Back to the Future: Recommendations and Predictions for Greener Tax Policy

Abstract

For the last ten years, I have been considering how the tax system affects the sustainability of our planet and our economy. Businesses and consumers are subject to tax-imposed costs that affect decisions about activities and investments. In some cases, Congress shifts costs by lessening the tax burden on one activity or another. These cost shifts also influence investment decisions. Congress can also influence decisions by direct action: by regulating activities or by directly funding activities through appropriations. In many cases, the tax system’s incentives are not consistent with the government’s stated goals. In fact, the tax system itself creates contradictory incentives. For example, the tax system creates incentives for using energy as well as for conserving energy. While this result may seem perverse, it should not be unexpected. This Article will address both direct and indirect connections between tax policy and carbon emissions. Any discussion of tax policy’s impact on the environment must begin with a review of how the Code can be used to encourage behavior. Accordingly, this Article will begin with a brief discussion of tax expenditures. The Article will then review tax policy recommendations in the following areas: (1) housing; (2) transportation; (3) energy and conservation incentives; and (4) carbon pricing, including carbon sequestration. For each area, I will compare past recommendations to actual changes in tax policy and make predictions about coming changes to tax policy and how it may affect carbon emissions.

Keywords: law, tax, environment, energy, economics

JEL Classification: Q20, Q40, K32, K34, H20, H23