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Ethics & Religion
Col. #2,014
March 19, 2,020
Time for a Carbon Tax - Part 2 of 2
By Mike McManus

President Trump has proposed a $500 billion plan to subsidize Americans, millions of whom have lost jobs or been put on an extended leave, which may last weeks due to the coronavirus crisis. Trump has also proposed $500 billion of subsidies for corporations.

Even if this $1 trillion plan is approved by Congress - there is still a need for a carbon tax to reduce consumption of oil, gasoline and coal which are warming the planet - causing wildfires and rising ocean levels.

Currently, carbon pollution has no consequence to U.S. individuals or corporations who are dumping pollution into the air. We polluters are paying no price.

There are five questions that must be asked about a carbon tax - or a "carbon dividend," as it is called by the Carbon Leadership Council. In last week's column, I answered two of them.

First, can a carbon tax reduce greenhouse emissions?

Absolutely! But the tax must be relatively high. A $50 per ton tax on coal or imported oil would cut emissions by 39% to 46% below the 2005 level by 2025.

Second, should a carbon tax hit coal first, almost exclusively?

Yes, because electricity production can easily shift from coal to natural gas. However, a $50 carbon tax on gasoline would reduce emissions in the transportation sector by only 2%. As gasoline prices rise, people can only drive less. Driving behavior has proven resistant to price pressure.

Third, why is the impact of a carbon tax small on the economy?Z

Even a relatively large carbon tax won't dramatically affect a $2 trillion economy. It would be under 1% of the Gross National Product. If it is used to reduce payroll taxes, the impact on the GDP would be 0.5%. So why not rebate (or reduce) payroll taxes enough to protect low- and middle-income Americans and then use the rest for clean energy infrastructure, such as building solar panels that will reduce future carbon burning?

Why not think bigger, such as a Green New Deal. A carbon tax could be rebated to Americans, or payroll taxes might be reduced with the new revenue. That would protect low income and middle income Americans.

Fourth, why does the equity of a carbon tax depend on how the revenue is spent?

A carbon tax is regressive. It hits the poor harder than the rich, because the poor spend a larger percentage of their income on energy services. It would also disproportionately benefit higher income taxpayers.

However, a carbon tax (or carbon dividend) would generate a lot of revenue - between $740 billion if the tax is $14 per ton, and $3 trillion if the tax is $73 per ton!

The Urban-Brookings Tax Policy Center modeled four different uses of the revenue: a) reducing the federal deficit; b) cutting payroll taxes; c) reducing corporate income tax, and d) providing per capita household rebates.

If lump-sum rebates are awarded, they would most help the poor. The upper middle class would benefit most from payroll tax reductions, However, I believe at least some of the funds should be used to reduce the deficit, now running $1 trillion a year. And that does not even count Trump's latest proposal to spend another $1 trillion to offset job losses due to the coronavirus.

Fifth, since carbon prices are low everywhere they exist, shouldn't they be increased?

The easiest carbon tax to implement is on coal and natural gas used to produce electricity. However, a national policy should include a steadily increasing tax on gasoline. If consumers know that gasoline prices will rise five cents a gallon every year, they will be motivated to buy cars that get higher mileage and eventually they would switch to electric autos that burn no gasoline.

Political resistance has kept carbon prices well below any reasonable cost of carbon across the country - unlike Europe where taxes have pushed up gasoline prices far above those in the United States.

David Roberts, a noted analyst, writes, "Theoretically, carbon taxes can achieve any level of emission reduction. Just crank the price up - change the model inputs until you get the outputs you need. But politically, carbon prices have been constrained far below optimal levels. Nowhere, in practice, are they doing enough on their own."

However, the emergence of the coronavirus has changed national politics. States are closing schools, bars and restaurants. Millions have lost jobs. The President has proposed spending a trillion dollars to help both individual taxpayers and corporations.

However, a carbon tax is not being talked about.

It should be.

__________________________

Copyright (c) 2019 Michael J. McManus, President of Marriage Savers and a syndicated columnist. To read past columns, go to www.ethicsandreligion.comm. Hit Search for any topic.

 

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