Pollution Taxes
see also: externality, polluter pays,
Peter Barnes: Capitalism 3.0 — Chapter 3: The Limits of Government (pages 33-48)
Two other questions about pollution taxes are who pays them and where the money goes.
- There’s little dispute about the first question. Consumers — which is to say, nearly everyone — pay them, even if the tax falls initially on polluters. That’s because any pollution tax paid by a business will be passed on to consumers in the form of higher prices. Consumers can reduce what they pay by buying fewer products that cause pollution; to that extent, they can “evade” the tax, and such evasions will benefit nature. But many consumers have little choice about reducing or shifting their purchases; they must drive to work and heat their homes. And because low-income households spend virtually all of their incomes on unavoidable consumption, pollution taxes fall disproportionately on them.
- As for the second question — where does the money go? — it goes to government coffers. Like any tax, a pollution tax takes money out of private pockets and turns it over to the state. It’s then up to politicians to decide what to do with it. It’s possible that politicians will use the money fairly and wisely, but there are no guarantees. If recent history is any guide, they’ll use much of it to expand the military-industrial complex and lower taxes on campaign donors.
There’s another, more fundamental reason why taxes are a poor tool for guarding nature. It’s not higher pollution prices we want; what we actually want is less pollution. Taxes are at best a roundabout way to get there. We assume that if we raise pollution prices, pollution will come down. But not even the smartest economist can know how quickly it will come down, or by how much. We can only proceed by trial and error. Much of the tax-setters’ time will be spent debating how much of a price hike will produce how much of a reduction in pollution, when in fact what we should be debating is how quickly we want pollution to drop. Once that debate is settled, we should be able to set a valve at the agreed-upon level. We can’t do that with pollution taxes.
Pollution taxes, in short, though better than nothing, are far from an ideal way to protect nature. They’d make polluters internalize some of the costs they now shift to others, but in a clumsy, regressive, and ultimately insufficient way. If another way to internalize costs is possible, we should consider it.