Monday, June 5, 2017

Water is the New Carbon

How do we tax water consumption?  And how should we?  These aren’t questions that either water lawyers or tax lawyers are accustomed to thinking about.  Water lawyers do think, sometimes, about using economic incentives to adjust water use patterns, but they typically assume that those incentives would arise through water trading or through pricing by utilities.  Tax lawyers and law-and-econ types, meanwhile, have put quite a lot of thought into carbon taxes, but water rarely seems to enter their discussions.

One might think that mutual lack of interest arises because the fields are completely disconnected.  But they’re not.  A variety of tax code provisions do affect water consumption.  Some do so directly—there’s a production tax credit for drinking water, for example—and some, like the mortgage interest deduction, do so indirectly.  All of the interconnections may not amount to much, at least when viewed in comparison to aggregate tax revenues or aggregate water consumption, but they do exist.

And it’s interesting to consider whether more connections should exist.  After all, many of the arguments that have made carbon taxes a popular idea (in some circles, at least) also apply to water consumption.  In an era of water scarcity and conflict, we would do well to use less water, and economic studies suggest that the persistent pressure of tax liability could promote more water conservation.  Taxation also would generate revenues, which could serve a variety of important ends—reducing other taxes, for example, or funding badly-needed upgrades to water infrastructure.  The devil, of course, would be in the details, but the basic concept of water consumption taxation is sound.

Or, at least, that’s the argument I make in a recent paper.  The paper identifies ways existing tax laws intersect with water law and then makes a broad argument for more ambitious reform.  That argument is grounded in law and policy, not politics, and I realize that water taxation would be a tough political sell.  But if taxes are, as Justice Oliver Wendell Holmes once put it, “what we pay for civilized society,” then taxing water consumption might be a good way to pay part of that price.

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