Could a national (global) end user sales tax stem the emissions of carbon dioxide and reduce our uses of fossil fuels?
Say the word 'tax' today and most people cringe. People have always been tax averse and generally for good reason. Governments too often have had a bad record when it comes to smart use of tax revenues. For most of history taxes supported wars as much as infrastructure. And even in the latter case waste and corruption continues to be exposed at all levels of government, strengthening the general public's distaste with paying taxes. They, in some cases rightly, think their money is being frittered away or lining some fat cat's pockets. I don't really blame folk for this sentiment. But the solution isn't to reduce taxes as Grover Norquist wants. The solution is to install a hierarchical system of controls that ensure the appropriate uses of tax dollars. You might need auditors auditing the auditors, but that is effectively what living tissue does to stay alive! It's nature's way.
Assuming that we had a sapient governance system in place, one that would spend wisely, how could we best contribute to running that governance system? How do we fund it?
I actually like the direction being taken by the FairTax act. It is a national (USA) sales tax that would replace the income tax, with its myriad loop holes and exceptions. The sales tax is simple, involves no income forms, and has elements of progressivity in it that protect low income folk from paying disproportionately more. There is a lot of interest in this notion, but it is hard to imagine the foxes guarding the hen house (Congress and K-Street) deciding that a really fair approach to paying taxes should be implemented.
A sales tax is a consumption tax. And that is why I like the direction.
Consider what is being taxed. According to my money = energy* claim all economic activity is consuming energy and since most of that comes from fossil fuels it is producing CO2 emissions. If you now put a tax on buying stuff that people are going to use, consume, you just might make them think twice about that.
I would favor a very small tax on basic levels of essentials, food, clothing, housing where the price level of these items indicates how much energy went into producing them. But above a certain price level items, objects, services should be considered to have a certain luxury value and be taxed accordingly. So you can buy a basic cup of coffee, for say $1.00, but if you want to drink a latte ($2.50) you will pay a tax, say $0.63 (25%). If you want a flavoring ($2.80 price) the tax goes up to, say, $0.70 at that rate.
OK, maybe latte's aren't really what some might call luxuries, but they are pricey by most people's budgets. But I think there are things all of us would agree are luxury items that go beyond basic needs. If you track back over the energy needed to produce most luxury items you will find it took considerably more energy to produce than the equivalent non-luxury version (if there is one). So I would think a luxury premium on top of the sales tax for the item's price might not be inappropriate.
While the FairTax is a move in what seems to me to be the right direction, it doesn't quite go far enough, especially in terms of taxation on businesses. Here is the objective: tax consumption at all stages of the economy (somewhat like a value added tax, but different!) in order to account for all energy consumption and CO2, not just that used up by households. Businesses buy equipment, rent building space, etc. These capital goods get used up, as reflected by the depreciation expense now allowed on business income statements. That means that energy was expended once before and, assuming the business wants to continue it will need energy expended again in the future (also for maintenance).
Businesses also purchase raw materials and energy to directly produce the products or services to be bought by some customers. But these are not used up as such (this is where value added taxes have some similarity) so they should not be taxed when bought by the business. In a sense, then, business and households would work about the same way. Pay a sales tax only on the things you use up (and don't forget houses and cars do get used up). Pay a tax for the service of having wastage removed. Pay an extra tax if you insist on using up high end versions. But don't pay a tax on anything that simply passes through and sold to someone else (who pays the tax). This basic idea would seem to avoid the danger of cascading taxes where some products might end up doubly or triply taxed at different stages of production.
This is why I call it an end user tax as opposed to a straight sales tax. Only the end user of a good or service pays the purchase tax.
Now if this were done carefully we could structure the tax rate to correspond with the use of energy from fossil fuels or include a surtax on carbon content. Most economists who write opinions about the best way to drive CO2 emissions down favor a carbon tax over a cap-and-trade market. The revenues from the carbon component of the end user tax could be used to fund alternative energy infrastructure build out.
Then there are categories of goods and services in which there are no 'ordinary' versions. Yachts, diamond rings, etc. are truly luxury items that serve no purpose other than vanity. I guess I am anti-classist enough to think those items should be super-taxed. Add a premium on this category of goods and services so that those who want them really have to WANT them. These aren't really sin taxes, as such. Well, OK, they are. I just would avoid the use of that term to describe them in polite company. Revenue from these premiums could go to a form of negative income tax for those below the poverty level. A sort of enforced charitable giving! Call it the Robin Hood premium.
There are a lot of benefits from a sales tax that our society needs badly right now. Most important is the idea that a sales tax would encourage saving. People would tend to buy just what they really need and can afford, putting the rest in savings or investments. This is pretty close to my idea of what banks should be — depositories for wealth produced in prior periods. Think about it given the current liquidity crisis. If the banks had real assets based on savings they would actually have something to loan out when truly needed. Instead they have been borrowing against the future production of wealth. They are just like today's consumer who borrows a bundle to buy that giant flat panel TV on the belief that he will be getting a raise real soon. We can see how that philosophy is working out.
* Energy available to do useful work (EATDUW) not just raw energy!