I've been excited for awhile about the idea of reading a post on "taxing waste instead of taxing income." I see the ability to tax as the ability to destroy demand for a certain product. For example, if you tax income, then you have the ability to destroy demand for income. If you tax waste, then you have the ability to destroy demand for products that produce waste, and shift demand to products that don't produce waste.
So, in this post, I wanted to see if it was possible for the US gov't to replace 100% of the income tax with taxes on waste. Note that the total revenue from income taxes is roughly $1 trillion US dollars, so let's keep that in mind when I discuss the items below.
So, what would I include in my list of potential items to tax:
(These are items that we are hoping get rid by taxing)
1) Municipal Solid Waste
2) Hazardous Waste
3) Nuclear Waste
4) Electronic Waste
5) Medical Waste
6) Industrial Waste (such as slag from steel production and fly ash from solid combustion)
7) Emissions of ozone depleting chemicals
8) Acid Gas Emissions
9) Greenhouse Gas emissions (once we get to the point that the addition of GHG's is net harmful, rather than beneficial. This number is some place between 500 ppm and 1000 ppm.)
Let's go through each one of these items and estimate the potential revenue, and see if we could tax waste instead of taxing income. Some of the stats given below are from the following website on Solid, Toxic, and Hazardous Waste.
1) Municipal Solid Waste -- We generate in the US roughly 250 million tonnes of municipal solid waste (MSW) per year. If we were to tax MSW at $200 / ton, I expect that we would generate zero revenue because, at that high of a tax, companies would figure out how to stop producing MSW. So, $0 and $200 / ton are the extremes because, in both cases, there's no revenue being generated. If the tax were $10 / ton, I expect that there wouldn't be much change in business as usual. So, a $10/ton tax might generate ~ $2.5 billion in revenue per year. I expect a $50/ton tax to cause a significant change in business as usual. Perhaps, we might only generate 100 million tonnes of MSW per year. So, this tax might generate $5 billion in revenue per year. I expect this number to be close to the maximum that could be generated. This would correspond to roughly 0.5% of the total federal income tax. This means that while it might be a good idea; we need ~2000 more ideas of this size.
2) Hazardous Waste -- We all generate about 250 million tons of hazardous waste per year.
Using similar reasoning as above, we might estimate that a $50 / ton tax on waste might generate $5 billion in revenue per year.
3) Nuclear Waste -- We generate on the order of a 2 to 3 thousand tons of nuclear waste per year. A tax of $1000/ton would likely not change business as usual, and would bring in $2 to $3 million dollars per year. Not much money, but perhaps a start to solving the nuclear waste problem.
4) Electronic Waste -- We generate roughly 3 million tons of e-waste per year. Since this type of waste is particular harmful to people and to the environment, we should tax this waste at a higher value than the tax on MSW even though e-waste is often thrown away in household trash cans. A tax of $100/ton of e-waste would probably not change business as usual, and would generate ~$300 million per year in revenues. A tax of $1000/ton of e-waste would probably eliminate all e-waste, and generate no revenue. A tax of $300/ton of e-waste might cause the amount of e-waste to drop to 1.5 million tons per year, so the revenue would be roughly $450 million per year, or about 0.05% of total federal revenues from income taxes.
5) Medical Waste -- Like e-waste, the production of medical waste is roughly 1% of the total MSW produced in the US. A tax of $100/ton on medical waste would probably not change business as usual, and would generate ~$300 million per year in revenues.
6) Industrial Waste -- We generate roughly 400 million ton of industrial waste per year. Some of this is more hazardous than the rest. Some types of industrial wastes might be taxed like nuclear waste ($1000/ton), some like e-waste at $100/ton, and some more like MSW (at $10 to $50 / ton).
One type of industrial waste is coal ash. We generate on the order of 50 million tons of coal ash per year. Some of this is recycled as road aggregate; some just sits in large ponds. A tax of $10/ton of coal ash might generate ~$300 million in revenue.
I expect that the average tax (weighted by the amount produced) would be on the order of $25/ton of industrial waste. And the revenue generated might be on the order $10 billion dollars per year.
7) Emission of ozone depleting chemicals -- The US produced and consumed on the order of 500 kilotons of ozone depleting chemicals in 1989. This number is near or below 10 kilotons per year now. Since ozone depleting chemicals like CFCs are harmful to both the ozone, as well as increasing the greenhouse effect, we might want to tax these chemicals at $500 / ton of emissions. But the revenue would be quite small...on the order of $5 million per year.
8) Acid Gas Emissions -- We emit roughly 100,000 tons of acid gases per year in the US. The EPA already has set up an auction system in place for emitting these acid gases,
so we can't include this an additional revenue for the government. But I wanted to give you a feel for the revenue generated per year for the government. Since the auction price of emissions is between roughly $100 and $1000 / ton of acid gas. The revenue is roughly between $10 and $100 million dollars per year, or 0.001% and 0.01% of federal income tax revenue.
9) Greenhouse Gas emissions -- We emit on the order of 6 to 7 billion tons of CO2 equivalent gases in the US per year. A tax of $10 / ton of CO2 would probably not change business as usual, and would be expected to generate between $60 to $70 billion in revenue per year. A tax of $100 / ton of CO2 would probably generate no revenue because it would cause some combination of the following: a) it would destroy the economy and b) it would shift nearly all production of electrical and mechanical work to non-GHG emitting sources. A tax of $30 / ton would cause some change in business as usual, perhaps by lowering the amount of emissions to ~4 billion tons per year, and hence generate ~$120 billion in revenues. My guess is that this is about the maximum that could be generated in revenues from a GHG tax in the US. This number represents ~12% of federal revenue from income taxes, and hence this revenue could be used to lower the income taxes on hard working Americans.
If we sum together the dollar values above, we get ~$140 billion per year or only 14% of the federal income tax revenue per year.
So, clearly we need other sources of revenue to pay for US government. We can conclude that just taxing waste is not enough to fix our financial problems in the US. We could generate addition revenue by also including 'sin' taxes. Here's a list of items that shouldn't be outlawed, but controlled through excise taxes.
4) Gambling (mostly because it teaches some people that the world is win-lose instead of win-win.)
5) Luxury cars, boats and homes
Let's estimate the revenue that could be generated.
1) Cigarettes -- Roughly 30 billions packs are sold in the US. The federal tax on cigarettes is already $1.01 per pack, and state/local taxes are on the order of $0 to $6 per pack. It seems unlikely that taxing cigarettes more will generate any more tax revenue, so while it might be good for some states to increase their taxes on cigarettes, any federal increase would likely be at the expensive of state revenues. The calculations below, therefore, do not include any revenue from increased taxes on cigarettes.
2) Alcohol -- We consume ~500 million gallons of ethanol in the US in the various forms of alcohol. Or roughly 100 billion bottle of 5% alcohol 12 oz beers, if you convert the beer, wine and hard alcohol into 5% alcohol beer. A tax of $0.10 per bottle of beer would probably not change the amount of alcohol consumed, and hence would generate roughly $10 billion in revenue. Higher taxes would likely decrease the amount of alcohol consumed. Perhaps, a $0.20 tax per bottle equivalent might decrease consumption by 20% and a $0.40 tax per bottle equivalent might decrease consumption by 40%. This would generate a revenue of roughly $16 billion and $24 billion per year. This last value is probably close to the maximum amount of revenue that could be generated, i.e. roughly 2.4% of federal income tax revenue.
3) Marijuana -- The US consumes on the order of 10,000 tons of marijuana in the US each year. This is roughly 32 million ounces of marijuana, which costs between $200 and $500 per ounce. A tax of $100 per ounce would bring in a revenue of ~$3 billion per year. This is small compared to the federal income tax, but my own belief is that legalizing and taxing marijuanna is a good thing because we are spending ~$8 billion in drug enforcement of marijuana. One question, though, is: would legalizing marijuana make our society stronger or weaker? I think that this is an open question.
4) Gambling -- As I mentioned earlier, I think that we should tax gambling because it teaches us bad habits, i.e. that life is a zero-sum game. The world is not a zero-sum game. The amount of real money in the world increases as we develop more and more non-subsidized power plants. Both sides of a business deal can be winners. Therefore, I think that we should be taxing gambling. This will change gambling from a pursuit of other people's money into just a form of entertainment. (If the 'house' takes 5% of each bet and the government takes 10%, then your odds of making money off of other people decreases significantly.) The revenue for the 'house' in the US was roughly $90 billion in 2007. I expect that, if the US government taxed gambling at twice the "house's rate" at where it's currently legal, then the US government could expect to bring in ~$100 billion in revenues a year. (For example, a bill in the US House to legalize and tax just internet gambling was expected to bring in $4 billion in revenue to the US gov't per year.)
5) Luxury cars, boats and homes -- (Here's I'm making some rough estimates) There's probably about a million people in the US who purchase, on average, a luxury car every 5 years, a luxury boat every 10 years, and a luxury home every 20 years. At $100,000 per car, $200,000 per boat, and $2,000,000 per home, this is roughly $140 billion in luxury cars, boats and homes per year. If the government were to include an extra tax of 10% per year. This might bring in ~$14 billion in revenue. A 20% tax might only bring in $20 billion per year. All of this depends on the number of wealthy people, whether there is income tax and how much inflation there is. But I think that $20 billion is on the right order of magnitude.
So, if we include the 'sin' taxes on alcohol, marijuanna, gambling and luxury cars/boats/homes, we could bring in another ~$150 billion in revenues per year. If you include the $140 billion in taxes on waste, then we're at ~$290 billion in revenues per year. This is still far from the $1 trillion from income taxes.
Yet, even though these numbers are small compared to federal income taxes, I still believe that this is the right thing to do because I believe that we should be taxing waste, drugs and luxuries rather than taxing income (i.e. productivity.)
So, if we did eliminate income tax, how would we make up for the lost revenue needed to sustain the government? (such as the money required for social security, medicare, medicaid, interest, the dept of defense, and all the other departments) One way to do this is to adopt an electricity-backed currency. In a previous post, I estimated that the US government could generate ~$420 billion in revenue if the US had a growth rate of 3% per year. The revenue comes from printing money as the price of electricity decreases. If we were to eliminate income tax, then would expect to see a decrease in the price of electricity because the cost to generate electricity would be lower. The federal government, then, would be able to print money in order to maintain a constant average price for electricity. I expect that if we were to eliminate $1 trillion in federal income taxes, we could generate between $400 and $800 in revenue by printing money (so as to maintain a constant average price of electricity.) I don't expect tax-decreases to pay for themselves, but I do think that income-tax-decreases would allow us to print money while keeping the average price of electricity a constant (such that we could print roughly half the money that we lost in income tax revenue.)
So, if you include the taxes on waste, the taxes on drugs, gambling and luxury items, as well as the ability to print money to maintain constant a constant price of electricity, it is possible to generate between $700 billion and $1,100 billion in revenue after eliminating the $1,000 billion federal income tax.
So, if you think that we need to maintain a federal income tax, I ask you to think again. It might be possible to fund government off of taxing waste, 'sin' taxes, and printing money (to maintain constant prices, i.e. not allowing inflation.)
Though, I understand that there are some major arguments against taxing waste/luxury instead of income:
1) Unstable source of income
2) Makes the gov't reliant on possibly seedy businesses
3) Paying taxes makes a citizen more engaged in government (i.e. demanding more for their tax dollars)
Still, with those criticisms duly noted, image the benefits of living in a country that taxes waste rather than productivity. Image living in a country that wants you to succeed. A country that promotes healthy activities (work) and discourages unhealthy activities (drugs, waste, and pollution). We can create such a society. We just have to be willing to fight for it.