Environmental Tax Crusader
Until the mid-1990s, Alan Thein Durning was a senior researcher at the Worldwatch Institute in Washington, D.C., where he chronicled global ills and looked at macro-solutions. In 1995, as chronicled in his book This Place on Earth: Home and the Practice of Permanence, he moved his family across the country to establish a base in Seattle, where he could study environmental problems as filtered through his own local turf.
Since founding Northwest Environment Watch, Durning has turned out a steady stream of books and reports—from urban planning to voluntary simplicity and population growth—with a distinctly regional viewpoint. In 1998, with Yoram Bauman, he wrote Tax Shift: How to Help the Economy, Improve the Environment and Get the Tax Man Off Our Backs, a slim volume full of statistics and scenarios that could lead the Northwest out of its tax bind.
Durning argues that a tax shift would not only benefit the environment, but be a great boon to ordinary taxpayers (whose work is disproportionately assessed) and the business community as well (see cover story this issue). It’s a message that hasn’t yet gotten through to Congress, but is finally being heard on the local level and in state legislatures. Durning says tax shifting may be a long haul, but it’s well worth the fight.
E: Some people see tax shifting as an inherently radical notion. But isn’t it, in some ways, simply returning to the income tax framers’ original intent, which was to target property ownership and only the highest earners? How dramatic a change does it represent?
Durning: The shift to tax pollution instead of pay checks would be a profound step towards reconciling the economy with the environment. It would put the power of the pocketbook and the power of the bottom line behind all the different agendas of the conservation movement.
It is true that the federal income tax was originally only on the very highest-income families. Only during World War II was it extended down to most middle-income families. It is entirely possible during a tax shift that we could raise the bar up again, so that it really only affects the top half of the income spectrum.
When the idea of tax shifting is explained to them, most people will endorse it, which is reflected in public opinion polls. But don’t entrenched interests, especially from the extractive industries, make it difficult to get these ideas through legislatures and through Congress? We haven’t seen many tax-shifting bills actually survive, although many have been introduced.
Tax shifts have winners and losers, and anytime you change economic policy, the losers tend to organize more quickly than the potential winners. So the vested-interest problem is a significant one. However, it looks to me like the biggest obstacle to tax shifting is the unfamiliarity of the idea. It’s so novel. Politicians have a saying: “The best tax is an old tax, because people are used to it.”
People don’t think about taxation the way economists do. It’s just part of their world, part of their landscape. Americans assume that local property taxes pay for their schools, and that the federal government is paid for by the income tax. It’s a pain, but it comes only once a year. Taxpayers are used to having a big chunk of their paychecks disappear to pay for Social Security and Medicare. And depending what state they live in, they assume they’ll pay a retail sales tax and a personal income tax.
But it’s almost as if the tax code was handed down from heaven on a stone tablet saying, “You shall fund government with a sales tax and an income tax and a property tax.” It’s the habit that we have around existing taxes that is the biggest obstacle to change. In the past century, there have been only a few fundamental tax reforms, and most of them involved decades of organizing. Populists in the 1880s fought for a federal income tax, and it wasn’t until 1913, after the Populists themselves were pretty much vanquished as a political force, that Congress and the President approved it. Interestingly, they did it as a 14-page amendment to a law on tariffs. Realists knew it was the only way to get it passed.
I think it’s plausible to ask whether some of the little environmental taxes that we’ve been able to lodge in state tax codes are the precursors to a much-larger set of environmental taxes, in the same way that amendment was the seed that grew into this enormous federal tax code.
I was reading in the paper just now that they’ve completed the mapping of the genome of a particular roundworm, and that if you typed out the sequence as characters in the New York Times, it would be 2,800 pages long. At first I thought, boy, that’s a lot, then I realized that if you typed out the Internal Revenue code it would probably be a lot longer than that.
It has 9,000 individual sections.
Yes, and seven and a half million words. It takes up six inches of shelf space. Plus, there’s twice as many pages of regulation that interpret and define the code. Then every state adds a similar volume of taxes, then the cities and the counties. In a way, the tax system is like the DNA of our economy, invisible, mysterious, but shaping the behavior of our entire system.
Do you think that people realize the extent to which we’ve come to depend on payroll taxes for a great percentage of our tax revenue? The system seems to be basically unfair, weighing much more heavily on low- and middle-income wage earners.
At least in the Pacific Northwest, 80 percent of all taxes fall on labor and capital. And capital is a tiny share; most of it is payroll taxes and income taxes on peoples’ wages. Of course, people also pay income tax on investment income, but the accounting rules are such that people pay much more on the money they earn at their jobs.
There is a huge tax burden on labor, and it explains why our economy is always trying to automate and replace workers with machinery or new production techniques. It also explains why, in the last 25 years, disparities in earnings have widened so much. The income tax gets bigger as your income rises, but the payroll tax stops at $62,000. So you’re taxed on every dollar you earn up to $62,000, then above that you don’t pay a nickel. I think payroll taxes are easily the most regressive force in the federal tax system, and concerned primarily with taking money from lower-income American families and giving it to older retirees.
We could finance Social Security with a tax on carbon dioxide emissions, or a broader-based basket of taxes on environmental “bads”: air and water pollution, toxic chemicals, emissions from vehicles and so on. It’s not one thing; it’s a menu of options, and deciding which we go after depends on our priorities and political realities. The Clean Air Act of 1990 expanded the modern reporting requirements of a lot of pollutants, which makes it easier for us to create a system of pollution-based taxes. That’s not the case, for example, with greenhouse gas emissions. Carbon dioxide we can monitor because it’s a byproduct of fossil fuel combustion, and you can make a pretty darn good estimate of how much is burned. But for other greenhouse gases, there’s no monitoring and reporting system, so taxing them is diffi
One very distinctly environmental benefit of a carbon tax would be to increase the price of gasoline, which would, in turn, discourage the purchasing of sport-utility vehicles and encourage the development of mass transit. That’s almost like a side benefit of the tax in addition to the revenue that it creates.
You’ve put your finger exactly on the elegance of tax shifting. It solves at least two or, in many cases, three or four problems all at once. By taxing carbon dioxide, you’re telling the entire economy to conserve fossil fuels. And in the long run, that’s going to change everything about the way we use energy. It’s going to change transportation patterns and the shape of cities, slowing down sprawl as people seek places to work and places to live that are more conveniently reached by transit, foot, bicycle or modem.
I saw a recent piece in Autoweek about the new Cadillac sport-utility vehicle, which gets something like 13 miles per gallon. “But who cares about gas mileage?” the story said. A lot of consumers think that today, and the industry certainly thinks that. Gasoline in Europe cost $3 or $4 a gallon, where they’ve already enacted carbon taxes. Why are the Europeans so far ahead of us on this stuff?
Seven European countries have enacted some kind of tax shift, specifically reducing taxes, especially on labor, while also increasing them on pollution, solid waste generation or some other environmental ill. Europe has always been more inclined to use environmental fees and fines, whereas the U.S. and Canada have tended to focus on mandatory limits on emissions. So it was a more natural progression for them to go to a tax shift. Also, remember that the overall tax burden on labor in Europe is even higher than here. In Germany, something like 43 percent of every paycheck disappears to pay for income and payroll taxes. They’ve also got two to three times as high an unemployment rate as ours, probably because of the very heavy tax burden.
The jobs get sent abroad, as in the case of Volkswagen building a factory in Mexico.
Absolutely. So the Europeans had even stronger economic reasons for a shift, as well as the history of taxing environmental ills. They also believe that climate change is already occurring. And there’s a whole cultural difference in the business community. Here, business groups organize to encourage the country to stick its head in the sand and ignore what scientists are telling us.
There’s an interesting trend toward recognizing global warming in the U.S., though. General Motors recently acknowledged that it might be real.
We’re starting to see some breaks, but I suspect that Mother Nature will keep sending its rather rude press releases to the Fortune 500 in the form of terrible storms and heat waves and so on. The insurance companies paid out more in storm-related claims in 1998 than in all of the 1980s combined. And odds are it’s just going to keep on going that way. So the allegiance of the service sector and the financial sector to old-line fossil fuel industries will be tested and eventually give way.
Your group, Northwest Environment Watch, has been tracking tax shift initiatives in the region very closely. Are you seeing some of these bills actually become law?
No place in the Northwest or anywhere else in America has enacted what I would call a real tax shift, though there are really long lists of modest environmental taxes on the books. We are seeing a whole lot of activity, though, both in Oregon and in the Canadian province of British Columbia. And we’re beginning to see initiatives in Washington State, though as of yet nothing in Idaho, Montana or Alaska. In Oregon, the governor has run two different high-level commissions on tax reform and that’s created an opportunity for high-level discussion and media attention. In one case, they actually suggested a particular tax on agricultural chemicals, part of the revenue from which would go to sustainable agricultural programs.
In British Columbia, there has been interest in the highest levels of government, and they’ve added staff to figure out what can be done in the next few years. In general, however, my view is that this is at least a five-year campaign. It may be that it’s going to take us 15 years to direct serious attention to the idea, and 30 years before we really get dramatic changes.
I love that you say in your book, “Merely reading the words ‘tax’ and ‘policy’ in the same sentence can cause a person’s eyes to glaze.”
That’s one of the single largest problems. How on earth are we ever going to make tax shifting into good TV? Environmental campaigns seems to work when there’s good film footage that you can show of ugly smokestacks, leaking tanks of green liquids or else magnificent scenery. This is a task for organizing and educating. Northwest Environment Watch is networking in the business community to find some prominent folks who will endorse the concept, and then we’re getting them to sign cover letters and mail a copy of Tax Shift to every elected official in the region. We’re letting people know that the idea exists. What are the next steps beyond that? Well, we’ll sort of see how it goes.