I hope you heard Steven Leibo’s commentary last week. If not, you can find it by searching for Leibo’s World Watch. He focused on the need for a carbon tax. I’d like to follow up.
To deal with the enormous problems that global warming will pose for all of us, problems that will be catastrophic for many, we have to be willing to make carbon based fuels more expensive, not bellyache about the price of gas, but tax it so it gets higher. Now before you turn off the radio or try to throw tomatoes at me, we would also need to address the inequities that would cause, by the way we handle the income tax. And that’s part of Steve’s point –with taxes very much at the center of the political debate, this is a good time to address a carbon tax.
By taxing all carbon based fuels, and withdrawing subsidies for all carbon based fuels, we can encourage the move to truly sustainable energy. We can encourage ourselves as consumers to look for better alternatives. We can encourage investors to work on and bring to market better alternatives. And we can increase the market for the better alternatives that are already available.
And the tax system can rectify the inequities. The income tax was originally designed to be a progressive tax. A progressive income tax is one where Warren Buffet pays at a higher tax rate than Debbie Bosanek, his secretary. When the income tax was first created, ONLY the very wealthy paid any tax at all. That policy had to end in the face of World War II. More recently the income tax has become a regressive tax. A regressive tax is one where Debbie Bosanek is taxed at a higher rate than her boss, Warren Buffett. That’s what we have now with breaks of all kinds, tax shelters, subsidies administered through the tax system, special capital gains rates and the like.
By restructuring the income tax, we could clearly cushion the impact of a carbon tax. The point of a carbon tax is not to make you pay more to the government; it is to give you an incentive to buy energy in ways that don’t destroy the environment we all depend on. That incentive exists even if the combination of your total taxes and expenses after enacting a carbon tax are the same as they were before. What is important is that you have an incentive to get them lower by shifting what you buy.
So there are two steps to getting this right. We need a carbon tax to discourage energy choices that increase global warming. And we need a fairer income tax so that all the costs don’t fall on those least able to pay.
There’s one more thing we need to do. We have to stop going to Holland to look at windmills or admiring solar arrays in other European countries. We can have and admire them right here. We can welcome environmentally beneficial energy systems instead of fighting them.
Then just maybe we can protect ourselves, our children and our grandchildren from disaster.
Both Steven Leibo and I recommend looking at the MIT Report, “Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution?”
— This commentary was broadcast on WAMC Northeast Report, December 11, 2012.