Cut taxes, save the world

by Carolyn Chase


Cut to the Chase #54 -November 23, 1998

Cut taxes, save the world

Got your attention? Even though environmentalists want the national power slogan to be "it's the environment, stupid" (because we know that, ultimately, it really is), "it's the economy, stupid" was really the slogan that elected a President. Until we can successfully integrate environmental solutions into economic systems, we are all trapped inside arrangements that work against solutions rather than for them.

Since past environmentalism has primarily focused on a legislative and governmental approach to regulating pollution, market efficiencies on both sides of the equation are mucked up. The government subsidizes bad environmental practices with one hand, and then taxes and regulates these same practices with the other. This is terribly inefficient and everyone and the environment would be better off if the government got it's incentives right by aligning them for the environment and against pollution.

Another part of the puzzle of effective environmental change is that things that are better for the environment are almost always more efficient. Things that are more efficient are almost always good for business. The more efficient you can make production processes, the better for both the enterprise and the environment.

In "The Natural Wealth of Nations - Harnessing the Market for the Environment," Worldwatch Institute Senior Researcher David Roodman, offers solutions to environmental problems by showing how we can turn the tremendous power of market economies away from environmentally destructive activities and toward protecting natural wealth and human health.

"The Natural Wealth of Nations" calls on governments to fundamentally reorient how they raise and spend money in order to protect the earth, which, as a matter of sustainability, protects the economy itself as well.

Roodman shows how cutting wasteful subsidies can boost the economy and save tax dollars, while protecting the environment. Roodman argues that governments need to slash $650 billion in obsolete subsidies for environmentally destructive activities, from logging to mining to driving. This would pay for a $2,000 tax cut for every family of four in the United States, Japan or Germany.

Roodman also proposes raising taxes on harmful activities like air pollution, while cutting
taxes on payrolls and profits--a tax shift that would discourage pollution without harming the economy - and actually provide a tremendous boost to everyone. Can you imagine having your payroll taxes eliminated? It would be a new world. People would have more control of their income and taxes could align with the true natural costs of economic growth.

Of course governments offer most of their subsidies with the best of intentions --stimulating development, protecting jobs, aiding the poor. But almost all, Roodman asserts, are obsolete, ineffective, grossly inefficient, or self-defeating. To keep old coal mines competitive and preserve jobs, he points out, Germany spends $86,000 per miner each year in subsidies. It would be cheaper now to shut down the mines and pay miners not to work.

The whole thrust of this approach is to make the market better reflect the environmental costs and benefits of what we do. When you seriously start to think about it, the proposals begin to look like common sense. But they are sure to rile established interests -- those invested in the existing poor practices, wishing to preserve their special historical positions against much needed progress. Even many environmentalists have a difficult time understanding and accepting the power and premises of using the marketplace to their advantage. This type of sweeping structural change represents risks to everyone.

But putting the right incentives against pollution turns environmental protection into a profit opportunity. When businesses are faced with environmental taxes and scientifically determined standards, many turn their expertise to creating technologies that conserve resources and slash pollution levels. Market-based solutions for environmental protection exploit humanity's greatest resource: its creativity in problem solving.

The book also argues that governments need to shift an additional $1.5 trillion a year in taxes by jacking up levies on pollution and resource waste, and using the money to cut taxes on work and investment.

Roodman says, "Unless we stop subsidizing environmental harm and start taxing it, we will never save the planet.... solving problems like global warming -- slashing fossil fuel use -- will take changes in where we live, how we move about, and how we make everything from bottles to buildings. No government can plan all that - much less implement and enforce it. Only if we make prices tell the ecological truth can we harness the power of the market for the environment."

From October 15-22, a worldwide e-mail discussion of these topics took place. People exchanged ideas with Roodman over the prospects of getting there from here. The key conclusions, also to be found in this excellent book: "The greatest challenge for reformers lies in making change a political reality," "The prime task is to educate people about why reform is in their best interest," and "what will get this going is a radical campaign that approaches people in business as partners. Such a campaign does not require people to forget or turn a blind eye to the fact that a great many businesses are currently destroying the earth through their actions, whether knowing or unknowing. What it does require is a belief that common ground can, in time, be built with enough people in business for a strong enough coalition to emerge to make it possible for citizens, governments and businesses to actually build an ecologically sustainable society and fair ways to pay for it."

Human kind has a long way to go to achieve a sustainable way of living. "The Natural Wealth of Nations" puts in our hands a clear framework for encouraging a vibrant economy and protecting our planet at the same time.