September 18, 2006

Green taxes

Writing about web page

(This entry is being posted on this blog and my new blog Whitherward as this one will disappear within a month or two I think.)

Apparently Menzies Campbell wants to scrap the Lib Dems policy of a 50% rate of tax on earnings over £150k in favour of “green taxes”, that is taxes on polluting behaviour. Given this, it seems like an appropriate time to ask the question: are green taxes sustainable?

Now, since he is proposing scrapping the 50% policy in favour of green taxes, he clearly expects to use the expected revenues generated as a basic part of his budget. Someone (I can’t remember who I’m afraid, it might have been Chris Doidge, but it might not), pointed out in an earlier conversation that either these taxes raise lots of money, in which case there must still be lots of polluting activity, or they fail to raise lots of money, in which case there would be a budget shortfall. Strictly speaking this isn’t true, it could be the case that you could expect to reduce polluting behaviour but not eliminate it, and anticipating the reduction in polluting behaviour as a consequence of these taxes you could estimate the revenues that would be produced. However, there does seem to be something slightly perverse about this (and do we really believe that they’re capable of doing these sorts of calculations?).

There is another problem. Presumably, we would hope that in the long term polluting behaviour would significantly reduce over time, which would mean that to maintain constant revenue rates from green taxes, we would have to increase these taxes over time to compensate. As the rate of taxation got ever higher, the illogic of the tax would become ever clearer, and eventually an alternative source of revenue would have to be found. In essence, the revenue generated by the green taxes would be used, presumably, for wealth redistribution, but rather than taxing the wealthy you would be taxing the polluters which seems unfair on the face of it.

So, although I am in favour of policies which reduce polluting behaviour, and I am in favour of wealth redistribution, I am not at all sure about this policy. It seems like a short term attempt to introduce stealth redistribution of wealth, which fails to address any systemic or long term problems. Perhaps it is justified as a short term measure because of the current right wing trend in politics though?

- 5 comments by 1 or more people Not publicly viewable

  1. Don’t think it was me!

    18 Sep 2006, 09:14

  2. Sounds like the Lib Dems are just using a green smokescreen to cover backtracking on taxes on high incomes. Although I think closing loopholes in the income tax system might be a more just approach than just pushing up the headline rate.

    On the other hand, high taxes on alcohol and tobacco do seem to reduce consumption. Also taxation is a more flexible approach than out right bans – should air travel be banned or should it be taxed enough to offset it’s environmental consequences? Should cars be banned or should congestion charges be applied to keep traffic down to levels which are felt to be acceptable (and which can be carried by the roads)?

    18 Sep 2006, 12:13

  3. I don’t think that most of the laws we currently have are expected to last for hundreds of years, so I don’t see why this one should. Also doesn’t the new Carbon trading scheme do exactly the same thing as this tax?

    18 Sep 2006, 23:27

  4. I also read somewhere that the Institute of Fiscal Studies has shown that “green taxes” are actually more redistributive than the 50% policy, so it’s quite possible I’m talking out of my arse. More work needed to find out.

    20 Sep 2006, 02:14

  5. I think the package included raising income tax thresholds and cutting CGT relief. The former is greatest benifit to low earners, the latter increases tax on the rich.

    20 Sep 2006, 15:05

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