Two Birds With One Stone?

At The Week James Pethokoukis wonders why Democrats don’t kill two birds with one stone and enact a carbon tax rather than increasing the top marginal personal income tax rate:

But it’s an opportunity that comes, as all opportunities do, with a trade-off. The carbon tax is an elegant, seemingly win-win policy economists love. It would put an explicit price on carbon emissions from burning fossil fuels, and the goal is to nudge businesses and consumers to change their behavior in ways big and small. Higher gas prices, for instance, might encourage more carpooling or use of public transit. A carbon tax would also create incentives for entrepreneurs to find clean-energy alternatives. Markets, rather than government, would decide which options — solar, wind, nuclear, geothermal — make the most sense.

And while all this behavioral change and innovation was happening, the tax would be raising revenue. Now, given that I’m no fan of the Biden social spending agenda, I would prefer a carbon tax be used to pay for the bipartisan infrastructure bill also languishing in Congress. That said, Democrats could cover the social tab if they sub out their income and corporate tax ideas for a carbon tax.

The Tax Foundation finds that a carbon tax levied on all energy-related carbon emissions at a rate of $50 per metric ton and an annual growth rate of 5 percent would generate nearly $2 trillion in additional federal revenue over the next 10 years. Or a smaller carbon tax could be combined with other tax hikes — such as taxing unrealized capital gains or a minimum corporate tax — that Sinema might accept.

But this win-win policy plan does have a political downside, or at least a challenge, for Democrats. While folks on the left often stress the existential threat from climate change, my impression is there’s a lot more energy around the issues of wealth and income inequality. For example: Even though polls show Democrats say addressing climate change is extremely important, their tax plans are focused on inequality. That’s a pretty big tell. Embracing a carbon tax would mean, at least for now, abandoning high-profile income and corporate tax hikes

I can’t tell you what the House Democratic leadership is thinking but I can tell you why I’m wary of a carbon tax: it’s terribly regressive, i.e. it falls hardest on the poorest and won’t have nearly as much effect as most seem to think. Carbon emissions increase with income. Relatively few in the lowest income quintiles fly around in private jets, own multiple mansions, most of which sit idle most of the year but must be heated and/or cooled nonetheless, or drive around in gas-guzzling Humvees. A carbon tax of the size being discussed won’t do much to change the behavior of the top 1% of income earners who can afford to pay a little extra but will be disastrous for those in the lowest quintiles who will struggle to get to work or pay their heating bills.

A plan could be tailored that would avoid that but that would result in political opposition being mounted.

9 comments… add one
  • PD Shaw Link

    Manchin & Tester are opposed to a carbon tax, as I suppose are Democratic representatives from less dense districts.

    Pretty difficult to pass things when the 50th vote is either a socially liberal, fiscal moderate who does not support much funding or a conservative populist, who doesn’t mind taxes on the wealthy, but also doesn’t like the progressive planning. D’s seem to think the former can be broken.

  • Other potential opponents: senators who represent fossil fuel-producing states.

  • Grey Shambler Link

    might encourage more carpooling or use of public transit.

    To the doctor’s office or the ER.

    Great idea, fuck them.

  • Drew Link

    Its not just regressive, its horribly regressive, and with no net material benefit.

    An ultimate back of the envelope;

    My wife and I drive 35,000 mpy. Say 25 mpg combined. $2 / gallon increase = $2800.

    10 plane tickets a year with a $100 surcharge = $1000.

    $100 / mo increase for home heat and air = $1200.

    Let’s just swag a 10% increase in general goods and services prices because energy is used everywhere. Suppose I purchase $250K of stuff a year. So that $25K.

    So that’s $30K per year. In 10 years that’s $300K. In a month or so I will pay about $1MM in capital gains taxes on one deal. Think about this arithmetic a bit.

    Now lets adjust the spending piece for a $70K earner. Let’s say they spend $65K so a 10% C tax is $6500. Cut the home heat/air bill by half and the planes by half. They pay, what, $9500? $9500 on $70K is break the bank territory. For me its a rounding error.

    And for what? Virtue signaling? China can sneeze and they will put out more CO2 than we save. And what about lost jobs and incomes to the vast majority of people? And let’s be real, the point of a C tax is to tax everything in sight. We have just scratched the surface.

    All to starve the plants, make Greta’s handlers happy, appeal to the environuts and most importantly, let the government control you.

    Its just awful policy. But if people want to commit economic suicide……….

  • As I say the worst aspect is that those best able to afford to pay the tax and, indeed, for whom the tax is not much of an incentive have the most carbon emissions while those least able to pay the tax have the fewest emissions.

  • grey shambler Link

    Which is the big problem with carbon taxes.
    They’re extremely regressive and cannot be stopped. The result will be force. If we’re lucky, that will give our various races common cause.
    Viva la Revolution!

  • Drew Link

    Yeah, but I just had to go on a rant. People who advocate policies that are so obviously harmful to those least able to afford them, or for no god damned benefit, cause an emotional reaction.

    It’s all virtue signaling and politics. I can cope. Many can’t. A pox on the do gooders doing bad.

  • steve Link

    Can we memorialize this? A conservative expressing concern for the less fortunate. Anyway, I believe it was Dave who suggested was possible to take a potentially regressive tax like a VAT and make it better by exempting the first X number of dollars spent. Not seeing why that couldn’t be done with carbon taxes. That heating/AC bill? No tax on the first $5000, or whatever number you choose.


  • I mentioned that in the post itself. However, that does not appear to be what’s being proposed.

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