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.