Making Economic Growth Work Ecologically

Making Economic Growth Work Ecologically

by Roy Morrison

Our hearts tell us what we should do. Prices tell us what we will do.

The principle is clear if we want to make economic growth mean ecological
improvement, not ecological destruction. More pollution must mean a decrease in
the rate of profit. Less pollution must mean increasing profits.

It’s not hard. We need to tax consumption, not income. Pay taxes on whatever we
buy or use. More pollution, more tax. Lower pollution, less tax. Ecological
consumption taxes can enlist the invisible hand of Adam Smith in the cause of
ecological sustainability.

An average 18% ecological value added tax, or E-VAT, can replace all U.S.
government taxes on income, fund the federal budget, and get the prices right by
raising taxes on more polluting goods and services. The more polluting, the
higher the E-VAT tax rate, and the lower the rate of profit.

Helping save the planet and our kids’ futures is to phase out income taxes
and the IRS. How painful is that? Just make the E-VAT rate on all goods and
services increase with the amount of pollution, depletion, or ecological damage.
That’s the path to ecological sustainability and peace, instead of climate
change and resource wars for oil, water, and fertile high ground.

We can phase in the E-VAT over ten years as we phase out income taxes. The
E-VAT is simple for consumers. You pay a sales tax at the point of purchase.
You file no tax forms. You avoid taxes by buying less polluting goods or
services with lower tax rates indicated by color codes.

And the E-VAT is simple and largely self-enforcing for businesses. Businesses
file only a simple form reporting the tax you collected from your sales and
taking credit for the tax you paid your suppliers. You send the difference
between what you collected and what you paid to the government. This credit for
invoices system means that the value sellers add to their product is only taxed
once. The E-VAT could be based, first, on average amounts of pollution,
depletion, and ecological damage by S.I.C. code (Standard Industrial
Classification) with less polluting items applying for reductions.

The E-VAT is consistent with WTO rules that permit taxes on imports with
exemptions for exports. If the U.S. adopted an E-VAT, it would make exporters
from China to Germany change their practices.

The E-Vat tax base is final sales to domestic purchasers, more than $13
trillion a year. An 18% average E-VAT, with allowances for collection and
non-compliance, could replace all personal , corporate, and payroll taxes.

The E-VAT as a tax on all consumption, not simply on pollution, is positively
reinforcing. As the market responds to E-VAT rates, highest polluting items
would lose market share. To maintain revenues, the tax on moderate polluting
items would rise. Over time, this would mean the E-VAT would tend toward a flat
tax on most items that were sustainable in impact with high taxes indeed on the
few polluting outliers.

The regressive nature of the E-VAT can easily be remedied by a targeted
negative income tax. An additional $64.5 billion for a negative income tax
would keep federal tax rates flat for the 40% of U.S, households with the
lowest income. My forthcoming book, Markets, Democracy & Survival discusses the
E-VAT in detail.

The simple relationship between less pollution and higher profit will lead in
short order to a fundamental transformation in the way we do business and make
investment and consumption decisions. If polluting goods and services cost
more, we just need to be price conscious shoppers and businesspeople. Our
ethics and our pocketbooks will be once more aligned.


Roy Morrison is Director of the Office of Sustainability at Southern New
Hampshire University.

Roy Morrison & Associates, LLC