Tax Analysts Blog

The Best Hopeless Idea in Washington

Posted on Nov 26, 2014

For an idea with plenty of champions, the carbon tax sure has lousy prospects. It is one of those proposals that wonks love to champion but politicians love to hate. Do a quick Web search and you’ll find a host of champions for the levy, hailing from both ends of the political spectrum. But look for supporters on Capitol Hill and all you’ll hear is crickets chirping.

Still, it bears repeating even if no one is listening: A carbon tax is probably the best way to confront global warming. And with a little creativity, the tax might fix other problems, too – like our dysfunctional corporate income tax.

At least that’s what Donald Marron thinks. As he wrote recently for TaxVox:

      The United States could reduce its contribution to global climate change and increase domestic prosperity by taxing emissions of carbon dioxide and other greenhouse gases and using the resulting revenue to reduce corporate income taxes. Such a carbon-corporate tax swap would give us a bigger, cleaner economy and avoid any need for more costly efforts to reduce emissions.

Strong words, but convincing ones, too. Marron has been beating this drum for a good long time, urging lawmakers to consider this sort of tax swap. Last year, he and his Tax Policy Center colleague Eric Toder even explored some of the specifics, including both the benefits and the costs. Suffice it to say that the change would not be easy but it would be worthwhile.

In his post last week, Marron takes another run at both the pros and cons. And he provides a compelling example: A $20-per-ton tax increasing at 5.6 percent annually would cut emissions by 8 percent while also raising enough money to cut the corporate tax rate from 35 percent to 25 percent.

That makes the carbon tax very appealing. But as Marron acknowledges, the tax swap would also be very regressive, with most of the benefits going to the rich and most of the costs borne by the poor. And it would create winners and losers in the business community, too.

There are ways to ameliorate the regressivity. But however you slice it, the creation of a big new tax—especially when coupled with the reduction of a big old tax—will create all sorts of winners and losers.

And that’s the heart of the problem, of course. Our political system is bad at picking losers. It’s not a new phenomenon. In fact, it’s as old as the republic. But it’s gotten worse.

Historians are taught to be wary of nostalgia; any argument that reduces to “things were better when I was young” is probably wrong. But in this case, I think it’s spot on.

Passing tax hikes was never easy. Politicians have always been scared to antagonize voters. But somehow they used to find the nerve every once in a while. Sometimes a war greased the skids, cloaking sacrifice in patriotism. Other times, it was the lure of new highways or retirement security.

But we’ve reached the point where nothing – no benefit, no public good, no moral duty – seems compelling enough to lift politicians above their craven vote-maximizing. Today’s politicians have lost the capacity – or perhaps the courage -- to ask voters for any sort of shared sacrifice.

Which is why the carbon tax is likely to remain the best policy idea to have zero chance of enactment.

Read Comments (4)

edmund dantesNov 25, 2014

The hypothesis that increased CO2 conclusively causes global warming remains
unproved and is unconvincing to an electorate struggling with record low temps
and stories of 7 foot snow drifts in November. We are beginning the earliest
ice-over of the great lakes for which we have records. Adding a new
economy-crushing tax in such circumstances seems like poor politics and poor
policy.

We'll know that CO2 emissions are a true emergency when there is a crash
program to build new nuclear power plants to keep the economy humming. Until
then, talk of carbon taxes is an attempt at a naked revenue grab.

emsig beobachterNov 25, 2014

Edmund:

It is unfortunate that this has been labeled global Warming when it is in fact
Global Climate Change. Climate Change will result in record low temperatures at
times and in places that usually do not record such low temperatures.

The professional literature on Carbon taxes calls for reductions in income
taxes,grants for greater energy efficiency, etc. The carbon tax proposals were
designed to be close to revenue neutral.

edmund dantesNov 27, 2014

emsig--

Revenue neutrality is a marketing term, it has little relationship to reality.
I'll believe when I see it, but none of the "revenue neutral" tax reforms of
the past turned out that way.

If we're serious about reducing carbon emissions, we'll end the adulteration of
gasoline with ethanol immediately. That whole process-growing the corn,
transporting it, processing it—dumps much more carbon into the atmosphere than
ordinary oil refining. We do it for purely political reasons, for the farmers,
it doesn't help the environment and it never made us energy independent.

There are many actions that can be taken, short of carbon taxes, that will
address CO2 emissions. The fact that anyone wants to reach for taxes first
proves the unseriousness of the proposal.

BTW, I didn't name it Global Warming, Al Gore gets full credit for that, I
believe.

emsig beobachterNov 30, 2014

Edmund:

You are correct -- Al Gore named it Global Warming. Let's impose the Carbon tax
only on him. He should have made tons of money inventing the Internet.

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