Wednesday, July 18, 2007

Carbon Taxes -- the great solution

I have followed the carbon tax murmurings for several years -- and the past month has been almost an explosion in the number of people taking the idea seriously. Al Gore's movie (“An Inconvenient Truth”) jump-started the conversation: what do we do about the environment? Most people landed quickly on "control consumption" as the only realistic solution. But how? And the next wave seems to be "tax consumption" -- because the truth is, the best way to lower the demand for a product is to raise the cost.

Carbon taxes are also known as "green taxes," "tax shifting," "ecotaxes" or "Pigovian Taxes" (a phrase coined by Harvard economics professor Greg Mankiw, named after the economist who came up with the idea of externalities), and the idea is simple: tax what you don't want (pollution, smoking, green-house emitting behavior) and you will get LESS of it. How much to tax? An easy answer is to calculate the cost of the behavior to society, ie, the “externality.” Smoking causes billions in health care costs; the taxes on cigarettes should reflect that so that users are "paying their way."

The elegant part of tax shifting comes when you take that tax revenue and cut taxes on things you want more (ownership, work) or cut taxes that are regressive (payroll taxes).

According to the book "Tax Shift" by Alan Durning, if we taxed the entire cost of pollution to society, we could eliminate (are you ready?): ALL Federal income taxes; or ALL payroll taxes; or ALL corporate taxes. Granted, gas would probably double in cost. But since you'd be paying no income tax, you can afford to buy that new hybrid.

For More information:
Durning’s book Tax Shift – a great, quick read:

Two articles from the New York Times discuss the idea:
EDITORIAL; Global Warming and Your Wallet

Counting on Failure, Energy Chairman Floats Carbon Tax:

discussing a bill before Congress (put up as a joke, but hey, you have to start somewhere):

You might also look at:

Wikipedia on Greg Mankiw

What is a green tax shift?

The Danish blog EnergyHack notes that Denmark is adopting a plan to tax cars based on their gas mileage, lowering the cost of cars like the Prius and raising the cost of cars like Hummers and Porsche Cayennes.

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