It depends is the most reliable answer to almost any question other than is socialism a good idea? It is particularly true as an answer to the following: should the US have a carbon tax? Our starting points are that first, the left wants a carbon tax so there is space to negotiate with them. Second, a carbon tax is conceptually a good idea because there is some relationship between carbon and global warming and we would, all other things being equal, like to reduce carbon emissions. Third, a carbon tax is a good way to do that.
Paul Mirengoff at PowerLine has a discussion of carbon tax that we would like to review. We agree with much of his analysis but not his final decision. Paul is correct that that the cost would be borne by consumers:
First, the cost of the carbon tax would be passed on to consumers:
While oil, natural gas, and coal companies would be responsible for paying the fee, they would likely pass a significant share of the associated cost on to their customers.
Yup, no doubt. We are willing to agree that 100% will be passed on to consumers. The GOP should see that low income folks are not sacrificed. There are many ways to do this but the most obvious would be to reduce FICA, the biggest tax for most low income folks. Make the first N thousand dollars of income not subject to FICA where N is the number that eliminates the impact of the carbon tax.
Sidebar: We could make this complicated and decide that only N at the first job applies. We don’t think so. If somebody works several different jobs we are OK with them benefitting from reduced FICA several times. We think it is not exactly “fair” but the costs are not worth the benefits. End Sidebar.
Like tariffs, sales taxes, and VATs it will fall more heavily on low income individuals:
Second, a carbon tax would have a disproportionate impact on low-income households:
As with the increase in energy costs, the increase in the cost of nonenergy goods and services would disproportionately impact low-income households.
Yup, no doubt. Again, this can be fixed. FICA is part of the solution. Another part is to eliminate the gas tax that is currently 18.4 cents per gallon.
Paul might be right that is is not popular but we think presentation might matter:
Not surprisingly, the carbon tax is unpopular with voters. Indeed, Americans for Tax Reform notes that carbon tax advocates haven’t been able to get a carbon tax passed in a single blue state.
Two items are worth mentioning here. First, carbon taxes by state are a really bad idea. Second, in a purple USA, we can get a carbon tax that is modest and allows us to do good things like eliminate subsidies to alternative energy. As our tweeter-in-chief might say, it all depends on the deal.
Again, in summary, a modest carbon tax, say, $20 per ton, that eliminates the gas tax and alternative energy subsidies while reducing low income FICA is a good idea. We don’t know if the Democrats are willing to make the deal. It might even be good politically even if they are not willing.