Fighting Climate Change with a 'Stuff Tax'

Fighting Climate Change with a 'Stuff Tax'

On Monday, the United Kingdom's coalition government announced sweeping measures to cut its budget deficit, the second worst in the EU. 

UK lawmakers should be applauded for addressing their government's funding gap, and not just pushing it onto their children, like the United States has done. One of the measures introduced by Prime Minister David Cameron was an increase in Value Added Tax -- a federal sales tax -- from 17.5 percent to 20 percent. It is time for the United States to follow suit.

Once upon a time, during the era of taxation without representation and a different kind of Tea Party, following the UK was heresy. But the United States is now facing three systemic, growing, 21st century challenges: a huge deficit, high unemployment and climate change. Leaders from Des Moines to DC are asking how they can provide necessary services without raising taxes, get more people working again, and get the energy they need without succumbing to King Coal or crapping all over the Gulf of Mexico.

There is a way out of this. Why not tax consumption, instead of production?Rodeo Drive

In the US, we are taxed by the federal government for what we earn, at a rate between 15 percent (top 50 percent of incomes) and 26 percent (top 1 percent of incomes). For those of you who like working hard, only to start actually earning money for yourself on Tuesday around lunchtime, read no further.

For the rest of us, let's entertain the glory of the Stuff Tax.

The More You Want, the More You Pay

There is no reason we should tax employment, work or production. The concept is a perversity that punishes the addition of value to society.

In contrast, a Stuff Tax would do exactly that: Tax the consumption of stuff. You would take home the lion's share of your paycheck each month. Consume nothing? Pay no taxes. Want to buy a snowmobile or a Ducati? Pay the tax.

Here is how it could work:Roll Royce

  • Income taxes greatly reduced or abolished.
  • Employment taxes greatly reduced or abolished.
  • All products and services, with the exception of food, public transportation, some clothing and shelter (property/ rent) include a 20 percent federal government-levied tax.

 

We say we value work and entrepreneurship, and yet we tax them. As a nation we have not historically valued consumption, yet we encourage it. We do this because we have always done this, but there are other ways to raise funds for essential services and close the deficit, which was $1.67 trillion in 2009 (a threefold increase from 2008).

Each percentage point of Stuff Tax has been estimated to raise 0.4 percent of GDP, or $50 billion. A 20 percent Stuff Tax could therefore raise $1 trillion. That is equivalent to the income tax the federal government collects from all but 0.5 percent of Americans. Configured another way, a Stuff Tax would enable us to reduce employment tax by 50 percent, abolish income tax for 95 percent of Americans, and still come out ahead. Which do we value more, work or stuff?

Yes, a Stuff Tax would take a bite out of consumption initially. But that needs to happen anyway -- with consumption at 70 percent of GDP, we are completely addicted. Shifting taxes from production to consumption would help wean us from that addiction, spur new sectors of growth, and create a more diversified, and stable, national economy.

BlingAnd the benefit to the environment? Creating stuff involves environmental costs- of extraction and pollution -- that are currently unaccounted for. Although it is a coarse tool, a Stuff Tax could acknowledge those externalities (similar to a Pigouvian Tax) and fund the appropriate mitigation. As we learn more, the Stuff Tax could be varied based on the impact that product or service has on the environment -- gas would carry a higher tax, for example, than birdseed.

A Stuff Tax will not solve all of our problems. But it would hold us all responsible for what we consume, encourage employment and nudge our economy in the right direction. Until then, Uncle Sam will keep earning his dime by taxing employment and work -- both the hairdresser who bikes to work and the hedge fund manager with two power boats and a private jet.

And that does not help our budget, our unemployed or our environment.

Stephen Linaweaver is an associate principal at GreenOrder, an LRN company. GreenOrder is a strategy and management consulting firm that helps companies achieve competitive advantage through environmental innovation. GreenOrder Senior Analyst Brad Bate contributed to this article.

Top image CC licensed by Flickr user jeff kung. Inset images CC licensed by wikimedia user Torsten Bolten, Flickr user Draco2008 and sxc user arthausen8.