Wednesday, November 01, 2006

Are green taxes a good idea?

I am opposed to so called “green taxes” because any move to justify the government compulsorily taking your money is justifying theft. The idea that taxing something “bad” (pollution) is better than taxing something “good” (income) has a superficial appeal. From an environmental policy perspective, paying more to do something that has a negative impact (on who, you may ask) will reduce the incidence of that activity. So if you want to discourage people doing something then taxing them will certainly discourage, as long as demand for undertaking that activity is elastic.
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However, green taxes aren’t just about stopping people doing bad things. If something is bad enough (in that it infringes on people’s rights) then you ban them or give them the right to say no. Imagine, for example, taxing murder, or theft, or vandalism (it’s ok to spray paint that wall, just costs you $20 for the permit). In the case of localised pollution, it is a matter of granting property rights over airspace, for example. Ah, but greenhouse gases are not a local pollutant. So does that mean you should pay the government money for emitting them? Well no, it might mean that a carbon trading system, as has been much talked about, may be worthwhile – but you better have one that applies globally, allocates rights fairly (!) and enables rights to be traded according to demand and supply. Anyway, back to green taxes.
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Green taxes are a transfer from the public to the government, which then can spend the money on whatever it wishes. So the assumption still is that the government not only can spend your money better than you can, but that it has the right to do so.
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The incidental effect of reducing your willingness to undertake the “taxed” activity is beside the point.
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You see the same effect in other taxes. Income tax reduces incentives to earn income, but by and large the main effect is to transfer money from you to the government (notice the term “generate revenue” as if it is producing it rather than stealing it – imagine if a thief described burglary as “generating assets”). Sales taxes reduce the incentives to buy certain goods and services, but the main effect is to transfer money from you to the government.
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The effect of suppressing income or purchases comes when the tax becomes more and more oppressive. A 90% income tax will be avoided with alacrity or the person will leave the country. A 90% sales tax will have a similar effect. The existence of chronic congestion in much of the UK while fuel tax is one of the highest in the world (67% of the purchase price) demonstrates how little demand is suppressed through taxation (and how blunt it is).
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So as a tool for fixing the environment, green taxes don’t appear to take you far unless they are high – very high. That means that you have to tax something “bad” so much that it isn’t worthwhile for many people to do it – in other words driving has to be so expensive, people would rather choose to spend the money on something else rather than fund the government.
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You see this is the only positive side. If a government decided to be fully funded from environmental taxes, and low or zero polluting alternatives were accelerated onto the market (because of the massive disadvantage the existing technologies have), then government revenue would decrease – as pollution tax revenue decreased and the size of government would then have to decrease. Green taxes COULD be a long term strategy to move to less government because technology could make the taxes obsolete. Ridiculous notion? Well as cars have become more efficient, the revenue collected from fuel taxes has declined as traffic has increased (meaning the amount of pollution has been declining too), so governments have been moving to increase fuel taxes to make up that revenue.
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However, I doubt that will happen. I doubt green taxes will mean the reduction in government. Other taxes will remain. Besides that, it is far from a good idea to tax the hell out of fossil fuels, beyond the economic “cost” that economists may quantify, just to discourage pollution. The money collected is not about compensating people for damage caused by pollution – because those people can’t be identified, the appropriate compensation can’t be quantified, so it just becomes an excuse for government spending.
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Green taxes are instinctively appealing to the left because they are punishing what is “bad” about capitalism and modern civilisation – transport and energy. It punishes people for wasting energy, it punishes them for leaving on a light, or going on a Sunday drive or flying to their holiday destination. In other words, it punishes them for taking advantage of the delights of modern technology and civilisation. It is an exercise in masochism for those who support it – their guilt in “damaging the environment” assuaged by “paying the cost of carbon”. The right likes it because economists see it as paying for externalities – without identifying who it is paying (the government) and who suffers from the externalities (unidentifiable private individuals to varying degrees) . It uses an economic instrument (tax) to reduce demand for a bad thing (pollution), while ignoring what it does to the state (increases its role).
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Those who advocate new green taxes should be resisted for the statists they are. Those advocating green taxes as a revenue neutral replacement for other taxes should be thought of suspiciously, and asked what happens if less people pollute – what happens to those taxes? (probably increase). Most of all, ask those who advocate green taxes what they think the money collected should be spent on – I doubt it will be about compensating those who are “harmed” by the pollution, because they don’t actually know who those people are and how much they are harmed. This is because, green taxes are really just another excuse for the state to tax you more, but with more of a message of “punishment”.

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