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Matt Yglesias makes a nearly bulletproof policy argument for carbon taxes and then wonders why they’re so unpopular with Democrats:

Last but by no means least the government still needs revenue. It needs revenue to fund these solar subsidies, it needs revenue to pay teachers and cops, it needs revenue to fund Medicare and Medicaid, it needs revenue. There’s room for some kind of conservatives-for-solar-subsidies movement, but the vast majority of the people to whom these clean-energy causes appeal are the very same people who think the federal government’s tax revenue should rise. That’s a hard political fight right there. Why not make it a fight for a form of revenue increases that also have huge environmental benefits?

Mr. Yglesias is probably asking that rhetorically, but what the government does with the revenue is in fact the crux of the problem.

A tax on fossil fuel use is a regressive tax that will hit working class people especially hard. Now, it’s possible to construct the program to neutralize the impact on the poorest people, by allocating the funds to welfare programs, or even something as simple as cap and dividend.* But if one is looking to fund general government with carbon taxes, one is arguing to make the tax system more regressive.

Personally, I’d argue that given the scale of the threat, and the fact that nothing is going to deter destructive behavior more than making it expensive, that this is a reasonable price to pay. And the impact on the poor wouldn’t have to be as high with decent transit and land use policy. But it’s not surprising that the Democratic Party hasn’t pushed very hard for something that would shatter its coalition.

* As supported by Washington’s own Sen. Cantwell.

50 Replies to “Carbon Taxes”

  1. Any flat tax is regressive, and I think that a carbon tax would be worse for the rural/exurban poor. But the revenue could be used in a progressive way, so it’s not totally obvious that a carbon tax scheme has to be regressive.

  2. There was actually a recent forum on this for city planners. It was interesting the reaction by progressive planners who felt the impact on poor would be too great. The speaker said his goal isn’t about the poor, it’s about minimisng the environmental impacts and how we solve social impacts from policy is exactly up to planners and politicians. I agree with his central theme that he can’t be bothered by the social implications. The environmental threat is simply too great to be bogged down by bickering of the social impacts. In sum, get a carbon tax or cap on carbon and then figure out how you want to address the social implications. I don’t care how “regressive” such a “tax” would be.

  3. The packaging of “carbon tax” is still inaccessible to the average citizen. They understand “gas tax”, and “pollution tax”. “Smokestack tax” would be a much more wildly popular way of stating it.

    Likewise, “car tab” has gotten a bad rep, thanks to Mr. Eyman tying it philosophically to a flat tax. Make the car tab more progressive, and it might pass next time, hopefully with a better monicker. (Though, honestly, I hate seeing so much of the money going to studying and building streetcrawlers instead of rapid transit.)

    Dedicate some of the “smokestack tax” funding to health care, since smokestacks seem to have some correlation with cancer, and people might be even more impressed with what the money is being spent on, especially among the demographic who would have otherwise viewed it as regressive.

  4. With this country’s infrastructure literally falling out from under it, we shouldn’t have any problem using carbon tax revenue to put millions of people to work rebuilding all our necessary systems- to modern standards that save energy.

    Tax-resistance in general would be significantly lower if the people employed on these projects were given wages high enough to pay necessary taxes and have a large amount left over for a decent life.

    Mark Dublin

    1. It sounds like you’re suggesting paying people with the taxes you take from them. If a majority of the workforce is being paid this way, I don’t think the numbers will pencil out.

      2. Problem with your accounting, Sotosoroto, is that your balance sheet is missing a credit column.

        A group of skilled and ambitious people see a need that no existing entity is meeting.

        This group agrees to pool their money for tools and facilities, and goes to work to meet this need. They draw wages, from which they deduct a portion to administer the enterprise.

        If I’d mentioned a new cell-phone “App” instead of things like major public facilities, my particular business plan might be open to question, but no one would doubt the soundness of the concept.

        You need to state your explicit premises that only private, profit-oriented enterprises can reliably create real value- and that every public project in history has been a financial failure.

        Which would leave you with more public success to explain away, and more private disaster to excuse, than a warehouse full of Number 2 Ticonderoga pencils could handle.

        Mark Dublin

      3. No public venture can tax itself to support itself. Even if successful, it must use taxes from others. That’s all I’m trying to say.

      4. I say “successful”, but I don’t expect a government venture to ever turn a profit. Have any? I suppose if the government made a profit on its services, then it wouldn’t need to tax anyone.

      5. You absolutely can pay a majority of the workforce, or even 100% of the workforce, with the taxes you take from them. Now, there are other problems with that system when done on a large scale in a complicated economy, but it’s been done in small all-agriculture economies and it works just fine.

        Please learn how money works. It moves in a closed cycle. There is no “outside”.

        This is why “company towns” worked (even though the people in them didn’t like them).

        The only true “outside input” which is required is sunlight energy, which has nothing to do with money.

      6. You say it works better at a smaller scale. So I run a government with one other citizen. He’s on my payroll. I take 100% of his income in taxes, pay myself with 50%, give 50% back to him. I take 100% of that, … Limit approaching infinity, I have all his money and he has none.

        If you don’t print more cash or have outside sources of income, it just doesn’t work!

      7. Even if I, the government, don’t pay myself, we’re just handing the same wad of cash back and forth forever. If 100% of the salary is from taxes taken from that person, the tax must be 100% of the salary. The citizen has no money left to buy food, even!

    1. THIS. 1000 TIMES THIS.

      Couple a carbon tax with a per-head refund, so that the two combined are roughly revenue-neutral. Poorer people, though they spend a greater proportion of their income on immediate necessities like fuel than richer people, consume less on an absolute scale, making the overall scheme income-progressive but retaining what’s important about a carbon tax: an incentive for every person and every business to reduce fossil fuel emissions no matter their current level of emission.

      I had no idea that this had actually been implemented. Good on the Aussies.

    3. Another option (and I would say a better one) is to reduce payroll taxes. This is a much tougher tax for the poor. If you don’t make much money, have lots of dependents or have unusually high deductions (for say, a big medical cost) then you don’t pay anything in income tax. On the other hand, you (and your employer) pay a substantial amount of money in payroll (FICA) taxes. Replacing some of this with a carbon tax would make life easier for low wage workers. Payroll taxes could be reduced to 1950 levels, with a carbon tax making up the difference (to compensate for the higher costs).

      A really high standard deduction does have the advantage of simplifying things. If you are close to the limit for the standard deduction and they raise it, you don’t need to pay anything. But that is not nearly the bonus that a big reduction in payroll taxes would be (since if you were close to the limit, you didn’t pay that much anyway).

      Unfortunately, Democrats are too scared to raise a tax, even if they simultaneously lower another one. They are afraid that the Republicans will paint them as tax and spend Democrats, even if (in this case) they are simply tax swappers. Unfortunately, the Republican party is anti-tax, even if it could replace other taxes. The public at large is not that smart, and fears that a small carbon tax is simply a foot in the door to higher taxes (without a swap) in the future. Our recent experience with a proposed income tax is a good example of this.

  6. The point of a carbon tax is to encourage consumers to take financial responsibility for their choices.

    If you emit carbon dioxide, then you are responsible for the damage you cause to the environment, and you should pay to mitigate it. Period.

      1. Since the carbon you emit when you breathe came from the atmosphere to begin with, there’s no net carbon emissions.

  7. I think that a carbon tax is a great idea, but I don’t think an additional tax is a good idea. How about a “tax swap?” We get a carbon tax, we lose say… %5 off of the Federal Income Tax, or property taxes.

    1. That’s a good way to separate the climate change/pollution issue from the public revenue issue. I feel pretty strongly that we need both more public revenue and less greenhouse gas emissions, but I like dealing with the two separately so whichever fix is ready first can move forward.

    2. That’s perfectly valid, but as I said that makes the tax structure more regressive and the social justice wing of the Democratic Party will be all over you.

      Now if the GOP returned to its 2000 position on climate change, you could get a bipartisan deal and cut the advocates for the poor out of it.

    3. See Brian’s post above. Don’t knock 5% off the Federal Income Tax, raise the individual standard deduction (or otherwise implement some kind of per-head refund).

      1. Yep. I’d just shove the standard deduction up, it’s the cleanest way to do it.

        The income tax should be a tax on people who are collecting buttloads of money. (That’s a social problem — people who are making too much money start corrupting our politics by buying Congressmen. The income tax should be the Pigovian tax, the “pollution tax”, on this kind of excess wealth.) It shouldn’t be a tax on the average person.

  8. I think we need to clear the board when it comes to vehicle taxes and come up with a new approach. Its quite obvious that as fuel efficency goes up, and enviromental standards to up as well that a “greenhouse gas” tax wont work on automobiles for very long, and we are already in a bit of a bind with vehicles becoming more and more fuel efficent. I think a new approach needs to be based on variable tolling, and vehicle miles traveled. The tolling scheme we already have, just expand it to the rest of our major freeways and bridges. The VMT would take a bit of work to implement to keep people from cheating the system, however i think it would be a good solution to help raise funds for our transportation infrastructure.

    1. A carbon tax prices the environmental cost of any mode into the fuel or charging cost regardless of the mode. Typically, the tax would be paid on domestic oil wells and imported oil and passed on to the cost of gasoline, or paid by utilities and passed on to electrical costs.

      Over time, this would encourage electric cars over non-electrical cars, but eventually hit a wall in terms of necessary revenue. I am wary of increasing costs beyond the environmental and wear and tear costs of driving, just to maintain revenue. If we judge separately that driving creates costs in terms of sprawl and bad land use that need to be reduced, then imposing some kind of other tax is a good idea.

      One way to do that would be to set carbon rates to maximize revenue, or reduce carbon use below targets, whichever is higher. If that amount is less than the revenue the government needs to maintain roads and build transit, or whatever else the revenue is used for, you can phase in other taxes to make up the difference.

      Maybe have a fleet revenue goal that is imposed as an annual per-car surcharge to meet the goal based on the previous year’s shortfall (or a rebate if there was a windfall.) That way, as long as gas cars are around, they will pay more via carbon taxes, but every car pays something to hit the revenue targets. I can imagine that this annual surcharge, except in years where it was a rebate instead, would be about as popular as “car tabs” are now.

      I’d also like to see as many car-related taxes as possible rolled into the cost of gasoline. So instead of the current “tabs” system, just charge for registration costs automatically at the pump, and just update the information annually if it has changed. This would mean that electric cars would effectively have no registration and licensing costs outside of the eventual surcharge/rebate system.

      1. When you speak of electric cars, you seem to be suggesting that they are “greener” than a combustion engine car?

        While this is so in the great state of Washington, most people in the US get the greater part of their electric juice from burning coal. In fact, we burn coal (imported domestically) out in Lewis County at the TransAlta power plant to send electric juice on down to California.

        Electric cars are not really “green” and in fact may lead to the permitting of even more coal burning energy plants in an effort to keep up with the demand for electricity.

        In 2009 49% of electricity generation in the US was done by burning coal – and they are permitting new coal plants in places like Texas like they are going out of style.

        Electric cars and the propagation that these are a environmentally friendly scares me. With your proposed plan what would be happening is the wealthy that could afford a new electric car would be getting subsidized to drive around in a fancy new car with lots of buttons and no ashtray that is operating on the sweat and dirty lungs of some poor rural guy risking his life to beat out black rock from the earth.

      2. james, the new EPA regs will make it very difficult to build additional coal plants. If enough electric vehicles are introduced to require significant additions to the power grid in non-hydro territory, then it will be natural gas taking up the slack. That’s not ideal, but a natural gas powerplant is considerably more carbon-efficient than millions of individual gasoline-powered ICEs.

      3. The price of the vehicle in the first place would go up with a carbon tax, because of its manufacture.

      4. The price of the vehicle… would go up with a carbon tax

        Not if it’s imported. There’s one of the many problems with trying to enact a carbon tax. Another big one is the export of fossil fuel. And of course it’s hard to craft a rule that doesn’t have unintended consequences.

      5. You can apply a carbon tax to imported goods as well… monitoring is a little more difficult, but the US is in a unique position as the most powerful consumer nation in the world, such that foreign companies would be more likely to meet its import requirements.

        Since carbon emissions are a global problem they really require a global solution. Something built into broad international trade agreements. But I don’t think this is exactly on the agenda at the WTO. If powerful nations like the US took a strong leadership position that established environmental responsibility while protecting their industries from untaxed foreign competition the whole world’s business and industrial communities would have little choice but to negotiate a comprehensive treaty. The hardest part is probably the political environment here in the US.

      6. You can apply a carbon tax to imported goods

        Not easily. You get into protectionism and trade wars. In the end you at best end up with more expensive domestic products, more expensive foreign products and fewer jobs here in the US. Pretty much a lose, lose, lose. As a nation with a huge negative trade imbalance and reliance on China to fund ever increasing national debt we’re not exactly in a position to dictate terms to anyone.

        Since carbon emissions are a global problem they really require a global solution.

        Yep, and so far most of the trade treaties specifically prevent the sort of tariffs you want to impose.

        If powerful nations like the US took a strong leadership position… the whole world’s business and industrial communities would have little choice

        The EU gave it a shot. But you’re right that without the US on board it’s not going anywhere. It’s also not going anywhere without the BRIC on board too. Brazil is the only one of the block that seems interested.

      7. Bernie, my point is that if the US and EU were committed to a carbon tax and determined to implement one in a way that was uniform across all countries’ industry they would get it done. They’d utterly steamroll the BRIC objection — they can rebuild their industrial base much more easily than the BRIC countries could build up a consumer base they’ve never had. The EU couldn’t do this alone, but with the US it could.

        So the one thing holding us back from this is US public opinion.

      8. Right, the US and EU say jump and China, Russia and India all say “how high”. The US is dependent on China buying our debt and the EU is so far in hock the future of the Euro is in doubt. If we had any control over China we’d clamp down on their pervasive theft of intellectual property. If we raise the price of coal exports to China they just buy it from Australia. Ditto for India. Russia is sitting on it’s own vast reserves of oil, gas and… well, just about everything.

      9. Protectionism and trade wars are pretty much a win for the US right now. As much of an authority on international trade as Paul Krugman has pointed out that protectionism actually works under some circumstances. This happens to be one of ’em.

    2. I think we ought to separate the question of incentives for good environmental practices (which can be plainly achieved by taxing environmental damage, combined with a per-head refund making it revenue-neutral and non-income-regressive) and the question of how we pay for infrastructure.

      Personally I think the basic road network that provides access to homes and businesses as well as provisions for bike and pedestrian access and bridges that connect this basic network should be paid for out of the general fund and not out of user fees of any kind. And that limited-access roads should be paid for entirely out of user fees. I don’t think it’s likely that we can wipe the slate clean and implement that, but I think that’s the direction we should go in. Taxes on gas and diesel outside of for their environmental damage can just go.

      1. David L. you state: a natural gas powerplant is considerably more carbon-efficient than millions of individual gasoline-powered ICEs.

        this is true.

        but while the natural gas industry was relatively unregulated before the Bush ere, do you know that under the Bush administration – they made it is so that drilling for natural gas requires no federal environmental review? therefore the natural gas industry is basically self regulated. i was born into the world of the natural gas and oil industry in O-K-L-A-H-O-M-A, and while there are lots of economic benefits to this, it was pretty sad watching many of the friends i grew up with die off of cancer and leukemia.

        so carbon efficient yes – but there is not a price to pay pumping that gas.

        the only solution is if the middle class workers (buffer to the wealthy) will get off their ass and on a bike.

        there is no technical solution to the carbon issue; the life most people lead is simply unsustainable and supported by the suppression of the lower class rural Americans and workers in less developed nations.

      2. The technical solution to the carbon issue is solar power. It costs a lot to build the solar power system now, but it solves the problem for all time.

      3. Proposals to cover nearly 40 square miles of public land in California would generate approximately 3500 megawatts. That’s an impressive amount of power; equivalent to about four nuclear power plants. There’s currently about 100 of those in the US so replacing them would eat up 1,000 square miles; roughly the size of Rhode Island. Nuclear provides 1/5 of our electricity so we’d have to cover Connecticut. But at best solar can produce at capacity for only 12 hours a day so it’s more like a Maryland we have to come up with. That sounds like a lot but we’ve already destroyed over 2,000 square miles ( Delaware) by mountain top mining of coal.

  9. Germany is increasing its revenues by moving towards all renewable energy sources…but by keeping prices for electricity at the more expensive carbon based cost.

    This seems a good way to go if you can sell the idea to society.

    Keep costs the same, but use the revenues for taxes as you convert to solar-wind and hydrogen storage with stationary fuel cell generators.

    Japan is doing this as well.

    1. I never realized Kent was an alternate universe. Mean while, back on planet earth Japan has shifted all of their nuclear production of electricity to coal.

      3. Germany has the ubahn and the sbahn and more rail and electric rail for pedestrian and freight mobility than most American cities can even dream of. (And ~200 euro rents in Berlin, if you don’t mind going from a shoddy American rental to a much less shoddy former Soviet rental.) None of which require any sort of Hydrogen, instead using a vastly more efficient direct electrical connection.

        Germany is leaning on natural gas (getting it from Russia is problematic, given their propensity to play shutdown-during-Winter price games), and there’s always Nuclear power to buy from France. Again, none of which has anything do with Hydrogen.

        Maybe a few rich folks can speed on the autobahn with fancy Hydrogen thingies, but niche is as niche does. How again is this Hydrogen thing going to scale to the entire population? And why would it need to scale to the entire population, when there are vastly more efficient, proven designs available?

    2. That’s not quite what happened in Germany. In the early 2000s Germany went heavy into renewable energy, and guaranteed an above-market price for consumer-generated renewable electricity. That was a “subsidy” to encourage consumers to “take responsibility for their energy use” as conservatives might say. The problem was fourfold: the price of Chinese solar panels went through the floor, the recession made everybody poorer, that made people more keen to buy solar panels to cash in on the above-market rates, and Germany’s nuclear-power decommissioning was too successful. Germany decided not to extend the lives of its nuclear plants or replace them, and it’s losing generating capacity faster than it can replace it by other means. The renewable-energy program is the “other means”, but that means it’s losing cheap nuclear power and gaining expensive consumer-renewable power. This has caused electricity prices to rise, which is causing Germans without solar panels to question whether the renewable-energy shift is worth higher electricity rates in the short term. Then the debate becomes whether to reopen the nuclear program and shift further toward natural gas, while keeping a moderate (rather than high) level of renewable energy.

      I hope Germany gets through its conundrum in a few years and achieves a sustainable path based on renewable energy. But it’s having some difficulties right now.

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