Missouri’s Green Tax Rebates a Wasteful Use of State Funds
On April 19, Missouri began a weeklong program of providing $5.6 million in rebates and eliminating the state sales tax on Energy Star appliances. This is a wasteful use of state funds that also entails significant unintended consequences.
Instead of creating new economic activity, programs that offer rebates on specific products like appliances and cars merely distort the market. Such transactions would occur anyway, in the future, independent of a rebate in the present, because consumers naturally upgrade to new machines as their older models begin to wear down or break. Additionally, the promise of increased energy savings is already a significant incentive.
The intended environmental impact of such rebate programs is negated by the way they are usually constructed. The subsidy creates an incentive to destroy operational appliances and build new machines to replace them. This destroys wealth in the Missouri economy, because the resources used to create these new appliances could have been used elsewhere. Acquiring a more fuel-efficient new appliance could also encourage the purchaser to wash dishes and laundry more frequently than before, which means that the overall decrease in energy usage may be much smaller than anticipated — or could even increase. If usage does drop as a result of sanctioned purchases, however, the reduction in overall Missouri energy usage will still be minimal at best unless every Missouri resident purchases a new appliance during the week that rebates are offered.
As a negative unintended consequence of the program, Missouri will lose a significant amount of tax revenue, independent of and in addition to the $5.6 million rebate. First, the state loses sales tax revenue from new appliance purchases. Then, if households do use less energy, the state will lose out on utility tax revenue in the future.
Programs like Missouri’s green tax holiday illustrate the parable of the broken window by economist Frédéric Bastiat. When the government spends money on rebates, it cannot devote this money to other programs that could otherwise benefit, or return it to taxpayers who would spend it in any number of other ways. When the government uses taxpayer money to stimulate one part of the economy, it comes at the expense of those other sectors in the economy.
The tax holiday is undesirable on a fundamental level, as well. It reinforces the flawed idea that individuals should look to the government for approval of which products and services to buy and how to behave. By eliminating state sales taxes on only those appliances that have the Energy Star designation — the Environmental Protection Agency’s stamp of approval — the government favors certain products and behaviors over others. When seeking direction on their buying behavior, consumers would be better off if they consulted third-party sources, such as Consumer Reports, that aren’t as swayed by special interests.
The green sales tax holiday is a wasteful and inefficient program, and Missourians would be better off if the $5.6 million in rebates were either spent in a useful way or returned to taxpayers.
Christine Harbin is a research analyst with the Show-Me Institute, a Missouri-based think tank.