Economics for a Sustainable Planet

From the Foundation's 1998 Annual Report

People cannot make rational choices reflecting interactions between the environment and the economy if the very real environmental and health impacts of products and processes are not included in the costs of goods and services. Unfortunately, our economic system rarely reflects any of these costs, thereby distorting the market and creating false tensions between the economy and the environment. The Foundation has encouraged a variety of efforts to correct these economic signals. One of the most hopeful is to incorporate environmental and health indicators into the U.S. tax system in ways that the public would support because they make good sense.

The present system in the U.S. discourages work and savings. It also often raises the cost of environmentally beneficial activities while keeping the cost of harmful activities artificially low. A tax system could be designed to encourage savings and reduce pollution by shifting a major portion of the tax burden away from work and enterprise and onto the use of natural resources and the accompanying pollution. Such a shift would have many advantages. It would encourage jobs by reducing the cost of U.S. labor without cutting wages. It would promote the development of resource-conserving technology and make the entire economy more competitive and lean. It would diminish pollution and waste without cumbersome top-down regulation, and would lower health costs. Finally, it could promote more compact patterns of development and encourage industry and jobs in inner cities.

At the national level, a green tax shift means levies on pollution (primarily carbon), mineral extraction, highway congestion, and toxic chemicals. The revenues could be used to reduce payroll taxes, and income taxes for everyone but the highest wage earners.

The elimination of government subsidies is an integral part of environmental tax shifting because these subsidies - whether through direct spending or tax preferences - lead to environmental degradation by obscuring the true cost of certain economic activities. For example, below-market pricing of timber and grazing fees on public lands encourages practices that lead to soil erosion, destruction of habitats, and reduced land productivity. Agricultural water fees are often priced so low as to encourage wasteful farming practices. Cheap hydropower from federally subsidized power authorities encourages over-consumption of electricity.

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