Francfort: A Simple, But Fair, Carbon Tax
By Kevin Francfort, Staff Columnist
Published on Friday, February 22, 2013
The United States faces many tough problems. Two of these are climate change and the federal tax code. With the national budget dominating the political discussion, there has been a renewed focus on how to more efficiently collect taxes from Americans. On the climate front, this past weekend’s “Forward on Climate” rally in Washington, D.C., showcased the passion that many people feel for the issue. But while the debate about how to address these two issues has raged, there is one policy that addresses both issues but politicians refuse to seriously consider: a carbon tax.
A carbon tax would consist of a tax levied on each ton of carbon dioxide emitted in the manufacture or operation of a good. The motivating factor is that there are costs associated with carbon emissions that are not borne by producers and consumers of fossil fuels. These unpaid costs are based on the premise that excess carbon dioxide in the atmosphere may be causing climate change, which carries many future costs. These costs will come from rising sea levels and higher incidence of severe weather events. To ensure that the costs of these actions accurately reflect their social price, a carbon tax would need to account for the future costs of climate change.
A carbon tax essentially boils down to paying for the full cost of an activity. Such an idea seems fair and justifiable. But when considering the implications and unknowns that would accompany such a policy, it makes sense why congressmen constantly seeking reelection are averse to advocating for such a tax. Questions over the costs of administration of a carbon tax, as well as the equity and economic impacts are reasonable concerns and ought to be answered.
Though many politicians and citizens refuse to even debate the merits of a carbon tax, it is more prudent to resolve such harmful impacts than ignore the issue altogether. The prohibitive administrative costs of asking each taxpayer to file a tax return with their CO2 emissions can be easily remedied by taxing carbon upstream in the market. Only requiring refineries, mines, gas processors and importers to pay a carbon tax could cut down the number of filers to roughly 3,000 businesses. Similarly, the revenues generated by a carbon tax could be used in a green employment tax swap to reduce the payroll taxes paid by those who might be disproportionately affected by a carbon tax. The economic impacts of such a tax would be great, but would pale in comparison to future costs associated with higher sea levels and more frequent severe weather.
Such a tax would need to be gradually implemented, so as to allow businesses and individuals ample opportunity to respond to its effects. At the same time, a carbon tax would allow these affected parties the foresight of knowing future costs per ton of carbon dioxide emissions, something that cap and trade policies, which have been proposed in Congress in recent years, fail to do.
By partially replacing the payroll tax with a tax on carbon use, we could greatly improve the efficiency of our tax code. Payroll taxes, in the same vein as income taxes, are necessary to generate revenue but also discourage work. Assuming that there is even a chance that human carbon emissions are partly responsible for climate change, it is obviously more efficient for our tax code to discourage these harmful emissions than productive labor.
Because a carbon tax provides an efficient alternative to current taxes, it is promoted by renowned economists such as Nobel laureates Gary Becker of the University of Chicago and Joseph Stiglitz of Columbia University. In theory, it would provide an equitable tax code and steer us away from future costs. But too often it seems that good policy fails when it makes it to the Hill. So, it is with cautious optimism that we ought to pursue a carbon tax. With government spending already at record levels, we must ensure that the carbon tax does not become just another source of revenue for a quickly growing federal budget. However, if implemented correctly, a carbon tax can transition our economy to one ready for the challenges of the 21st century.