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Thursday, August 30, 2007

Global warming and new tax ideas

Congressman Dingell has certainly caught attention with his call for addressing global warming by increasing the gas tax and denying a home mortgage deduction for homes larger than 3000 square feet (referred to by some in the press as "McMansions"). There are articles in the LA Times (8-30-07) and Washington Post.

Are these crazy ideas?

Not really, although it sounds like some refinement is needed. And Dingell's bill has not yet been introduced so details are still to come. A few observations:

1. Polluter pay approaches to taxes or fees make economic sense. If you cause pollution and don't have to pay for it, the costs of it and its eventual cleanup are borne by everyone. The challenge is in designing the tax or fee to address the polluting behavior. Denying a mortgage interest deduction for a home greater than 3000 square feet isn't targeted and so is problematic:

a. the home may be completely powered with renewable energy that doesn't emit greenhouse gases
b. it may be built tall rather than all on ground level so isn't taking 3000+ square feet of land that could be used for something else, like planting trees
c. the number of occupants of any size house may be another measure of energy use
d. the homeowner may have little or no debt on the house, energize it with fuel that produces lots of greenhouse gas emissions and so has no penalty for doing so since there is little or no mortgage interest deduction to deny

A better approach may be to add a carbon tax onto utility bills that exceed what a bill should be for a average size home with 4 occupants (assuming the energy for the home is of a type that produces greenhouse gases, rather than being from nuclear or renewable energy).

btw - assuming the over 3000 square foot home is expensive, there are reasons of equity and fairness that justify reducing the mortgage interest deduction. See my op ed from the San Jose Mercury News for brief overview of why.

2. The current gasoline excise tax is designed to raise funds for road maintenance and building, not to address pollution. A gasoline tax should be a good polluter pays taxes for several reasons including:
a. a system already exists to collect such a tax (it just needs to be separated into a different fund than the road maintenance fund)
b. oil is a fossil fuel and burning gasoline creates greenhouse gases
c. higher gasoline taxes are used outside of the US, such as in Europe and they drive much smaller cars there so it seems to be effective to use high gasoline taxes to reduce driving

It will be interesting to see the actual bill introduced. Whether or not it gets any serious legislative attention this year doesn't really matter as it is likely to lead to discussions and greater public awareness of polluter pays tax ideas, how to address global warming, and possible remedies.

What do you think?

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