Thursday, December 18, 2008

Carbon Corrective Tax

Soon to be President Obama seems interested in "energy independence," and he is touting the idea that there are many, many new green jobs to be created in pursuit of energy independence. One of the new President's reasons to support energy independence seems to be his concern that carbon fuels are culprits in global warming. Hey, sounds like Mr. Obama wants to correct a negative externality. Of course, the economic approach to correcting a negative externality does not involve government regulations about fuel economy, and it doesn't involve subsidizing "green energy." The economic approach would be to use a corrective tax. ARTHUR B. LAFFER offers an application of the economic approach with the following:
"The Obama team's chatter about creating jobs in alternative renewable energies is hollow to say the least. Here's why: Any serious attempt to reduce carbon emissions must ultimately rely on a very large tax on the use of fossil fuels. And a very large tax on fossil fuels as an add-on to the taxes we already pay would drive the economy deeper into the ground -- with or without alternative renewable energy jobs.

The only real solution is Al Gore's proposal to offset a carbon tax dollar-for-dollar with either an income or payroll tax reduction. If a carbon tax increase were offset dollar-for-dollar with an income tax rate cut, I for one would strongly support the policy. The economy would benefit because the progressive income tax does far more damage than a carbon tax would, and we'd use less oil. It's a win-win situation. Yet this perspective appears to be totally outside the Obama team's ken."

12 comments:

Tim Canon said...

A carbon tax is the only efficient-excuse me, efficient if done correctly, and that's a big if-solution to the problem. But it's so politically unpopular that I can't imagine it being passed by Congress, even if they attach a huge payroll deduction. Republicans, for one, will lambast it because it would give them an excuse to hammer Democrats. If they pegged it as a "new tax," and a tax on the "middle class" to boot, then the Republicans will certainly be able to make it a very bad decision indeed.

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