There are two kinds of tax buffs: monomaniacs and standpatters. The monomaniacs want to replace existing taxes with some theoretically superior, often untried alternative: land taxes, consumption taxes, or increasingly these days, wealth taxes. The standpatters generally believe that existing taxes, whatever they are, are pretty much OK, although they might allow for some tinkering at the margins. I am pretty much a standpatter.
Carbon taxes, however, simply make too much sense to be ignored, even by a standpatter like me. Taxes are generally nasty. When you tax something, you get less of it. Most of the things we tax are good things: employment, savings, investment, consumption, etc. Taxing them means that we get less of these good things. But Pollution is a bad thing. As Dale Jorgenson, Richard Goettle, Mun Ho, and Peter Wilcoxen explain in their book Double Dividend: Environmental Taxes and Fiscal Reform in the United States, taxing pollution means you get less of the bad stuff and, at the same times, get revenue that can be used to reduce the nastiness of the existing tax system. Moreover, the authors of Double Dividend don’t rest their case on this obvious point, they simulate the effects of environmental taxes on the U.S. economy using a highly plausible model that takes account of the heterogeneity of producers and consumers, as well as expectations about future prices and policies, to show that environmental taxes can be made to produce win-win outcomes for almost everybody in America.
Can we afford a carbon tax that would properly address the climate change problem? Mikhail Golosov, John Hassler, Per Krusell, and Aleh Tsyvinski, in an article forthcoming in Econometrica “Optimal Taxes on Fossil Fuel in General Equilibrium,” make an equally plausible case that an optimal carbon tax would not seriously threaten economic growth. That, indeed, it would be no higher than the current carbon tax rate in Sweden, for example.On Thursday, February 6, from 5-7 PM, I’ll be attending a panel discussion on “Should Oregon Take the Lead on Carbon Taxes?” The event is free and will be open to the public at Portland State University, Smith Memorial Student Union, Room 296/298. Participants will include: Michael Armstrong, Senior Sustainability Manager, City of Portland Bureau of Planning and Sustainability, Yoram Bauman, Standup Economist, Carbon Tax Expert, and Former Lecturer, University of Washington, Jackie Dingfelder, Former Oregon State Senator and Portland State University Ph.D. Candidate and Jenny Liu, Assistant Professor of Urban Studies and Planning and Assistant Director, Northwest Economic Research Center, Portland State University. I hope to see you there.