SUPPORT FOR FISCAL RESTRUCTURING
Chapter 11. Tools for Restructuring the Economy
Lester R. Brown, Eco-Economy: Building an Economy for the Earth
(W.W. Norton & Co., NY: 2001).
Taxes and subsidies designed specifically
to reach environmental goals are not yet widespread. As noted earlier,
there has been some tax shifting in Europe, but it is still in the
early stages, not exceeding more than 3 percent of the official
revenue of any country. Governments have used environmental taxes
to reduce the discharge of heavy metals into the environment in
the Netherlands or the use of leaded gasoline in countries such
as Malaysia, Thailand, and Turkey. But they have not yet been used
effectively on big-ticket items. For example, no government has
seriously discussed adopting a carbon tax that would phase out fossil
fuel use.
As mentioned, in both Europe and North America polls show that 70
percent of voters on both sides of the Atlantic think it is a good
idea. The challenge is to translate this approval into support.
There has been little political leadership on the issue, especially
from the United States, the country the world looks to for leadership
on major issues. The focus in the United States is almost exclusively
on whether taxes are being raised or lowered, not on restructuring
the system.46
With subsidies, there is little public knowledge of the scale of
subsidies. Many are hidden, some carefully disguised to reduce their
public visibility. As the Earth Council report concluded, many governments
of industrial countries have no way of knowing how much they subsidize
fossil fuel use with various direct and indirect subsidies. For
example, the U.S. oil depletion allowance, though it is not highly
visible or regularly debated in Congress, is a powerful subsidy
for oil use.47
David Roodman notes in The Natural Wealth of Nations that
there is little organized support within the environmental community
for tax shifting. Among the major environmental membership organizations
in the United States, not one has a full-time staff person working
on these issues. There are now two small U.S. groups working on
fiscal shifting. The first is Taxpayers for Common Sense, a group
established in 1995 that has 1,000 members. The second is Green
Scissors, a group that works specifically to eliminate environmentally
destructive subsidies from the federal government's annual budget.48
Among economists, there is strong support for tax restructuring.
This was evident in 1997 when some 2,500 leading economists worldwide,
including eight Nobel laureates, endorsed the idea of a carbon tax.
The actions of this group made it clear that it is not the wisdom
of restructuring our fiscal system that is the question, but whether
we can overcome political inertia and the obstacles posed by the
interests vested in the status quo.49
MIT economist Paul Krugman writes in the New York Times about
the distortions in our economy that result from the failure of the
market to reflect the full costs of many products and services.
He observes, "you don't have to be an elitist to think that the
nation has lately been making some bad choices about energy use,
and about lifestyles more generally. Why? Because the choices we
make don't reflect the true costs of our actions." Starting with
the estimated annual $2.6 billion cost of traffic congestion in
Atlanta in 1999, Krugman calculates that the decision by one person
to commute by car in Atlanta now imposes on others an additional
congestion cost of $3,500 per yearor
$14 per workday. This is each driver's part of the indirect or social
costs per person of traffic congestion in Atlanta. As Krugman and
other prominent economists focus on these issues, it will help to
raise public understanding of the need to incorporate indirect costs
in the market prices that shape our decisions.50
Some key organizations are beginning to support the idea. A report
on the environmental outlook in the 30 members of the Organisation
for Economic Co-operation and Development (OECD) recommended a broad-based
tax restructuring to deal with environmental threats. Since the
OECD represents nearly all the leading industrial countries, its
recommendations are certain to garner public attention.51
During 2001, The Economistraditionally
not a leader on environmental issueshas
become an outspoken advocate of fiscal restructuring. The editors
recommend that governments not attempt to pick "the winners" among
new energy technologies but instead "they would do better to provide
a level playing field by scrapping the huge and usually hidden subsidies
for fossil fuels, and by introducing measures such as carbon taxes
so that the price of fossil fuels reflects the costs they impose
on the environment and human health."52
The potential benefits of fiscal restructuring are obvious. Fiscal
policy, including the shifting of both taxes and subsidies, is the
key to our success in building an eco-economy because it is systemic.
Reducing mining subsidies not only makes metals produced from virgin
ore more costly, for example, but it also indirectly encourages
the recycling of metals. Similarly, raising the price of gasoline
with a carbon tax that reflects the full cost to society of burning
this fuel will permeate the entire economy, sending signals through
the market that will lead to more environmentally responsible behavior.
ENDNOTES:
46.
Polls from Roodman, op. cit. note 6, p. 243.
47. De Moor and Calamai, op. cit. note 11, p. 32.
48. Ibid., p. 243; information on both Taxpayers for Common Sense
(TCS) and Green Scissors at Taxpayers for Common Sense, www.taxpayer.net,
viewed 25 July 2001; membership numbers from TCS, discussion with
Shane Ratterman, Earth Policy Institute, 25 July 2001.
49. Redefining Progress, "2,500 Economists Agree That Combating
Global Warming Need Not Necessarily Harm the U.S. Economy Nor Living
Standards," press release (Oakland, CA: 29 March 2001).
50. Paul Krugman, "Nation in a Jam," New York Times, 13 May 2001.
51. Organisation for Economic Co-operation and Development, OECD
Environmental Outlook (Paris: 2001).
52. "A Brighter Future," The Economist, 10 February 2001, p. 6.
Copyright
© 2001 Earth Policy Institute
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