Mark Twain once said, “I shall never use profanity except in discussing house rent and taxes.” As a satirist, he understood the special level of frustration that taxation can bring to the masses. Raise the price of anything, and you will invoke people’s ire; raise or create a tax and the ire will turn to loathing.
We must accept the basic principle that at the end of the day, taxation is nothing more than a redistribution of wealth. Virtually all taxation is “unfair,” in that it isn’t equally applied. Rather, taxation takes into account a person’s ability to pay. Income taxes are levied in increasing percentages as a person’s income rises, and lower income earners receive corresponding benefits.
“This is unfair!” cry the libertarians in our midst, yet our entire system of democracy depends on this redistribution.
So for the bulk of us, the question is less about the equity of taxes and more about their effectiveness.
Enter the carbon tax, the latest bane to the taxpayer’s wallet. Yes, our wallet—because any tax levied, whether it’s on consumers or producers, ultimately hits the end user.
I won’t wade into a discussion on carbon impacts, as most reasonable people understand that the human race is impacting our climate in a negative way. Rather, if we focus on the tax itself, we can discuss whether this is the most effective way to create a positive impact.
As presented—and I offer no apologies for the oversimplification—we will all receive a credit back that in theory equates to the whole of the taxes collected. What does this mean? If you are Joe Average, with average expenditures, you can expect to see the entire tax you paid returned to you on your annual tax return. Low-income earners and those who spend little on fossil fuels will get back more than they spent. High spenders will get back less.
That’s not much different than many other types of taxes. It’s not entirely fair, but it’s based on a reasonable frame of logic.
As the public, we must be watchful for two potential pitfalls.
The first is the growing complication of the tax, which history has shown is almost inevitable. If we consider the history of income tax, we’ll learn that the original returns were single-page documents that anyone could complete. But as endless exceptions and incentives were created to address various anomolies and outliers, a system developed that now requires people to hire firms in order to meet the expectations of tax law.
Does the same potential exist for the carbon tax? Absolutely it does.
If I can afford to drive a Hummer 50,000 miles per year, at ten kilometers per the gallon, I can likely afford the extra tax I’ll pay on fuel. But what about the guy driving a taxi the same number of miles, who earns barely above the poverty line and is now seeing increased costs without the increased benefit?
As these exceptions catch political attention and gain the will of lawmakers, the simple “cost-neutral” return will become more and more complex.
The second pitfall is likely the most dangerous, and that is the tendency of government to slowly erode the tax’s intended purpose through shifting priorities. Often this second pitfall is tied to the first and the system becomes complex.
When Canada’s federal finance minister introduced the income tax during World War I, it was described as a move of necessity, and its continuation was supposed to require a mandatory review. What started as a revenue source for a specific purpose—fundraising for the war effort—has since become a general revenue for government expenditures, both prudent and otherwise.
Seldom can we have a discussion where the opposing parties are both correct, but perhaps with this latest tax we’ve discovered just such an argument. There may be some merit to both points of view.
In principle, based on its current iteration, this tax may have some of the intended impact. Consumers will alter their decisions to the benefit of the environment through reduced fuel consumption and/or the purchase of more efficient vehicles or hybrids. Yet consumer transportation has a small (and declining) impact on our overall carbon footprint.
It could be argued that the burden of the tax ultimately falls on the wrong sector—namely, consumers—since the impact of freight hauling, for example, is considerably larger than that of the average consumer. The tax is applied to the large-scale producers, too, but will it impact their decisions? Only when consumer choices dictate that it be so.
As someone who believes that environmental and economic stewardship must be bound together, I would suggest that the benefit of the carbon tax may not lie in its actual impact, but rather on the discussion it creates. The tax itself is potentially a small step in the right direction. If its resources are properly utilized, it may even take us further down the correct path. But ultimately it has us all focusing on the end goal: working towards a sustainable economy in a world that’s still around for us to do business in.
