Greening the Tax Code

By Craig Hanson and David Sandalow
Brookings Institution
Washington, DC (January 1, 2006)- This policy brief examines fiscal instruments that both raise revenue and help improve environmental quality. The paper analyzes several different types of pollution taxes, considers current tax expenditures with adverse environmental impacts, discusses ways of integrating these instruments into tax reform packages and suggests directions for further research.

In recent years several Republican and Democratic governors have imposed new pollution taxes, often winning bipartisan acclaim. A growing number of commentators have supported such measures at the federal level.
Analysis indicates that taxes on air and water pollution could generate substantial revenue for the U.S. Treasury while improving environmental quality, stimulating technological innovation and enhancing energy security. Reducing tax expenditures with adverse impacts on natural resources could do the same. As lawmakers explore ways to reduce federal budget deficits and reform the tax code, they should consider measures that shift more of the tax burden onto activities-such as pollution-that make the economy unproductive or reduce quality of life.
About the Green Fees Initiative
The federal tax code can have a significant impact on the environment. Fiscal policy is used to encourage as well as discourage various business activities and consumer decisions. These activities affect the environment and human health by influencing how much we consume, how we use natural resources, and how much pollution is released into our air and water.
The President’s recent call for tax reform and the presence of persistent budget deficits provide opportunities for policy makers to consider changes to the federal tax code that could lead to not only greater fiscal responsibility, but also improved human and environmental health.
The World Resources Institute’s Green Fees initiative seeks to identify and analyze a portfolio of tax reforms that would be both fiscally prudent and environmentally sound. WRI and partners will educate policymakers, interest groups, and opinion leaders in order to build support for these measures.
The portfolio of reforms WRI will address include:
* Eliminating existing tax expenditures that forego revenue and that encourage activities reducing the quality of our air, the cleanliness of our water, and the abundance of our natural resources;
* Introducing environmental charges on pollution and waste to discourage environmental degradation, stimulate technological innovation, and improve the federal budget situation.
For more information, visit the World Resources Institute.