Reconciling Economic and Environmental Goals

Repetto, Robert, Dower, Roger C., Issues in Science and Technology

Faster economic progress is compatible with better environmental quality, as the Clinton-Gore campaign asserted. But achieving both these objectives will require the new administration to resolve the country's economic problems with policies that promote rather than sacrifice environmental goals. The new administration has pledged to raise investment, improve education and health care, reduce the deficit, and ease the economic burden on ordinary people. Doing all of this will require raising additional government revenues, but fairly and in ways that don't depress the economy.

Taxes may be inevitable, but there's nothing inevitable about what we tax. We could reduce the burden of the tax system by making more use of so-called "green fees"--charges on pollution and other kinds of environmentally damaging activities. Because most people don't think about the damages such activities impose on others, environmental damage is excessive. The economy suffers hundreds of billions of dollars of losses each year from illness, natural-resource damage, and higher industrial costs as the result of pollution, congestion, and inefficient resource use. Green fees can address many of these problems more efficiently than command-and-control regulations and simultaneously raise tens of billions in additional government revenues.

Shifting the tax burden in this way promises a double economic benefit. At present, nearly 90 percent of federal revenues comes from taxes on payrolls, incomes, and profits. By weighing so heavily on everyone who works, saves, invests, or runs a successful business, these taxes penalize the very activities that make our economy productive. It would be far preferable to inflict a penalty on those who cost the economy money through their environmentally harmful actions or wasteful use of energy and natural resources.

Taxes on income and profit sap the economy in many ways. By lowering take-home pay, income taxes discourage some workers, who either put in fewer hours or stop working entirely. Payroll taxes depress job creation by prompting employers to find cheaper alternatives to hiring new workers, such as automating or moving operations overseas. Taxes on income from investments induce people to seek tax shelters or to save less. Tax shelters divert capital from more productive investments, and lower savings rates diminish capital formation. For these reasons, each additional dollar in government revenue raised through higher income-tax rates lowers private income by $1.40 to $1.60.

The logic of environmental charges is powerful for state and local governments as well. The recession has forced them to cut spending and raise taxes, but tax increases spell double trouble …

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Publication information: Article title: Reconciling Economic and Environmental Goals. Contributors: Repetto, Robert - Author, Dower, Roger C. - Author. Magazine title: Issues in Science and Technology. Volume: 9. Issue: 2 Publication date: Winter 1992. Page number: 28+. © 1999 National Academy of Sciences. COPYRIGHT 1992 Gale Group.

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