Activities that cause costly harm to our ecosystems and hurt public health enjoy a scandalously low tax rate.
You always hear about how various environmental "taxes" hurt business and industry and, thus, could cripple our economy. But what if we were to cut taxes across the board for businesses, replacing that revenue with the taxes applied on activities that actually cause costly harm to our ecosystems and our public health? In other words: what if we replaced some business taxes with some environmental ones?
That's an idea floated by The New Republic's Brad Plumer, writing in the Washington Post yesterday. Plumer includes this chart from a new IMF paper (PDF) on "Reforming the Tax System to Promote Environmental Objectives."
See where the United States is? Yes, that's us on the far left. We get just about 3 percent of total tax revenue from environmentally-related taxes, or taxes on harmful, polluting activities. That's the lowest of all OECD nations, and less than half of the average.
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.
I love this idea of cutting payroll taxes and replacing them with either a carbon tax or other pollution taxes. Then we'd get a tax structure that actually rewards and incentivizes businesses that don't threaten our lungs, water, or push us closer to climate catastrophe.