A professor of sociology was doing really well in a NYTimes editorial, arguing that carbon tax revenues should be not used to subsidize business (a terrible idea), reduce income taxes (most economists like it) or increase (general) government spending (awful idea which leads to government addiction to the revenue source [e.g., state gas taxes]), and instead plow the money into clean energy R&D, until ...
... the second paragraph of my excerpt:
The next president of the United States seems sure to be more committed to environmental policy than the current president is, and a carbon tax is high on everyone’s list of options. Indeed, a carbon tax has been promoted almost as a panacea — just pop in the economic incentives and watch them work their magic. But unless steps are taken to lock the tax revenue away from policymakers and invest in substitutes, a carbon tax could lead to more revenue rather than to less pollution.
An increase in gasoline taxes — the first instinct of many American policy makers when the idea of a carbon tax comes up — would likewise be the wrong policy for the United States. Higher gas taxes would raise revenue but do little to curb pollution.
Why would a carbon tax work but a gas tax won't? Is it because business firms respond to higher taxes but households don't? This is stinkin' thinkin' because business firms will try to pass all of the carbon tax onto households. For the carbon tax to work, households must rebel against the higher prices by buying less of the carbon intensive goods. In so doing, they'll force firms to eat part of the carbon tax. Reference: see the public finance chapter of your introductory economics textbook.
In my model, a higher gas tax ($1/gallon) would raise gas prices. This would cause people to alter their behavior in various ways:
- drive less
- purchase more fuel efficient vehicles
- move closer to work
- update: slow down