Are sales taxes more ecological?

January 30, 2013

There is a growing cadre of Republican governors who are considering lowering or eliminating income taxes in their states (Louisiana, Nebraska, Kansas, Oklahoma, Missouri, and Indiana). The revenue they would forego by eliminating the income tax would be made up by increasing state sales taxes. There are several strong arguments in favor of this change for the way it would increase personal savings and lower tax rates on small business owners who usually run their business expenses and profits through their own income statements. So by eliminating state income taxes, more profits are left with small businesses to possibly expand.

But there is also an overlooked ecological advantage that comes from increasing sales taxes. It reduces consumption, because people pay higher prices for goods and services. Reduced consumption leads to less ecological damage. For example, since the economy has remained weak since 2008, gasoline consumption has declined and remained substantially below its peak in 2007. This has created an economic drag, but has also been an enormous boon in reducing air emissions.

America is crazy about consumption. Our houses, closets and garages are stuffed with junk. An important national sport at a certain time every year is to go out and shop for more. The Center for Sustainable Systems at the University of Michigan has some facts on U.S material consumption:

U.S. raw material (non-fossil fuel or food) use rose 4.7 times more than population in the last century.

When fuels and other materials are included, total material consumption in the U.S. rose 57 percent from 1970 to 2000, reaching 6.5 billion metric tons.

In 2000, the per capita total material consumption (including fuels) was 23.6 metric tons, which is 51 percent higher than the European average.

From 1996 to 2006, U.S. raw material use increased by 29 percent.

The frame when discussing taxation tends to be whether a tax system is regressive or progressive. There are useful discussions, but they rarely happen in the context of all the taxes paid by individuals at the local, state and federal level. It’s a very mixed picture across the country, as you can see in the chart from the Tax Foundation at the top of the post. The problem that our tax systems fail to address is that the American lifestyle is ecologically unsustainable. The economy must continuously consume more and more to have economic growth. Real economic growth comes from saving and investment.

Sales or consumption taxes would reduce waste like the estimated 40 percent of food that is wasted from farm to landfill every year. We can increase national productivity and efficiency by using goods longer. Perhaps we would if they were more costly.

I have no idea what the motivations are of the Republican governors who have proposed to eliminate income taxes in their state. But I do know that America could dig itself out of some substantial fiscal and economic problems by consuming less and saving more. It is deflation of a sort, but we can get by with less until our individual and collective houses are in order.

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