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The Case for Green Consumer Taxes

Summary:
As the world looks to recover from the COVID-19 pandemic and tackle climate change, progressive consumer taxes on resource-intensive goods could help. Such taxes would fall on the rich more than the poor, and the proceeds could support jobs and investments that would leave the planet better off. LONDON – Many governments, aiming to foster a green and inclusive post-pandemic recovery, have embraced the slogan “Build Back Better.” So far, policymakers have focused on increasing public spending in ways that address climate and environmental challenges while also creating jobs for the disadvantaged. But fiscal conservatives worry that the rising tide of red ink will drown economies in debt and lead to a financial-market backlash.

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As the world looks to recover from the COVID-19 pandemic and tackle climate change, progressive consumer taxes on resource-intensive goods could help. Such taxes would fall on the rich more than the poor, and the proceeds could support jobs and investments that would leave the planet better off.

LONDON – Many governments, aiming to foster a green and inclusive post-pandemic recovery, have embraced the slogan “Build Back Better.” So far, policymakers have focused on increasing public spending in ways that address climate and environmental challenges while also creating jobs for the disadvantaged. But fiscal conservatives worry that the rising tide of red ink will drown economies in debt and lead to a financial-market backlash.

With the pandemic not yet over, politicians are unsurprisingly loath to dampen spirits further with talk of tax increases. But the socially sustainable shift that they profess to seek will require revenue reforms.

For now, the current tax debate is more about the mix of taxes than their level. It’s about smarter rather than higher taxes. The key here is to shift from taxing labor to taxing the use of resources. Policymakers should therefore consider introducing progressive consumer taxes on resource-intensive goods.

This is not a new idea. Economists have long argued that funding income-tax cuts by hiking taxes on resource usage and environmental harms would be more efficient and equitable. Such taxes would address the market’s failure to penalize polluters for the costs they inflict on society.

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