mankiw on carbon tax December 21, 2007Posted by KG in econ, environment, interviews, politics, science.
Tags: cap and trade, carbon, carbon tax, economics, environment, global warming, mankiw, tax
Morning Edition, December 20, 2007 · A so-called carbon tax would put a price on any carbon released into the atmosphere. But even for the greenest voters, a tax increase that would help the environment is likely to be a hard sell. “There’s no question that, politically, tax is a four-letter word. But we have to really convince voters that this is not an overall tax increase; it’s really a tax shift,” said Gregory Mankiw, an economist and former chairman of President Bush’s Council of Economic Advisors.
Mankiw, who supports a tax, speaks with John Ydstie.
Those vying for elected office, however, are reluctant to sign on to this agenda. Their political consultants are no fans of taxes, Pigovian or otherwise. Republican consultants advise using the word “tax” only if followed immediately by the word “cut.” Democratic consultants recommend the word “tax” be followed by “on the rich.”
Yet this natural aversion to carbon taxes can be overcome if the revenue from the tax is used to reduce other taxes. By itself, a carbon tax would raise the tax burden on anyone who drives a car or uses electricity produced with fossil fuels, which means just about everybody. Some might fear this would be particularly hard on the poor and middle class.
But Gilbert Metcalf, a professor of economics at Tufts, has shown how revenue from a carbon tax could be used to reduce payroll taxes in a way that would leave the distribution of total tax burden approximately unchanged. He proposes a tax of $15 per metric ton of carbon dioxide, together with a rebate of the federal payroll tax on the first $3,660 of earnings for each worker.