Friday, July 06, 2012

I agree more with the conclusion than with the analysis

A Wednesday op-ed in the New York Times by Yoram Bauman and Shi-Ling Hsu, entitled "The Most Sensible Tax of All," urges U.S. adoption of a  carbon tax, with the revenues being used to reduce various taxes on individuals and businesses.  A $30 per ton carbon tax, they say, could raise $145 billion a year, or enough to fund a 10 percent reduction in individual and corporate income taxes, repeal of the estate tax, and the enactment of refundable credits or targeted payroll tax cuts to offset the burden of the carbon tax on low-income households.

What's odd about the analysis is that, while the authors note that a carbon tax would be expected to reduce carbon emissions, they argue that it is a good thing wholly independently of the effect on global warming.  Even climate skeptics, they say, should support it.  They base this conclusion on two arguments: (1) the overall package would "reduce the economic drag created by our current tax system and increase long-run growth by nudging the economy away from consumption and borrowing and toward saving and investment," and (2) it would be a pollution tax.

Here's the problem.  I certainly think the case that carbon emissions are contributing to deadly global warming is overwhelmingly strong.  Thus, I support the global adoption of carbon taxes.  Moreover, while intellectually it's a closer case whether the U.S. should act unilaterally - given that the scope of the problem is global, hence we don't capture all the benefit, there can be "leakage" if carbon-intensive production simply shifts overseas, etcetera - my bottom line is that we should.  I base this conclusion not just on the sheer gravity of the global warming problem but also on the hope that U.S. action could promote significant movement in other countries towards taking remedial action.

But just to be a purist, suppose one believed that all this wasn't true - either because one rejected the evidence for global warming, or because one was convinced that U.S. enactment of a carbon tax would have no significant net effect on global carbon emissions.  Then the carbon tax would have lost its central rationale, yet Bauman and Hsu would still support it.

This is a bit odd.  If carbon weren't a bad, or if taxing it unilaterally had no net effect on it as a bad, a carbon tax would be a very strange design for a consumption tax.  And it would only be a pollution tax insofar as emitting carbon correlated with emitting other pollutants that are untaxed or at least under-taxed.  This actually might be true - gasoline use, for example, emits carbon but may also be undertaxed as a pollutant in other respects.  But the carbon abatement that the tax would encourage presumably wouldn't be the ideal proxy for abating other pollution.

Anyway, all this is academic (but then I am an academic), given that I accept the central premise of a carbon tax, which is that the U.S. should adopt it, even unilaterally at first, in order to address global warming.  And I suppose even their argument, even if questionable, would serve a good cause if (as seems unlikely) it helped induce U.S. adoption of a carbon tax.  But in the end it is still hard to rationalize taxing carbon unless you recognize and accept that carbon emission has bad effects.

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