Smart Taxes

by Carolyn Chase


ringing common sense to taxes seems impossible, especially at this time of year. But a revealing new report "Tax Shift" from the Seattle-based research center, Northwest Environment Watch (NEW), clearly shows how our existing taxing mechanisms are undermining economic productivity and trashing the environment. More importantly, NEW provides the solutions that are needed to resolve basic structural conflicts between environmental and economic goals. These solutions vitally are needed to bring our Byzantine tax code into 21st century.

Taxes form a massive incentive system shaping all measured economic activities. While others have noted that the existing system is rigged against the environment and the individual taxpayer, few have been able to come up with such a comprehensive and understandable view of what to do about it: tax shifting.

Tax shifting means taxing the things we don't want, like pollution and traffic congestion, instead of taxing things we do want, like our paychecks and our businesses. Reorienting our tax systems to tax pollution and not paychecks would bolster the economy and allow local and state governments to abolish most of their existing taxes.

Existing taxes mostly target "good" activities such as paychecks and profits rather than "bad" actions like pollution, resource depletion, sprawl and traffic jams. In doing so, they exacerbate the "bads" and diminish the "goods." By penalizing work, enterprise and investment, our current tax system reduces economic output. Income and payroll taxes -- which together put a tax burden on paychecks that usually exceeds 30 percent -- suppress wages and encourage businesses to use more resources and fewer workers. In the long term, this is just plain stupid.

How do we tax smart?

A smart tax system would tax pollution and reward enterprise. A tax shift gradually would reduce or eliminate many existing taxes: regressive property, payroll and sales taxes that are hardest on the middle-class and poor; enterprise-killing corporate income and business activity taxes; even the mind-boggling personal income tax. Instead, it would phase in taxes or fees on pollution, carbon and resource consumption.

In a smart tax system, polluters would be charged for the economic and environmental costs of their emissions. Billions of pounds of harmful pollutants flow into our environment each year. Tiny inhaleable particles from motor vehicles and other sources increase death rates. Other pollutants, including the 75,000-odd pesticides and other synthetic chemicals in commercial use, have contributed to the widening prevalence of cancer, asthma and reproductive disorders such as ectopic pregnancies, endometriosis and low sperm counts.

Pollution taxes would combat these ills by imposing levies on industrial releases of air and water pollution, agricultural purchases of pesticides and fertilizers and motor vehicle emissions, all of which already are measured in one way or another. At the same time, creating these taxes would allow for the elimination of most corporate income and other business taxes.

To encourage conservation, efficiency and recycling throughout the economy, and to reflect the large environmental impacts of resource extraction, governments could tax water, hydropower, timber and minerals. This could substitute for portions of personal income or sales taxes.

To ease traffic jams, "Tax Shift" suggests taxing rush-hour driving. Drivers would be charged to use busy roads at busy times. This would harness the market in favor of easing congestion. "Phantom tollbooth" technology, which allows toll collections at full speed using prepaid smart cards, is already in use here in San Diego. Transportation experts agree that tolls are the only real solution to gridlock.

Shifting taxes can solve urban sprawl and leapfrog development. Shifting the property tax off of buildings and onto land values would create a powerful incentive for investment in city and town centers and in adjacent neighborhoods. Taxing sites but not buildings spurs development of the most valuable locations in developed areas. Parking lots give way to buildings. Supplies of apartment and office space increase. Rental prices moderate. This reform would more than double taxes on parking lots and vacant building lots, increase taxes by up to one-fourth on car-oriented commercial strip development and moderately reduce taxes on pedestrian-oriented neighborhood shopping districts. It would reduce taxes by about one-third on the most land-efficient forms of housing -- apartments and condominiums -- and by about 5 percent for most single-family residences.

Replacing most of the existing tax codes with taxes on pollution and other environmental ills would prevent hundreds of premature deaths, safeguard the environment and raise economic output by billions.

What are the obstacles? The biggest obstacle to tax shifting, according to the study, is not even the vested special interests; it's mainly inertia. Accustomed to taxes as they are, and not able to interact powerfully with the complex taxing systems, citizens are ill-equipped to put forward such a comprehensive approach and make it stick.

But whether you're conservative, liberal or right in the middle, tax shifting make sense. It gets taxes off our backs and onto the side of people, the economy and the environment. All we really need is for our political leaders to connect their prosperity and quality of life rhetoric with a tax system that works for us and not against us.

Are you listening, Sandag? This type of analysis is right up your alley. What would it take for you to do this kind of report for our region?