Consumption tax/carbon control idea that may be sellable

Great Debates
1

What if we ditched the entire income tax system in favor of one that was based on consumption, but specifically on the purchase of fossil fuels (because they emit CO2, and taxing the purchase is easier than taxing the emission)?

Would the left-green be willing to give up the tax code as wealth redistributor in exchange for a fighting chance at doing some real good for the environment?

Would the hardcore conservatives be so enamored of the consumption tax that they could hold their nose and tolerate what they see as hokey environmental claptrap?

Would this create the right sort of incentives for sustainable society?

Personally, I don’t see how this proposition can lose. It simplifies the tax base, while putting a direct incentive on ceasing consumption of something that behaves as a proxy for some of the worst problems facing the world. You don’t like taxes? Fine, stop using carbon. But of course, there are lots of things I don’t see, so I’m sure there’s something wrong with the proposition.

Of course it should be evident that I’m staunchly pro-nuclear, and eventually down the road we’d need to supplement the carbon consumption tax with a nuclear waste disposal tax.

2

It’s a good idea, which is why it will never happen.

3

I don’t count it a good idea unless it has a possibility of becoming reality. I’m just trying to explore the question of whether it has some huge obvious flaw that I’ve missed, or if it’s actually in motion somewhere in some form, and if so, what’s happening with it.

Edited to add; I know carbon taxes are being discussed in some quarters, but what I’m talking about is using it to replace the entire income tax system.

4

I’m guessing it would be pretty difficult to assign carbon tax rates that wouldn’t make some people pay more than they make and yet work out in such a way that you’re still collecting enough money to run the government. Until you get into the yacht and private jet set, there isn’t going to be a good enough correlation between income and fossil fuel usage. You’re going to have to find some other way to account for income, but that’s going to add complexity and may spook the conseratives.

5

I know. My post didn’t do your idea credit. I’ll think about it and maybe give you a response it deserves. Overall, it’s hard to sell radical ideas, even ones that seem to satisfy all sides, because people are simply nervous about big change. You’d need a gradual approach.

6

But I think that is also characteristic of the so-called Fair Tax that they’re flogging, yet a lot of people seem to be perfectly fine with it. In fact I understand that they’re willing to stipulate that their idea simply can’t be sold without writing some checks to people under a certain income. To me that signals a willingness to deal. They’re not against the notion that rich people inevitably pay more tax, they just want it to become simpler and more deterministic.

Remember, you wouldn’t just be paying at the gas pump. This tax would be embedded indirectly in everything that someone at some point had to purchase fuel for its production. This should result in people making smarter consumption choices in general, not just for the fuel they consume directly.

7

The big obvious fault is that the poor would be disproportionately taxed as a greater percentage of their income is spent on consumables.

I live in a place where almost everything is imported. We have no income tax, but do have import duties on almost everything, from 22%-50% and up. It is a substantial burden on the working poor. Not such a big deal for the upper crust.

8

Admittedly, I’m not up on the current state of whatever the “simple” conservative tax proposal de jour is, but I think all of them are just some variation on a straight percentage for everyone, wheras what you’re proposing would in practice end up more closely resembling a straight amount! Unless you’re talking about a Great Leap Forward type reconfiguring of the economy and society, people simply don’t have that much power to change their carbon footprint, which means you’re basically handing out tax bills by lottery.

Now, perhaps if you merely tied your tax bracket to your carbon footprint, that might come a little closer to being a workable system that would still push radical change. But I think it would be hard to devise such a system that’s any simpler than the current one, and since simplicity is allegedly why conservatives like flat taxes you’re probably going to lose them.

9

a straight percentage on consumption… not income.

That does not follow from the math at all. Basically the more you consume, the more you pay.

[quote]
people simply don’t have that much power to change their carbon footprint, which means you’re basically handing out tax bills by lottery.
I wouldn’t be asking anyone to change their carbon footprint. I’d be asking them simply to try to act in their own economic self-interest, which is about the only interest that individuals can be trusted to act upon.

10

There’s a geographic component to this that no one has mentioned, yet. I grew up in the northwest where much of the power is provided by hydroelectric dams. They have their own ecological issues, but release no carbon (as a direct consequence of operating). Do we want to give people in those areas a tax break?

I’m not convinced that the people who propose a flat tax like it for its simplicity. I think they like it because it will save them money. Simplicity is the promise they make to get other people to go along with it.

Consider two people, one making $30,000 per year, and the other making $3,000,000. Under a flat tax, someone making 100 times the income would pay 100 times the tax. The U.S. income tax is progressive, so the ratio is actually greater. Do you think one of those people uses 100 times the carbon of the other? If one drives 5,000 miles in a year, does the other drive 500,000? I suspect Mr. 3-Mill consumes a lot more than Mr. 30-Thou, and produces more carbon emissions because of it, but I doubt it’s 100 times more. And if that’s true, a carbon tax replacing the income tax would shift the burden from high earners to low.

11

Well, if you’re thinking this would just work in practice like a sales tax, then like Iggy says you end up with an extremely regressive tax system. Poorer people spend a much larger percentage of their income actually buying tangible goods, and fuel costs have a bigger effect on staple goods people have to buy than on most luxury goods.

But I think you’re wrong about it simply working out to be a generalized consumption tax. At least for Americans, most of their carbon footprint comes from transportation, heating and electricity. You can squeeze a percent here and there with, say, a bus commute or more efficient appliances, but in order to really change your carbon tax burden you’re going to need to move closer to work and move into a smaller house/apartment. Of course, the costs of living closer to cities is going to skyrocket.

Realistically, I think your tax will end up with rural and suburban taxpayers bearing the brunt of it (which may also drive the conservatives off), with the most affluent urban dwellers paying virtually nothing and the poorest trailer-dwellers paying the most. I’ll agree it would cause some radical change, but I really can’t see a way the tax system could accommodate losing all those super rich urbanites and expecting poorer suburban and rural folks to pick up the difference.

12

Oops, duplicate.

13

Why don’t you do the math and come back. Take the total consumption of gasoline, oil, natural gas, and coal and divide by the tax revenue last year. What would the cost per-gallon of gas be? I’m not going to do that math for you, but I expect it would be about $20, but maybe worse because as consumption drops the tax per-unit will increase. Maybe the poor people can use the savings from not paying income tax to buy a car with better gas mileage.

14

It’s a horrible idea. Not only would it end up being highly regressive because consumption does not scale with income, but the the wealthy would also be able to reduce their tax burden by investing in energy saving technologies.

A bigger problem potentially would be that it would disproportionally shift the tax burden onto the manufacturing and agricultural industries. The prices of food (which is energy intensive both in the growing and the shipping) and manufactured goods (ditto) would sky rocket as these activities are most likely responsible for at least half the energy usage in this country. Meanwhile, the service sector, the financial sector, the entertainment industry, etc… would carry very little of the tax burden except through worker consumption. I am sure a new equilibrium would be reached, but it would be very disruptive to our economy in the short to medium term…

15

What you’re talking about is a Value Added Tax (VAT) that is used in England. There are many ways for a Nation to collect the taxes it needs to operate its government. VAT works as well as property taxes.

However, attempting to base a new taxing system on the evils of CO2 is a guarenteed loser. The majority of the voters don’t buy into the as of yet, unproven man-made CO2 global warming/climate change claims. You simply won’t have the votes needed to make the change.

16

This is definitely correct, the idea is a non-starter because the majority of people and policy makers do not buy into the proven CO2/climate change claims. It does not matter that 99% of scientists do agree and have bought into it, they do not make law and are, in fact, viewed by at least half this country as ivory tower elitists.:frowning:

17

2012 Income tax revenue for the federal government was $1,400,000,000,000.

We consume 138,000,000,000 gallons of gas a year. And we burn 2,914,000,000,000 kWh worth of fossil fuels each year.

So, a $7/gallon gas tax and a 13 cent per KwH fossil fuel electrical tax would get you there.

Numbers aside, there are several big problems with such a proposal:

(1) The whole point of this idea is that the more you tax something, the less of it you get. That’s why we want to tax bad things (polluting fossil fuels) and not good things (productive labor). But, of course, the moment you put hefty taxes on the fossil fuels, people will consume less of them. So the revenue will be less. And there’s a lot of data suggesting that fossil fuel consumption is more elastic than labor.

(2) The proposal would be extremely regressive. The poor would see their electrical bills triple and gas become a luxury, and they weren’t paying income taxes to begin with.

(3) The proposal is great for city-dwellers (low gas use, more efficient housing) and terrible for non-city-dwellers, making it a non-starter politically.

Maybe (2) and (3) can be solved by more complicated schemes to try to make it more progressive (building in payroll tax exemptions for those earning under 60k, say). But (1) is a bigger problem. If you triple electrical cost, you’re going to see wind towers everywhere and your neighbors putting in three feet of insulation in their walls. Which is great. But we’re gonna need to find a form of revenue again.

18

Of course they don’t drive the same amount, but I’m talking indirect consumption. International air travel. Fancy imported European cars. Building an extra wing on the mansion using special slate floors trucked in from Vermont installed by artisans who have to travel in from the next state to work. Sushi flown in from Tsukiji fish market that morning. The daily commute of the kids’ violin tutor. Yes, I do believe the wealthy do generate more fossil fuel demand in ways that the less wealthy couldn’t ever dream of. They can decrease it to some extent, but they’re not about to step down off the pedestal and live like the poor.

19

I wouldn’t expect the electrical bills to triple. As you mentioned, a drop in demand should help offset the costs. Plus, the electrical supplier wouldn’t be paying any kind of income tax anymore, so there’s another big offset.

20

What percentage of electrical suppliers pay personal income tax instead of corporate tax?