Ok, how about a carbon DIOXIDE tax?

Well, I can support it if it taxes not just the carbon-dioxide-producing aspects of a product or service, but also the production of other pollution.

If we must tax at all, then tax goods by how far they have come, and by how polluting and inefficient was the manner of their creation. Remember, just because carbon-dioxide spewing has become important in the past few years does not mean that other kinds of pollution are not still killing us and our surroundings.

If something was produced in inefficient or polluting production facilities (or by inefficient or polluting farming, fishing, harvesting methods), then tax it on a sliding scale. The most efficient production or harvesting of the same (or similar) product (or foodstuff) would be the standard, and would not be taxed. Anything less efficient or more polluting would be taxed to greater and greater extent depending on how flagrantly inefficient or polluting it was.

Similarly, regardless how cleanly and efficiently something was produced, it would also be taxed if it had to travel a long way to get to its consumer… unless it came by solar-powered dirigible.

This would ensure that cleanly-produced and locally-produced goods and services always had a cost advantage over inefficiently or filthily produced goods, or goods and services that came significant distances.

There are many advantages to this approach. The main one is that “you tax what you would discourage or destroy”. So, instead of taxing the creation of jobs or the creation of wealth, we should tax the consumption of polluting goods and services (whether the good-or-service pollutes, or simply involves pollution in its creation or delivery/transport).

Wait a minute!  Why did I say “tax the consumption” rather than “tax the production” or “tax the conveyance”?

Well, the producers and conveyors are all over the place - many goods and services do not originate in our country (where “our country” is whatever country you, dear reader, happen to live in). It gets much too complicated, in a hurry, to arrange some sort of taxation at the source (all sorts of treaties and trans-national organizations to do the oversight and enforcement, and then all kinds of additional infrastructure to make those organizations do their jobs properly, fairly, and without corruption…. and besides, that’s too much like taxing job creation.

The money is with the people who buy things. Consumption taxes affect both the rate of consumption of goods and services by consumers _and_ the rate of production or (if the taxation is worded correctly) the manner of production.  If you make it uncomfortably expensive to buy item X that is produced with too much of effluent Y, _because_ of the excess of undesired effluent Y, then you also make it less likely that people will continue producing item X in that way. Either they’ll stop producing it, because hardly anybody is buying it, or they’ll find a way to produce it that doesn’t invoke the tax when item X is bought, thus encouraging more customers to keep buying their version of item X. Same idea for services.

A key attribute of this sort of approach must be flexibility. If a new production method is adopted for item X (or service X) that minimizes or eliminates nasty effluent Y, then that good should immediately be exempt from pollution tax aimed at effluent Y. People should not be taxed for buying cleanly-produced X as they are for buying dirty-production X. That much is obvious, and it needs only a rational and transparent appeal process - with enough bureaucratic troops to keep it updated in real time.  But those same bureaucratic troops must also have the freedom (and mental capacity…) to remove the “effluent Y” tax on that good if the producer finds a buyer who actually makes use of effluent Y in a non-polluting way.

That is, what we want to discourage is the bad effects of the effluent from the creation of your good or service. If somebody finds a way to make that effluent harmless, we don’t want to continue taxing it for historical reasons. Taxation has to be rational, or people will have reason (and right) to cheat.

You can’t have the consumer tax on your product lifted just because you pay somebody to cart your effluent away and dump it, instead of you dumping it yourself. That doesn’t solve the problem. BUT, if somebody develops an industrial use for effluent Y that consumes it, or otherwise renders it harmless, then the producer of item X can apply to have his item-Xs excluded from the consumer tax, to the extent that his effluent Y is contained and neutralized by the producer of item Z who has found a profitable way to use Y in the production of Z.

A rational taxation system lets a producer sell his good (X) even though his production costs are higher, if the higher cost comes from a method that neutralizes the bad stuff - compared to somebody who has less cost-to-produce because he pollutes while he produces. The taxation makes the polluter’s X cost more when the consumer buys it, thus leveling the playing field, while encouraging the behavior we desire.

Eventually, everybody adopts the new, non-polluting method as economies of scale and greater practice make it mainstream and cheap.

From the government perspective, that might sound like killing the golden goose. The more producers who adopt clean methods, the less tax revenue comes in. However, since it usually ends up being government that cleans up after the polluters (by cleaning up abandoned sites or by carrying the increased health-care burden on the citizens), the decrease in polluters means a decrease in costs to government… so if they’re rational, they don’t need the revenue that disappears when pollution disappears. Yes, that’s a big IF. That’s for another post.

It might even be possible to implement an approximation of the carbon-offset, such that dreaming up (and implementing) a new way of dealing with a former pollutant gives you (or your product/service) relief from the pollution tax at the point of retail sale. And if you don’t have an immediate use for such “credit” (because your product or service doesn’t pollute), then you could trade such credit with other entities who did need some relief.  The people setting the tax rates on individual consumer goods and services would ultimately control the real value that such credits could have, by the simple expedient of deciding how much or how little an onerous tax rate could be relieved by the application of purchased pollution credits.

The biggest drawback to such a plan would be the natural, inherent tendency of bureaucrats to work on “Island Time”… to stall, to drag their feet, to make the task of achieving a deserved reduction/exemption too onerous or costly to be worth the trouble. Thus, you’d want to build-in incentives for the bureaucrats to process applications without delay. You’d also want to bring back public crucifixion for bureaucrats who accepted bribes - whether to give somebody’s product an undeserved relief or to keep somebody’s product overtaxed for the benefit of the competitor who was paying the bigger bribe.

A beneficial side-effect of taxing the purchase of goods or services that polluted by their production, or that polluted by their delivery, would be a defacto “Buy Canadian*/Buy North American, Buy Local” movement,
giving our own flagging industries a resurgent local market. (I’m writing from Canada. Y’all can substitute the name of your own local country, region, state/province.)

The free-market argument has always been that it’s good to buy items from the other side of the world if they are cheaper/more abundant there, and can be shipped cheaply to here (wherever “there” and “here” happen to be, respectively). And I agree with that. Where I disagree is that we have heretofore let petroleum-based transport of goods be cheaper than its real costs. We’ve allowed the people who produce petroleum, and the people who use it, to externalize a lot of their costs - such as the pollution created by the harvesting and converting of petroleum and the pollution created by the use (burning) of it.

A taxation scheme that placed some of those costs back where they belong would help balance the scales, such that Buy Local would no longer be a silly anachronism. It would be the economical thing to do. It would also support local self-sufficiency.  Moreover, if every village, town, and city was served by local farmers and artisans and industries for the bulk of what they needed (and wanted - there’s nothing wrong with luxury), then even if local conditions went bad - drought, the mine runs out, etc. - the local people could still buy goods and services from not-so-local suppliers whenever needed or desired. They’d just pay more because of the cost of transportation and because of the tax due to that transportation.

On top of that, if a region suffered a really nasty downturn, the governments could temporarily ease the taxation of goods and services purchased by that region’s consumers, even if those goods and services had to come from afar (and burn gas/diesel getting there). The taxes, of course, would climb back to their pre-bad-times level over a certain, defined span of years (a sunset clause on consumption-tax relief, if you will). The idea would not be to subsidize people to remain forever in a place that was no longer able to support them, but to cushion the blow and allow them time to either adjust or get out, in orderly fashion.

Again, in summary, tax what you want to reduce or destroy - pollution and the externalizing of costs.

Don’t tax what you want to encourage - creating wealth and creating jobs.

Am I making sense here?

That’s the way I see it, anyway.

Copyright November 2008