... last week ... former Secretary of State George Shultz and Nobel Laureate Gary Becker, of the University of Chicago, proposed to replace the bewildering patchwork of existing energy taxes and subsidies (think ethanol!) that has grown up over the years with a single carbon tax levied on all forms of energy, with the idea of “leveling the playing field” among fuels of all sorts, by charging for the amount of atmospheric carbon they emit.
Instead of putting a huge new source of funds at the government’s disposal, however, Shultz and Becker say that the measure should be “revenue neutral,” meaning that whatever sums are realized beyond what the government currently nets should be paid into an account held separate from all the rest, and earmarked to be returned to individual taxpayers. The aim would be to curb greenhouse gas emissions, nothing more. ...
The real problem has to do with how the issue is to be framed. Many factions, conservative and liberal alike, see carbon taxation as a means to the end of dealing with US budget problems – as a new source of revenues ...
What is this "huge new source of funds" that would be "at the government’s disposal"? Is this sort of like the "huge new source of funds" (i.e., government budget surplus) that emerged around the turn of the century? The surplus that we debated about what to do with? And then decided to both cut taxes and increase government spending (keeping the bond market liquid) and then the surplus went away?
Oh! That "huge new source of funds"!
In terms of microeconomic efficiency, a revenue neutral carbon tax is appealing because it replaces an inefficient tax on something good (labor) with an efficient tax on something bad (pollution). So, if all we care about is efficiency then revenue neutrality is great. But if we also care about the level of government debt we might consider a carbon tax that is less than revenue neutral.
