Sustainability & Tax Policy: Fixing a Patchwork of Policies with a Coherent Federal Framework

Abstract

Promoting sustainability means working to ensure that our society, economy, and businesses have the necessary means to continue for future generations. A patchwork of state efforts meets with varying levels of success and only has a limited effect in ensuring that as a nation, the United States makes a steady commitment to sustain the vitality of the environment for generations to come. While the private sector undoubtedly has a vital role to play in ensuring a sustainable economy, it can best do so with the aid of a clear, coherent federal policy. Although particular aspects of green tax systems vary, a common element is the use of tax incentives and taxes/penalties as a tool to achieve national environmental and sustainability policy goals. Organizing and classifying tax incentives and penalties as part of a green tax system is a relatively new phenomenon. As policy tools, green tax incentives and green taxes/penalties aim to influence the behavior of consumers and corporations to encourage them to act in a more sustainable and environmentally responsible manner. Recognizing that corporations play a major role in contributing to environmental and sustainability problems and solutions, a green tax system encourages, and in some cases forces, corporations to participate in the process of improving energy efficiency, reducing greenhouse gas emissions, and contributing broadly to the development of sustainability policies and programs.

Part I of this article provides an overview of some of the inconsistent state and local non-tax sustainability efforts and tax efforts that have developed in the void created by the lack of cohesive federal action to promote behavioral changes. Parts II and III focus on federal tax policies. Part II discusses the role that federal tax incentives have played and should continue to play in ensuring a sustainable future. Part III then provides a look at an underutilized aspect of the U.S. federal tax system in this regard - green taxes. Part IV provides an overview of how countries such as France, Japan, China, and the United Kingdom have successfully integrated the use of tax penalties into their tax systems to achieve success in promoting sustainability. Drawing on these international experiences, Part V proposes that what the United States requires to be a leader in sustainability efforts is a federal tax policy that eliminates subsidies that discourage sustainability and increasingly employs the use of federal tax penalties. This article concludes that reform of the federal tax system could be the single policy arena with the greatest potential to encourage economic activity that creates wealth and well-being while not destroying ecological life support systems.

Keywords: sustainability, tax, law, policy, environment, green, green taxes, Pigou, Pigovian taxes, Pigovian, Pigouvian, Pigouvian taxes

JEL Classification: K32, K34