Save the World With A Tax Cut

One of the few accurate criticisms of An Inconvenient Truth was the way it deliberately avoided difficult policy prescriptions. For one thing, there was no mention of a high carbon tax, one thing our country (and atmosphere) desperately need. (And liberals aren't the only ones endorsing a carbon tax. See this list of Pigou club members...)

In an eloquent speech yesterday at NYU, Gore made up for any wonkish details that his movie left out. I was most struck by his proposal to replace all payroll taxes with pollution taxes.

For the last fourteen years, I have advocated the elimination of all payroll taxes -- including those for social security and unemployment compensation -- and the replacement of that revenue in the form of pollution taxes -- principally on CO2. The overall level of taxation would remain exactly the same. It would be, in other words, a revenue neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.

P.S. Curious about the math? In a comment on Ezra Klein's blog, Nicolas Beaudrot does some quick budgetry:

The US produced roughly 6 million metric tons of CO2 last year. Social Insurance taxes brought in $733 Billion in revenue Table F-3. A gallon of gas produces 20 pounds of CO2.

The math says ... $.06 per pound of CO2, or $1.20 per gallon of gas. pre-2004, gas was about $4.50/gal US in Europe, and below $2.00/gal in most of the States. This means we could enact a CO2 tax and still pay less than Europeans pay for gas (which is around $6.50 today).

What's more, the payroll tax is almost entirely born by the worker. Someone who makes $40,000/year and drives 18,000 miles in a 20 mpg car (or cars) would still come out way ahead.

Obviously, there would be losers, particularly some heavy industry and equipment manufacturers and in areas where a daily commute of 100 miles isn't unheard of. But a co2 tax doesn't change the basic equation of energy profitability. It just takes it from ludicrously profitable to ridiculously profitable.