Peter Nelson:
Q: That becomes an ethical problem and also a political problem. The idea that if you tax an environmental “bad” people will use less of it has come into wide acceptance. But so often the response from policymakers is “You know, I love market-based approaches. Now if you can just do it without increasing the prices voters face, we have a deal.”
A: I think that’s true, and I think that’s why when you hear discussions about, say, a carbon tax, the conversation usually goes “Okay, great; we’re going to tax carbon. What taxes are we going to reduce?”
A carbon tax would have to be revenue neutral in able to make it politically palatable—certainly to almost all Republicans and maybe to some Democrats, too. If you want a carbon tax, for every dollar in carbon tax revenue that you expect to raise, you’re going to have to reduce other taxes—whether on labor or capital or corporate income—by just as much. So it’s definitely a challenge. My concern is if you look at the prospects for the US budget in the years ahead, we’re going to need some revenue “positivity,” not just neutrality.
Read the rest of the interview at http://www.rff.org/Publications/Resources/Pages/189-QA.aspx.
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