form of subsidy. In the United States manufacturers generally do not have to pay for the disposal of what they sell. Instead, . . . the costs of garbage pickup and disposal are covered by tax dollars or fees. A landmark 1991 German law makes producers responsible for the packaging they generate. They must either reuse it or pay for recycling it."
So what about taxes, specifically a tax on pollution? Well, the key phrase here is "internalizing externalities":
"From an economist's standpoint, a well-crafted tax is an easy and fair way to increase the price of a polluting activity so that it includes those external social costs that would otherwise be ignored. Economists also like the fact that even as taxes provide financial reasons to take better care of the environment, they ultimately leave the final decision on what to buy and do up to consumers acting through the free market. MIT economics professor Paul Krugman* has observed that 'virtually every card-carrying economist' believes pollution taxes are a good idea. . . .
"To reduce the fears associated with environmental taxes, most proponents these days talk in terms of 'tax shifting'--the idea that government should reduce other levies, such as the income tax, at the same time that it raises taxes on polluting activities. . . . Of course, any tax shifting would need to be done carefully, and strategies would need to be instituted to compensate low-income Americans who do not pay income taxes but who would have to pay the new environmental taxes."
Both sets of quotes are from The Consumer's Guide to Effective Environmental Choices: Practical Advice from the Union of Concerned Scientists by Michael Brower, Ph.D. and Warren Leon, Ph.D., Chapter 7: What You Can Ask Government to Do
*I have to note here some possible bias: according to the linked article, while greatly respected as an economist, "Krugman is known to be pronouncedly liberal in his political views."
"Because of special corporate income tax credits and deductions, oil companies pay an effective income tax rate of 11 percent, compared with an average of 18 percent for other companies. . . . On top of these tax preferences, the Department of Energy spends more than $100 million a year to develop and improve oil production techniques, while the Army Corps of Engineers pays for infrastructure improvements related to the shipping of oil. These and other subsidies help keep the price of oil artificially cheap.
"Water is also often heavily subsidized, especially for agriculture . . . Because the government does not charge the full price of the water it provides, farmers have not always had sufficient incentive to conserve or to install more efficient irrigation systems. And manufacturers have not had enough of a financial incentive to develop water-saving devices. . . . Especially in arid parts of the country like California and the Southwest, it is silly to have a subsidized price system that encourages inefficient use of such an important resource as water. . . . there is much to be gained by eliminating subsidies and setting the price of water accurately.
"Germany has addressed a more subtle form of subsidy. In the United States manufacturers generally do not have to pay for the disposal of what they sell. Instead, . . . the costs of garbage pickup and disposal are covered by tax dollars or fees. A landmark 1991 German law makes producers responsible for the packaging they generate. They must either reuse it or pay for recycling it."
So what about taxes, specifically a tax on pollution? Well, the key phrase here is "internalizing externalities":
"From an economist's standpoint, a well-crafted tax is an easy and fair way to increase the price of a polluting activity so that it includes those external social costs that would otherwise be ignored. Economists also like the fact that even as taxes provide financial reasons to take better care of the environment, they ultimately leave the final decision on what to buy and do up to consumers acting through the free market. MIT economics professor Paul Krugman* has observed that 'virtually every card-carrying economist' believes pollution taxes are a good idea. . . .
"To reduce the fears associated with environmental taxes, most proponents these days talk in terms of 'tax shifting'--the idea that government should reduce other levies, such as the income tax, at the same time that it raises taxes on polluting activities. . . . Of course, any tax shifting would need to be done carefully, and strategies would need to be instituted to compensate low-income Americans who do not pay income taxes but who would have to pay the new environmental taxes."
Both sets of quotes are from The Consumer's Guide to Effective Environmental Choices: Practical Advice from the Union of Concerned Scientists by Michael Brower, Ph.D. and Warren Leon, Ph.D., Chapter 7: What You Can Ask Government to Do
*I have to note here some possible bias: according to the linked article, while greatly respected as an economist, "Krugman is known to be pronouncedly liberal in his political views."
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Date: 2008-04-06 06:19 am (UTC)As a reader of both the Wall Street Journal and The Economist, I can attest that there's quite a few economists who think that pollution taxes (or alternately, cap-and-trade) are a good idea. What there is a lot more disagreement on, however, is what the tax rates/price of emissions should be, and how such a system should be implemented. This has lead to a lot of delays in establishment of a rigorous, binding price system for emissions, and cost precious time.
As far as "tax-shifting," the reason that is commonly discussed is that it would target emissions while reducing net impact on economic growth. Holding other taxes constant while imposing a (reasonably high--assuming that you want significant market impact) emissions tax could have significant negative effects on disposable income and investment, and make financing a transition to a green energy infrastructure more difficult. To avoid impacts on lower-income households, subsidies or tax breaks for lower-income households would probably be necessary, but that also raises some difficult questions as to what should be subsidized...
Anyhow, enjoyed visiting last week. Do you have a firm date on the interview up in Seattle yet?