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US Tax Code Promotes Global Warming
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A customer walks past a fashion boutique at a shopping mall.
(AP Photo/Lai Seng Sin)
Let’s start with a short quiz:
Do you think that Americans as a whole consume too much?
Do you think Americans should save more money?
A lot of people would answer yes to both of these questions. It seems that our spending is only constrained by the ability to get that next credit card.
All of the goods we buy take energy to produce. If we consumed a little less we would be consuming less energy. If our savings rate increased there would be more resources available to invest in production. In our free market economy, more savings typically lowers interest rates, which make it easier to finance renewable energy projects. This would produce some savings in greenhouse gas emissions if we could reduce consumption and increase the productive side of our economy.
One way to reduce consumption would be to put a tax on consumption. If you want less of something, you should tax it. You should also have a corresponding reduction in taxes on production. If you want more of something, put a tax incentive on it.
Many countries in the world tax consumption through a value added tax. The value added tax is added at each stage of the manufacturing process. The raw material supplier adds on the tax to the material he sells to the manufacturer. The manufacturer adds on a tax for the value he adds (price less cost of materials). The retailer adds on to the value added tax for the value added by selling and delivering the product to the customer.
The value added tax in other countries works against our economy because we don’t have a value added tax. When a foreign company manufacturers a product and then exports it out of the country; the government gives the company a tax refund on the amount of value tax paid because the product was not consumed in the country. A lot of these countries use the tax to fund universal health care. In America we expect our manufacturers to fund their employee’s health care. We are at a competitive disadvantage to countries with value added taxes. A manufacturer here would pay for their employee’s health care. When they export a product, a value added tax is added charged when the item lands on a foreign dock. They are effectively paying for both their employee’s health care and for the customer’s health care. When a foreign country exports to this country, they don’t have to pay for their employee’s health care and they get a refund of the tax they have already paid. Their products arrive in America tax free. Partly because of this cost disadvantage, we are running a $700 billion per year trade deficit.
Is it any wonder that our car companies have shown years of chronic losses? They have made money in foreign markets but consistently lost money on North American manufacturing. They can’t compete with foreign auto manufacturers even when the foreign companies have to pay very high shipping costs due to the high price of oil. Shipping consumes 10% of total global oil production; about 8 million barrels per day. That is a lot of carbon releases each year. There has been a terrible personal cost as our auto industry has been loosing jobs to foreign competitors. This has been true for many manufacturing companies and jobs. We have been loosing our good paying manufacturing jobs and replacing them with lower paying jobs selling imported goods at ‘Big Box Stores’.
What is worse of all is the contribution to global warming that over consumption of imported goods is causing. Many of the goods we buy are coming from China. Chinese companies don’t spend much on benefits like health care. Their tax structure is set up to encourage exports. We are China’s largest trading partner. Wal-Mart buys so many products from China that it would rank as China’s eighth largest trading partner, ahead of Russia. China has also now passed America as the world’s top emitter of carbon dioxide, even though their economy is only about 1/3 the size of our economy. They emit three times as much carbon dioxide for the products they produce compared to having products manufactured in this country. China fuels a lot of its industry on very low quality coal, which emits a lot of carbon for the amount of energy produced.
Trade with China is even more polluting. They import many of their raw materials. They import iron ore from Brazil. They import coal from Australia. They manufacture steel in their country and then export it to places like New York. That is a lot of shipping cost (oil consumption) and they can still be competitive! If we had a value added tax, all those Chinese products would be taxed when they landed on the import dock. They are not going to be as competitive in pricing and will loose some sales to domestic manufacturers. Multi-national companies will start moving manufacturing back to this country creating more goods jobs here. If we can invest in renewable energy to power this manufacturing resurgence, we can substantially cut global carbon dioxide emissions.
Energy Efficiency: Can Tax Incentives Reduce Consumption?
Promote Sustainability by Rethinking the Income Tax?
