Tax Policy and the Environment.

Governments use taxes to advance diverse goals. Manipulating taxes can stimulate portions of the economy Congress wants to advance, or effectively shut down portions of the economy Congress wants to discourage. In an earlier post, I gave the example of Congress ending the long standing policy of allowing individuals to use real estate depreciation (a non-cash accounting technique) as a deduction against personal income, to reduce taxes. Congress (rightly) concluded that too much money was being directed into real estate and wanted to re-direct those funds.

Congress ineptly handled the change, and as a result, caused the collapse of the Savings and Loan industry, which cost billions of dollars to rectify. Thousands of individuals were also injured by being thrown out of work, or losing the value of the investments they made.

Now, pressed to reduce the deficit, Congress is considering ending the ability of homeowners to deduct mortgage insurance from their income before their tax liability is calculated. The deduction was long allowed to encourage home ownership. Clearly, such a change would discourage home ownership, but it would raise additional revenues.

Apparently, Congress has never considered tax policy as an aid to environmental protection, or to avoid the Government's having to step in when industry fails, as happened earlier this year with when BP's well in the Gulf of Mexico spewed millions of gallons of crude oil into what had, up to then, been a pristine ocean.

I propose that Congress should impose a tax of say, 15% of any revenue produced by such wells every year and hold that tax in a special fund. When the well is depleted, or effectively shut down and a decent interval has passed to stand as proof that the well does not leak, then the well owner should be allowed to withdraw the majority of that fund, and the remainder should revert to the government as a tax.

The oil company could show the fund on its books as an asset, and even borrow against it. If however, the well discharges oil into the environment, the fund could be tapped to pay for the costs of clean-up. A similar system could be imposed on any industry with long-term pollution potential, such as refineries, strip mines, and manufacturers which use toxic substances as an unavoidable part of their process. One example: I understand the metal for dry wall screws and certain other fasteners are hardened with arsenic.

By providing companies with an incentive to monitor their own long term environmental risk, they would be far more diligent than is now the case.

Just a suggestion. GYL