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Shifting taxes: to create jobs and save the environment...

Increasing taxes on pollution and resource use while lowering taxes on income and wages is a powerful new tool for protecting the environment, reports a new study from the Worldwatch Institute, entitled Getting the Signals Right: Tax Reform to Protect the Environment and the Economy. Such a tax shift could also create millions of jobs and boost living standards of the working poor, according to the study.

Countries around the world are now experimenting with environmental taxes, says the report, which documents how five nations have made revenue-neutral tax shifts, using the money from environmental taxes to cut the conventional taxes that penalize work and investment.

"Tax shifting is cheap insurance," says Senior Researcher David Malin Roodman, author of the report. "We can reduce the risk of global warming, for example, without raising taxes overall or hurting the economy."

"Today's tax codes are dangerously behind the times - relics of an era when we could ignore our economic dependence on the environment," Roodman continues. "Air pollution prematurely ends the lives of over 300,000 people worldwide each year and causes chronic coughing in 50 million children. But 90 percent of the world's $7.5 trillion yearly tax burden is levied on work and investment, while less than five percent comes from taxes on environmental harm."

More fully taxing pollution could raise more than $1 trillion a year worldwide, which could be used to cut taxes on wages and profits by up to 15 percent - leaving the total tax burden unchanged.

"Today, environmental harm is often cheap or free to the people and companies who cause it," Roodman notes. "For example, in the United States, the unpaid costs to society of driving - ranging from lung disease to noise pollution - are estimated at $218 billion per year. Only if drivers begin to pay more of those costs can the problems themselves ultimately be solved."

It no longer makes economic sense to let people pollute the air we all breathe or destroy ancient forests - tax-free - while taxing our work and-investment in order to cope with the resulting environmental damage, the report argues.

Thousands of environmental taxes are on the books worldwide, but only a small number are high enough to do much good. However, the number of effective taxes has increased in recent years, some with an added bonus: Five European countries have linked environmental tax hikes to cuts in income and wage taxes.

Here are some the examples of environmental taxes cited in the Worldwatch study:

* In the Netherlands, taxes on industrial emissions of heavy metals have led to a reduction in the leakage of cadmium, copper, lead, mercury, and zinc into canals and lakes by 86-97 percent since 1976.

* Australia, Denmark, and the United States used taxes on CFCs to help phase out these chemicals in less than a decade. The American tax has raised $4.1 billion.

* In Sweden, air pollution taxes helped reduce emissions of nitrogen oxides - which contribute to acid rain - by 35 percent in just one year.

* Germany cut the production of toxic wastes by 1 5 percent in just three years by using taxes.

* Malaysia adjusted its motor fuels taxes to make leaded gasoline more expensive than unleaded, allowing unleaded fuel to grab more than 60 percent of the market.

Roodman recommends that tax and permit systems not be applied puritanically. To protect low-income families, the coastal town of Setubal, Portugal, for example, has "terraced" its new water taxes. Households can buy 25 cubic meters a month tax-free, enough to meet most basic needs; but above that threshold, a water tax begins to kick in, rising progressively in three stages.

"Still, environmental tax reform faces many political obstacles. Businesses on the losing side of environmental tax shifts are often the best financed and organized, and have successfully opposed increases in energy taxes in the United States and other countries in recent years."

The task for environmental tax reformers is to build alliances to create a winning majority. They can find common ground with labour unions, with minimally polluting service businesses, and with manufacturers of green products.

Polling data from the United States and Europe show broad support for environmental tax shifting. On both sides of the Atlantic, 70 percent of those surveyed have favoured the change once they understood it. The European Trade Union Confederation and the Union of Industrial and Employers' Confederation of Europe have also endorsed the idea of green taxes.


Worldwatch Institute

1176 Massachusetts Ave. NW

Washington DC 20036-1904

Phone: (202) 452-1999


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Publication:Natural Life
Date:Nov 1, 1997
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