In an op-ed for the NYT on Sunday, Bob Inglis (R-SC) and Arthur Laffer (R-Reagan Administration) argue for a large carbon tax offset by equivalent payroll (as in Social Security) or income tax cuts. I think this is an outstanding idea, especially if done via cuts in the payroll tax. The one issue I have with a Pigouvian carbon tax is that it would ultimately be regressive, as individuals of all income levels use a lot of gas, and families forced to live in low property-value exurbs use a lot more. Payroll taxes are even less progressive, however, with a flat percentage rate up to the current cap of roughly $100,000. By replacing the Social Security tax with a carbon tax, we would take a huge step towards fighting global warming in a revenue-neutral way, all while cutting a regressive tax that’s a big burden on lower and middle-income families. Sounds like a win-win-win to me.
Inglis and Laffer aren’t the only Republicans who have been beating this drum. Greg Mankiw of Bush 43 CEA and harveyj’s high school economics textbook fame has been aggressively advocating for carbon taxes for years.
Note: aside from proper use of the phrase “moral hazard”, proper use of the phrase “Pigouvian taxes” is the quickest way to my heart for a policymaker.