VitalAccurateThinking

Tax Carbon, Not Income?

I have recently stumbled across a blog that shows Paul Romer as one of the contributors. Paul Romer is a very prominent economist with a significant contribution to the New Growth Theory of economics. Of course, he is the primary founder of the economics education company Alpia. He is also the son of former Colorado governor Roy Romer.

Romer did not write the article below.

Aplia Econ Blog: News for Economics Students: Tax Carbon, Not Income

The Naked Economist has a modest policy proposal for Presidential hopefuls, Democrat or Republican: Tax carbon, not income. Wheelan proposes a revenue neutral tax policy: Increase taxes on carbon-based energy, like gas and coal, reduce income and payroll taxes, and engineer the changes in such a way that government tax revenues remain the same. Americans might balk at paying even higher prices at the pump, but under Wheelan's proposal they'd write smaller checks to the IRS.

Wheeland wrote the following article on Yahoo Finance:

So here's the idea: Create a carbon tax -- basically a tax on energy calculated based on its carbon content -- and use the new revenue to provide offsetting cuts in the income tax, the payroll tax (the tax on wages used to fund Social Security), or both.

The whole package should be revenue neutral, meaning that it will not increase or decrease the total amount of revenue the government collects. The money will simply come from different sources.

Of course, this is a side issue, but with any new tax, they are never revenue neutral. Once the government gets a new source of income, they never stop taxed the current sources. Regardless, Wheeland continues:

Yes, I'm arguing that we should increase your taxes and cut your taxes at the same time. To understand why that makes sense, you must appreciate an often-overlooked feature of taxation: Taxing something does not merely raise revenue; it also changes behavior.

A carbon tax raises the price of using carbon-based energy, everything from coal to gasoline. As a society, we're better off if we curtail our use of fossil fuels. We can start to make progress on global warming; we will improve air quality; we will be less dependent on places like Saudi Arabia and Venezuela; and we could even improve traffic congestion, the bane of just about every metropolitan area in the U.S., by making it more expensive to commute long distances alone by car.

Obviously, gas prices are already painfully high and nobody wants to pay more. But before you hit "Send" on a vitriolic email response to this column, remember that you're also getting the tax cut on the income side. On average, one cancels out the other.

Will that be true for everyone? No, but that's the point. The tax burden will go up for those who use more than the average amount of carbon-based energy and down for those who use less.

In the grand scheme of global injustice (e.g., being born in a malarial village in rural Africa), that just does not strike me as terribly unfair. If you contribute more than your fair share to global warming, traffic congestion, air pollution, and propping up a repressive regime in Saudi Arabia, then you should pay more.

This is all well and good. It will come down to two things:
1) I submit that our economy is based on energy use. By taxing energy, you place a tax on every economic activity and therefore the economy as a whole. The downside to this tax is you would decrease economic activity at the same time as decreasing fossil fuel use.
2) Once again, the rich would be able to pollute because they are rich and the poor would be punished.

How long would it be that foreign nations would want a claim on this carbon tax? We would then be back to carbon trading schemes that make governments and traders wealthy, not actually decrease CO2 emissions.

I guess I remain skeptical as to the effect of a carbon tax or the implementation of carbon trading. We will see how it turns out in Europe.




Tagged:Global Warming
Tagged:carbon neutrality

posted by Jim VAT @ 3:33 PM