Public Comment

If Berkeley is to lead the world in greatly reducing emissions, the city needs to set a target year of 2020 rather than the 2050 of Measure G. The looming crisis of climate change requires swift action. We can reduce emissions most effectively with a green tax shift. 

There are three basic ways to reduce pollution: regulation, permits, and pollution charges. The first two impose big costs on enterprise and will needlessly reduce living standards and our freedoms. Restrictions and permits costs will be hardest on the poor, as they will have less economic opportunity in a shrinking economy. 

The third method of reducing pollution is to make the polluters pay a tax in proportion to the damage caused. Unlike permits and regulations, a tax on pollution brings in revenue to the government. 

Several countries levy such charges on emissions. Germany taxes emissions that go into its waterways. Western Germany, along the Rhine River, has a lot of chemical factories, and yet, the rivers are quite clean, because of the stiff charge on emissions. 

We can measure the pollution from car exhaust with remote sensing using existing technology. Remote sensors at intersections and freeway exits would be able to detect the emissions from car tailpipes with infrared beams. A camera would record the license number of the vehicle. The devices are inexpensive and would enable the city to charge those who exceed some level of emissions. There would then be no need to regulate the number of cars or amount of driving. 

General taxes, like income and sales taxes, impose what economists call a deadweight loss or excess burden on society. This is the misallocation and waste of resources caused by arbitrarily raising the cost of goods, reducing the quantities produced and reducing investment, and so reducing growth and future wealth. A pollution charge does not have this deadweight loss because the pollution itself is a social cost. If there is no pollution charge, in effect the polluter gets subsidized. The polluter does not pay the full cost of his production. 

The excess burden of taxation in the United States has been calculated by economists as at least a trillion dollars a year. This deadweight loss is a bad thing, but we are living in a unique time in human history, when the deadweight loss of present-day taxation can save humanity from increasing and escalating global warming. It gives us a historic opportunity do make a great leap of fate. It enables us to implement the green tax shift. 

If governments at all levels levy swiftly escalating charges on pollution while simultaneously reducing taxes on income, sales, and buildings, this revenue neutral shift would efficiently reduce pollution while also reducing the deadweight loss of taxes on labor and enterprise. Pollution charges would not be able to replace all the taxes on income, sales, and buildings, so a complete green tax shift would also require a tax on land value or land rent. 

Since land has a fixed supply, a tax on land value does not reduce the supply of land, and so there is no deadweight loss. Landlords cannot pass on the land tax to tenants, because if they try, they get fewer tenants, and vacancies. Moreover, land cannot hide from the tax collector, and land cannot run away to Brazil. There is no way to evade a tax on land if all land is treated the same, taxed in proportion to its potential market value in its highest and best use, regardless of actual use. A land tax is also simple to implement, because the owner does not have to keep complicated records. The title holder gets a bill and pays it, like a utility bill. 

So a complete green tax shift would eliminate taxes on income, sales, and property improvements like buildings, and instead tax pollution and land value. There would also be user fees when a government service has specific beneficiaries. 

The complete green tax shift would increase productivity while greatly reducing pollution. The shackles of paying taxes and keeping records and getting audited would be lifted from the worker, from the entrepreneur, from savings accounts, from merchants selling goods, from consumers, indeed from all beneficial economic activity. We would be taxing something bad—pollution— instead of something good, like labor and enterprise and goods. 

Even the landowner would not have any tax burden after the transition to land-value taxation. A tax on land value reduces the price of land. The owner keeps less of the rent so he bids less for the land. After the transition, what a new owner pays in land tax, he saves in not having to pay for land, and not having to pay so much mortgage interest. 

Taxing pollution is the morally right thing to do and is really the only effective way to swiftly reduce pollution in a big way. It’s good for developed countries, and for developing countries such as India and China. The green tax shift would help all economies. 

We can have it all. We can take advantage of today’s big deadweight loss to do a green tax shift. If we don’t do a green tax shift, if we try regulating and permit trading instead, we will not eliminate the excess burden, but rather increase the costs of enterprise, and this will create political resistance, and pollution will get worse, and ruin our planet. 

The City of Berkeley can lead the way to limiting global warming with its own green tax shift. Tax polluters, and reduce taxes on utilities, business, and buildings. We would have a better economy, a higher standard of living, and much less pollution. Berkeley’s success would inspire others to do likewise. Tell our city council that we need the green tax shift, now!  

Fred Foldvary teaches economics at Santa Clara University and lives in Berkeley.