The Carbon Tax Is a Flat Tax
I wonder if a carbon tax might not be a good idea even if it has absolutely no effect on global warming. The reason is that it is a flat tax rather than a progressive tax.
If taxes simply increase, that is of course more distortionary than our present system, but presumably if we imposed a carbon tax we would reduce the income tax to keep revenue constant. Then the two questions are (a) how distortionary is a carbon tax compared to a tax on labor, rents, and capital income, and (b) if the carbon tax is more distortionary in general, does its lack of progressivity and loopholes nonetheless make it less distortionary?
Of course, it could be that carbon is a luxury good, in which case a carbon tax is progressive in effect even if it is flat as applied. Or, it could be regressive in effect, which would increase its efficiency even more by reducing the tax effect on the marginal dollar.
March 5th, 2007 at 1:55 pm
The effects of a carbon tax are very interesting. First of all, I am not at all sure that a carbon would be offset by a reduction in the income tax. Obviously that would depend on the overall political profile of the congress creating the tax. Secondly the impact of a carbon tax would probably be regressive, but also it would hit the rural and suburban (who drive more) much more than the urban.
April 15th, 2008 at 12:01 am
I’ve written an article that addresses this at www.carbontax.org.
Economist Ken Green at AEI concluded that a carbon tax replacing “distortionary” taxes like payroll taxes would be a “no regrets” policy for the economy even if global warming was not a serious problem. (His paper, “Climate Change: Caps vs. Taxes” is on AEI’s website).
The Congressional Budget Office concluded that a carbon tax would be FIVE times more effective at reducing GHG emissions than a fixed cap. (See “Policy Options for Reducing CO2 Emissions” on the CBO.gov site.)