The case for a carbon tax
State of the Union
Republicans recently submitted their counterproposal to President Barack Obama’s “fiscal cliff” deficit reduction plan, though it was quickly rejected by the White House due to the absence in the plan of a move to raise tax rates on the wealthiest 2 percent of the country’s population.
The Republican plan included a provision to reduce the deficit by $800 billion over the next 10 years through closing tax loopholes instead of raising rates, while the Democratic proposal called for reducing the deficit by $1.6 trillion over 10 years through a combination of tax rate increases and limited deductions for the highest earners.
Despite the introduction of competing plans and some optimistic language from Obama and House Speaker John Boehner, R-Ohio, that a deal could be reached, the political realities that proved to be steep barriers to success in the past still remain.
Quite simply, Democrats and Republicans still differ largely on the question of tax rate increases on the wealthy.
Democrats appeared open to reducing the deficit through broadening of the tax base and closing loopholes, but recent comments from Obama seem to indicate that any acceptable deal must include tax rate increases on the wealthy, due to concerns over equity and mathematical feasibility.
Republicans, under the leadership of Boehner, have likewise appeared ready to compromise and accept higher revenues in addition to spending cuts in a deficit reduction plan. Recent comments from those in the far-right wing of the party, however, have renewed fears among more moderate GOP members — such as Boehner — that they must not raise taxes under any circumstances to appeal to the more radical party base.
It appears likely that compromise over tax policy will be difficult to come by in such a polarized political climate, so it’s time to look at a tax proposal that hasn’t received as much attention in the media and may now be politically feasible. Enter the carbon tax.
Researchers at the Global Carbon Project recently showed that 2011 was a record year for greenhouse gas emissions, with 2012 likely to be the new record. These statistics make it extremely unlikely that the international goal to limit warming to 3.6 degrees Fahrenheit will be attainable.
As highly unusual weather events — such as Hurricane Sandy and dangerous heat waves — become more commonplace, public opinion over the occurrence and global warming and climate change has started to shift. More people believe climate change resulting from global warming is a serious problem, and important moderate figures such as New York City Mayor Michael Bloomberg have spoken seriously about the issue in public. Even before Sandy hit the East Coast, a nationwide poll by the University of Texas in July showed that 70 percent of Americans believe the climate is changing.
With recent weather events, the shift in public opinion and the United States’ dire fiscal situation, the time is right for a tax on carbon, which would help alleviate the budget deficit while helping the environment and long-run economy.
A recent Massachusetts Institute of Technology study shows that a $20-per-ton carbon tax beginning in 2013 and rising 4 percent yearly would yield higher revenues of roughly $1.5 trillion over a 10-year period, a number larger than the broader tax policy offered by the Republican leadership and close to the Democratic proposal’s projected revenue. This amount could go entirely toward deficit reduction or could be used to also extend taxes on middle-class families.
A carbon tax in the United States can be a politically savvy way to reduce the deficit while helping combat climate change, building the economy of the future, and acting as an international leader.
By focusing on a market-based solution to climate change, politically unpopular mandates to reduce greenhouse gas emissions can be avoided, and current technologies in construction and transportation can be reallocated toward what will be more cost-efficient green technologies.
Perhaps most importantly, however, the carbon tax passed in the United States will signal to large developing world economies such as China and India that they will have to cut their emissions moving forward, as the higher prices attached to their environmentally hazardous exports will indicate to them that they are on an unsustainable economic path.
The carbon tax is a tax with many benefits and can be the foundation of serious deficit reduction plans moving forward.
Matt Kuchtyak is a School of Arts and Sciences senior majoring in economics and political science with a minor in history. His column, “State of the Union,” runs on alternate Wednesdays.