Finally, they urge the developed world should pay reparations and provide support to the least developed countries to help them manage the hazards of climate change. In response, countries like the United States have resisted both emissions schemes that would exempt nations with whom the US competes in trade and the obligation to pay climate reparations or support for resilience. Countries in between, including Brazil, Russia, Indonesia, and China (the BRIC countries, which have significant economies, relatively high emissions levels, and/or carbon-trapping resources, such as forests) point to the United States as the key emissions outlier. Some have argued that a nearly global or broad-based low-level carbon tax could be implemented almost universally, could have an outsized impact on the shift away from carbon-dependence, and would not be unduly burdensome. However, the 700 million people who live in extreme poverty, lack basic necessities, and are suffering the most from climate change are also the ones who would feel disproportionate impacts from such a tax, given limited state administrative capacity to offset those impacts in many of these countries.
In their new work, Clint Wallace and Shelley Welton propose an alternative solution (at least for the time being): tax luxury emissions. Luxury emissions are those associated with private jets, mega-SUVs, yachts, multiple mansions, and other carbon-intensive artifacts and activities associated with the lifestyles of the rich and famous throughout the world. They argue that luxury carbon is more susceptible to targeting for a carbon tax as a matter of morals, social impacts, and politics. First, the gratuitous spending and the externalized harms of the ultrawealthy are morally repugnant. For example, they report that about a year ago Kim Kardashian took her private jet to cover a distance of 35 miles. Over the 17-minute flight, the jet emitted around two tons of carbon, more than the annual per person emissions of residents in 85 countries. While U.S. household emissions have declined on average by 16% over the last twenty or so years, the emissions of the top 1% have increased by 23% and the top 0.1% by 50%. In view of the dire need of the aforementioned 700 million, this is unconscionable. Second, they note that many of the uber-wealthy also wield an outsized impact on society via their avocations as “influencers” via social media and other trend-setting accounts. Curbing their outsized spending could be more broadly beneficial as a result of their influence. Plus, a luxury carbon tax will have its own signaling impacts; like cigarette taxes and anti-smoking campaigns, the government may deter excessive consumption through a luxury carbon tax. Finally, by focusing on high-end goods, they argue that policymakers may undercut the fossil fuel industry’s scare-mongering campaigns that warn middle-class consumers that the government is “coming for” your hamburgers and your cars. They also go so far as to surmise that a luxury carbon tax may instead activate class politics against the conspicuous consumption of the ultra-wealthy. However, the leisure class campaign to defeat the estate tax (which currently affects only about 1900 families in the U.S. per year) by characterizing it as a “death tax” should trigger some skepticism on that score.
While their arguments about the moral, political and social salience of a luxury carbon tax may be largely unassailable, the key challenge will be implementation. Wallace and Welton discuss an excise tax on high-emission luxury goods such as private jets, super-yachts, super-cars or mega-SUVs, and multiple mega-mansion homes as their main design option. Excises on goods raise questions of tax incidence and tax avoidance. First, who pays luxury taxes? Currently, most wealthy consumers of luxury goods may escape or at least share sales tax burdens on such items through negotiations with sellers. Would an excise on luxury goods be so easily avoided or shifted? Second, while you might be able to tax retailers, how will private transfers from non-commercial sellers be tracked? Just as tariffs on goods may be avoided by routing them through other countries or sending the parts to be assembled in another nation, luxury goods may be purchased and sold through private channels, secondary markets, or even (gasp!) second-hand.
Third, taxes have behavioral effects. For any item or group of items that is taxed, consumption may shift to other luxury goods. A luxury tax implemented in Indonesia yielded an uptick in sales of motor vehicles; the opposite shift from SUVs to diamonds could easily occur. Furthermore, as we expand the definition of luxury goods, we begin to reach into middle class consumer spending, something Wallace and Welton are seeking to avoid for the reasons outlined above. In addition, luxury spending may not be so easily curbed by taxing big-ticket items. While minimalism, the notion that quality is better than quantity or that less is more, may have taken hold in some sectors, for many of the ultrawealthy more is more. Ask Jerry Seinfeld, Jay Leno and Ralph Lauren about their car collections.
Fourth, the ultrawealthy are also uniquely mobile and are, therefore, in the best position to negotiate prices internationally. For goods that are themselves modes of transportation, you have an additional problem. What will keep a plane or vehicle from being purchased elsewhere and brought into the country in the usual fashion? How difficult will it be to tax goods on a one-off basis at the time of import or arrival? Furthermore, as Oxford Professor Tsilly Dagan laments, in an era of hypermobility and fragmentation (where the ultrawealthy enjoy the public goods of one nation state, the taxes of another, and political influence anywhere they elect) achieving tax and distributive justice is a fraught enterprise. As Berkeley Professor Gabriel Zucman has shown, in The Hidden Wealth of Nations, the ultra-rich are able to sequester their gains in tax havens all over the world. Some uber-capitalists are not only retiring to their private islands but building ocean colonies as sovereign nations floating in international waters. Can we really imagine that we will be able to bend the consumption curve of this set? Finally, it is precisely because this class of people are influencers that the concept of luxury is so fluid. A decade ago, could anyone imagine that celebrities would market candles based on the scent of their body parts? Who knows what the next big status symbol will be?
While all of these concerns must be addressed, they may not be insurmountable for a luxury emissions tax. Tesla nation has been built on the notion that, with substantial tax subsidies, luxury can sell action on climate change. By choosing climate-friendly alternatives, the rich and famous could potentially serve as ambassadors for a new carbon-neutral era on Earth. Until then, those of us who simultaneously occupy roles as climate advocates and closet fans of Robin Leach can fantasize about a revival of his decade-long show in the form of “Lifestyles of the Carbon Free and Eco-conscious.” Until then, I am signing off with the hope that you refrain from “champagne wishes and caviar dreams…”