Hidden Taxes
Originally published on Green Energy Times (link is to a pdf image of the print magazine).
Americans pay billions of dollars each year in hidden taxes. No one asked for them. No one voted for them. No legislature passed them into law. But they are real, and we all pay them, whether we like it or not. The really horrible thing about these hidden taxes is that they are increasing dramatically and could even cause an economic meltdown. I will give a couple of examples.
In the 1960s, it became clear that the insurance industry was exposed to dangers that could wreck it. Multiple weather events, such as two bad hurricanes in the same year, could leave it unable to pay claims promptly. Since this could cause economic havoc, the federal government decided to provide a guaranteed flood insurance plan. In theory, the plan was covered by premiums, so the taxpayer would not be stuck with any bills.
Over the course of time, however, it became evident that there were inherent flaws in the system. The experience was that 1% of all properties accounted for 30% of the flood insurance claims. Some properties were flooded multiple times, with combined payouts exceeding the value of the properties.
Congress acted on the situation, passing the Flood Insurance Reform Act of 2004 to address it. Among its provisions was a limit on the number of times a property could collect on claims at two times in any 10-year period. Once the second claim had been paid, the property needed mitigation to be qualified for guaranteed insurance. This act was passed by a strong bipartisan majority in the House of Representatives and unanimously in the Senate.
This is where things get tricky. You might think that the claims would decline when properties that were particularly vulnerable to flooding were removed from the insurance system. This, however, was not the case. In the years 1978 to 2003, the average payout was $481 million, and the record high payout was $1.3 billion. But in the years 2004 to 2016 that record was broken five times, the average payout was $3.3 billion, and the record high payout became $17 billion. This is a shocking increase in costs.
The increased costs can also be seen in the increasing amounts of premiums, which have gone up almost continually since 1978. In that year, the cost of premiums was almost $82 million. Given inflation, we could expect that to have increased by a factor of 3.6 since then. Add increased population, and the figure might have gone up by a factor of 5, reaching about $420 million. What it did, however, was to increase steadily, reaching nearly $3.45 billion. Instead of a factor of 5, it went up by a factor of 42.
It is not just in the insurance programs that we see our society taxed. Only a small fraction of properties damaged by floods have flood insurance. In the Louisiana flood of 2016, nearly 80% of property owners were uninsured, a portion typical of the country. In St. Helena Parish, only 1% of properties had insurance. The costs of uninsured losses are covered by property owners, by banks if the mortgages are not paid off, and by the economy in general. The average payout of $3.45 billion is only a fraction of the actual cost to the economy, and if it is proportionate to the rates of insured properties, the economic costs have gone to over $17 billion in an average year.
The outlandish increase in costs associated with floods came about mostly because of events we can name. Among them are Katrina, Ike, Irene, Sandy, and Matthew. Massive storms are increasing in number and strength, and this is because the weather is changing with rising global temperatures. We are already paying, heavily, because of climate change.
In another example, we can get much clearer data on the costs of pollution from fossil fuels. The American Lung Association in California (ALAC) did a study of the medical costs associated with fossil fuel use in 10 states, most of which are in the Northeast. As it happens, the per-capita cost turned out to be highest in Vermont, a place people think of as having fresh and pure air. These costs come to $330 million per year for the state, ALAC says, or about $480 per Vermonter per year, or $2,400 for a family of five. The costs here are hidden in high medical insurance rates and high taxes. The other states had lower costs because people in them drive less, but they were not lower by much.
This is another example of a hidden tax we all pay to support the fossil fuels industry, apart from what we all pay to use its products. ALAC calculated the cost at $1.30 per gallon of gasoline, a tax not paid at the pump, but nevertheless imposed by use of fossil fuels, with no social benefit. (I am prepared to argue that we do not need fossil fuels for any purpose, not even fueling jet aircraft economically.)
These are just two examples. We have had extensive agricultural losses due to drought, such as has happened in California. Wildfires and invasive pests are destroying forests. Cities have to spend money defending themselves from rising seas, as we can see Miami’s campaign to raise its streets at a cost of over $400 million.
The good news is that renewable energy is now getting cheaper than fossil fuels and has already achieved that goal in many cases. So, we can eliminate the hidden taxes we have to pay while we reduce our energy bills — permanently.
Image: LSE Library, Wikimedia Commons
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