David Brodwin is a cofounder and board member of American Sustainable Business Council. Follow him on Twitter at @davidbrodwin.
Ask most people what "sustainability" means, and you'll likely hear about environment and climate. You'll hear that sustainability means protecting the climate by reducing carbon emissions. Sustainability means growing healthful food and avoiding toxic chemicals. Sustainability means managing fisheries and forests to keep them robust over the long term.
A sustainable economy involves all these things … and much more. The United Nations defines sustainability this way: "Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs." Note that the words "environment" or "climate" do not appear in this definition.
Beyond environment, the most important factor that determines whether the next generation can meet its needs is the state of the job market. Will our economy create enough good, well-paying jobs for everyone? And will everyone be able to acquire the skills they need to qualify for these jobs? Unless we can answer both of these questions with a resounding "yes," we don't have a sustainable economy, regardless of what happens to carbon levels, fisheries, farms, and forests.
A sustainable economic policy, must therefore ensure that the United States is a good place to build great companies that grow and hire in large numbers. And our economic policy must ensure that a high quality, economically-relevant education is available and affordable to everyone. Both are necessary; neither alone is sufficient.
All economic policies must be evaluated in the context of sustainability and tax policy is no exception. From the standpoint of sustainability, tax cuts are not always good, and tax increases are not always bad. The details matter.
Some tax cuts promote sustainability. A tax credit for tuition for higher education would allow more of our youth and young adults to master the skills they need. The cut could be focused on specific subject areas with good career prospects, and it could be structured so it doesn't go to families who can easily pay the tuition without help. Similarly, a tax credit for companies that increase their research and development investment promotes sustainability by helping companies grow and expand their hiring.
But many of the tax cuts being discussed today undermine sustainability. For example, tax cuts, credits, and subsidies for industries that are mature and shrinking do not grow the job base or develop skills in the work force. Unfortunately, the link between a tax cut and the resulting economic damage is often difficult to trace: An across-the-board federal tax cut causes the U.S. government to cut back its payments to the states; the states in turn take the money out of their education systems. The tax cut stimulates the economy in the near term, creating jobs, but in the long term it undermines the economy by weakening the skill base of the next generation. Carried far enough, cuts like this create a downward economic spiral: companies choose to relocate (or start up) in other countries whose residents are better educated. As companies shrink or leave, the tax proceeds available for education fall further and the work force falls farther behind.
Similarly, tax increases can either promote or undermine sustainability depending on how they are constructed. For example, a tax increase on electricity could provide funds that accelerate the deployment of a Smart Grid for electrical transmission. This would help ensure America's leadership in new energy technology. A transaction tax or assets tax on the financial services industry could pay for adequate staffing at the Securities and Exchange Commission and other regulators; this would help prevent another bank meltdown, saving future generations from the debt burden from the next bailout.
What about a broad-based tax increase? A broadly based tax increase might promote economic sustainability or not depending on how the proceeds were used. Reducing the debt would make the economy more sustainable by lightening the load on future generations. So would investing in better transportation and communication infrastructure. However, increasing the level of medical spending for seniors would not make the economy more sustainable, however appealing it may be on other grounds.
The idea of economic sustainability goes back hundreds of thousands of years to the time the first human planted a seed in the ground to grow a crop. The first farmers quickly learned that they couldn't eat or barter everything they grew. They needed to keep some seeds aside to plant next year, or they would starve. This basic idea—"Don't eat the seed corn"—is at the heart of sustainability. It invokes a sense of stewardship that appeals to conservatives and liberals alike. Now it's time to apply that old common sense to our tax policy, as Washington works toward a compromise that will end the sequester.