Cutting Taxes for the Environment: George Pieler Op-Ed

Cutting Taxes for the Environment: George Pieler Op-Ed

April 20, 2001

Published in Investor's Business Daily

Distributed by Scripps Howard News Service

April 20, 2001


Earth Day, which most Americans welcome, comes right on the heels of Tax Day, which most Americans would just as soon forget. But the close association of the two events this year is a fruitful reminder that by cutting taxes and moving to a fundamental overhaul of our antiquated tax system, we can make taxpayers a lot happier (or at least less disgruntled), while doing great things for the environment as well.


Tax cuts are good for the environment? You bet they are, particularly sweeping changes like cutting everyone's tax rate, as President Bush proposes. Every environmental problem you name, from trash disposal to pollution, water quality to wildlife preservation, is directly related to economic inefficiency-friction in the production and distribution of goods and services.


While there is no "frictionless" way for economies to function (at least not yet), anything we can do to reduce economic inefficiency is an ecological plus. And let's face it, taxes are a huge source of friction, not just for you and me, but also for entrepreneurs and well-established businesses trying to turn a profit and create jobs, opportunity, and economic growth. High marginal tax rates in particular are dead-weight economic obstacles for the private sector, raising the cost of producing one more automobile, DVD, or pack of granola. Artificially high production costs represent economic waste, pure and simple. Companies that could invest in more efficient production methods, recycling systems, or other eco-friendly ventures are directly inhibited from doing so by excessive tax rates.


For that reason alone, President Bush's tax rate cuts are the most environmentally friendly initiative he's put on the table yet. What's more, the president rightly targets the estate tax ("death tax") for phase-out and ultimate repeal. Analysts of all stripes, from free market environmentalists like Jonathan Adler to green activists like Michael Bean of the Environmental Defense Fund, have agreed the death tax literally destroys land with ecological value. That's because the death tax promotes premature sale of land that has appreciated substantially over the years, either to avoid the death tax or an enable an estate to pay its bills.


So tax cuts, and tax rate cuts in particular, are much better for the Earth than the status quo. Better yet would be fundamental tax reform, ideally with a single rate and generous allowances for writing off new investment (or, at a minimum, ending multiple tax burdens on savings and investment).


This fundamental rethinking of tax policy for the 21st century would be a major boon to the environment. It would spur much faster turnover of capital stock and introduction of new technologies that are cleaner and greener: better energy management systems, pollution control devices, less wasteful methods of industrial production, and the sheer wealth generated by steady economic growth, which enables us to afford the environmental quality Americans want.


As Lynn Scarlett points out in her contribution to Earth Report 2000, "Doing More with Less," industrial production has become vastly more efficient in recent decades. One example she uses is timber harvesting, which in 1970 generated 26% waste products (i.e. byproducts with no economic value), but by 1993 brought that waste figure to under 2 percent. Market forces bring technological and efficiency gains that no government bureaucrat could ever have dreamed up. With fundamental tax reform, those gains will come much faster, and there will be a lot more of them.


Ironically, hardly anyone thinks of tax reform as an ecological initiative, but it is - much more so than any EPA regulation we could conceive. When folks think of 'green tax reform' they usually mean the Euro-style approach of tax penalties on certain types of pollution, carbon or other energy taxes, or other efforts to use tax policy to micromanage economic decisions in a way that someone in the central government (or, more lately, multilateral institutions like the European Commission ) thinks will appeal to pro-environmental sentiment.


That is manifestly the wrong way to go, since it always leads to higher taxes, slower growth, and retarding business innovation. Genuine tax reforms, if they are truly "green," must demonstrate a positive impact on wealth-creation, capital investment, and technological advances. Taxes aren't green, but growth truly is.


George Pieler is adjunct fellow at the Competitive Enterprise Institute and Washington Representative of the National Tax Limitation Committee. He is the author of Tax Reform is Green, published by the Competitive Enterprise Institute in October 2000.



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