For forty years, Canadian environmental law has tried to defeat economics. That is, we have forbidden people and businesses from doing things that save them money, and commanded them to do things that cost money. In the circumstances, it’s amazing that we’ve accomplished so much: air is cleaner, rivers are healthier, smokestacks no longer belch choking smoke. But the urgency of climate change is just more proof that we must do more, and quickly. And for this, we need better tools.
Good tools make a job feel easier; bad tools (like conventional regulation) make it hard. And, often, the best tools are the simplest.The simplest tool to change behaviour is to change its price. We will have more of something if we make it cheaper; less of something if it costs more. Since everyone knows this, why is our tax system backwards?We say we want more employment, but we tax it heavily. Income from employment is subject to so much federal income tax, provincial income tax, health premiums, CPP and UIC, that “take home pay” doesn’t bear much resemblance to one’s official salary. Taxes are so heavy that some people are better off staying on social assistance.Meanwhile, what about the things we don’t want, like pollution? Pollution is free.Traffic is another example. Every landuse plan says we want more public transit and less traffic. So why does taking transit cost money every time you use it, while driving on the roads doesn’t? We say one thing, do the other, and end up with gridlock, frustration and smog. Yet politicians across the country refuse to act, insisting that the public won’t stand for it.Has British Columbia broken the stalemate at last? Their February budget takes the first small steps in this incredibly sensible direction. Starting in July 2008, income tax on every person and small businesses in B.C. will go down. The lost revenue will be made up by a new tax on emissions of carbon, the form of pollution that is causing climate change.The new tax starts very low – only $10 /tonne, far lower than we need, and will only gradually increase to $30/tonne. (See, for example, the reports of the National Round Table on Environment and Economy. The lower we keep carbon prices now, the farther and faster they will have to rise later, and the more we will all suffer in the next few decades.) But the concept is brilliant.Some benefits are obvious. For one thing, cutting income taxes lowers the price of employment, and therefore should lead to long-term job growth. For another, carbon taxes give people a personal benefit for doing what they ought to do: change light bulbs, seal leaks, check tire pressure, unplug “vampires”. (“Vampires” are electrical devices, such as phone chargers, TVs, etc. that draw current even when they are turned off, unless they are turned off at a power bar.)More subtly, carbon taxes empower people to control their own taxes. Employees can’t do much about income tax, except contribute to their RRSPs and complain. But everyone can reduce their carbon taxes, because everyone has substantial opportunities to control their own energy use. Even more exciting, carbon taxes can pay people to cooperate with their friends and neighbours: from condo upgrades to car pooling to group buys of solar panels.True, taxing pollution, instead of income, will affect different people differently. Some, who are used to high levels of energy consumption, may find it wrenching and intrusive to change their habits. My own husband grumbles about having to wear a sweater in his own house. There also needs to be special provision for the energy needs of low income people, who pay no income tax.But since we must change our energy use, which way is better? To order people around (command/ control regulation)? To beg them? (ineffective voluntary measures)? Or to use the obvious, untapped power of the tax system?I’d rather pay tax on my pollution, instead of on my income. It’s time to tax bads, instead of goods.