Econospeak identifies a "problem" with carbon taxes:
But relying on carbon taxes is also a terrible way to finance the government. We are talking about half a trillion dollars or so in revenue, so the percentage of financing would be quite large. Income fluctuates, and that is a problem, but the spending on a particular set of items, like fossil fuels, has the potential to fluctuate even more. Example: suppose we really are facing an oil production peak, and scarcity causes the price to spike? Every 10% rise in oil prices will tend to cause something like a 5% reduction in long run demand (I’m rounding here – and thanks to Gar Lipow for his valuable work in collating the evidence), but this also means less carbon tax revenue, potentially a lot less. This is a serious problem, one that the green taxers have not really confronted.
Oh no! Less revenue for the government! Why, we might have to do something unthinkable impossible, like--cut spending.
In fact, gas tax revenues aren't particularly volatile. In 2004, picking one state at random, Minnesota raised $648 million with its gas tax. In 2006, after the efficiency effects of higher prices, it raised . . . $629 million.
Compare that with income tax revenue. Just between 2003 and 2006, Federal tax revenues grew by $625 billion, somewhat less than double what would have been expected had they remained constant as a percentage of GDP.
Long, slow declines in revenue, such as those seen in the gas tax, are easily dealt with by cutting spending, or, more likely, raising the other taxes. States worried about gas tax revenues, for example, are now experimenting with GPS-based road-pricing. At the federal level, we could raise marginal income tax rates or decrease the standard deduction to compensate.
Update A confused commenter demands that I document the changes in percentage terms. All right; the fall in Minnesota gas taxes, during a period in which the price of oil roughly doubled, was less than 3%. The change in federal tax revenues over a slightly longer period (4 years rather than 3) was 11.5%. We are clearly able to handle changes of the magnitude that carbon tax revenue declines represent, particularly if politicians don't use every increase in revenue as an excuse to go on spending binges--a wan hope, I realize.
Oh, look Honey, it's another commentator comparing fluctuation of two hugely different numbers by quoting the absolute rather than percentage change.
That's nice, dear.
I can hear it in the head offices of the House and Senate:
"Doggone it! We have to have that carbon tax so that we can keep government revenue increasing; we have many programmes to fund, and pork to butcher. Here it's taken us years to confound the American Public with this human-caused global warming scam, and we're right on the cusp of getting our hands on the money of those guilty-feeling people in the country, and now we have to be concerned with oil production slowing?! That can't happen! When we put a guilt-tax on something, we expect the public to support us. Why, if this follows the reduction in cigarette sales after we taked the heck of them, we'll have to start searching for some other creative way of getting more taxes.
*at this point, the Speaker overcomes the botox injection and a small frown line appears between her eyes* "Just maybe we should cut some of the entitlement spending? Might we even slow down the growth of spending to match our current tax revenues?"
*the little frown line disappears as her 'center' returns to her* "Forget that, we'll just start a scientific study to show that humans exhale too much carbon dioxide, then we'll set up some stations to measure how much each person exhale, set a tax base..." *her voice fades away as her tiny steps quickly take this diminutive person towards her cohort's office, The Might Reid, [may the wind not blow too hard]*
1) I'm not confused.
2) Quoting percentages is important for an apples-to-apples comparison.
3) I thought you'd be more careful about that kind of thing.
4) You hurt my feelings. :-(
Well, you hurt my feelings too; I thought the percentage comparison was obvious, forgetting that most people don't have GDP revenue figures at the top of their heads. Now can we be BFF again?
Megan_McArdle: Didn't Krugman use that excuse on the Bush tax cut thing? ("I forgot that my readers aren't familiar with the economic theory that says the benefit would have lasted only one year...")
Okay, enough ridicule ;-)
In any case, I didn't know we ever were BFF. We can definitely start though. Pajama party Saturday!
But the issue is the long term impact vs short run fluctuations.
Income tax receipts are cyclical and fluctuate, but no one seriously disputes that they tend to rise over time.
But if a carbon-- gas-- tax is successful in reducing oil consumption it will fluctuate around a downward sloping trend.
The issue is not short run fluctuations, it is long term trends.
You are right that this does not have to be a problem. But if it is dedicated tax like the gas tax is to road and bridge building and maintenance this does create a long term problem of how to finance these activities.
But of course this takes us back to Mankiw and the new Massachusetts governor. Governor Patrick started looking at the books and found that over the prior 16 years of Republican governors that the state had massively underfunded bridge and road repair and that the important infrastructure was in horrible condition. Patrick considered raising the gas tax to raise revenues to fund road repair. But he took the Mankiw's argument that as
a nation we should use higher taxes to reduce oil consumption seriously and concluded that a gas tax would not be a good long run source of revenues to fund road and bridge maintenance. so what did Mankiw do say about the Democratic governor actually applying the lessons of Mankiw's economic arguments -- he made fun of him.
I think the point he's trying to make is that legislatures will use a funding source to fund expenditures and will not cut spending in any kind of rational way when the actual proposed benefit of the tax, lowering use of carbon producing fuels, comes through.
Its all fun to talk about how when taxes are lowered the government should lower expenditures but it hasn't ever happened and we shouldn't assume it will happen even if that is the quote unquote rational thing it do.
I say quote unquote because there really isn't any short term upside, which is what house members look at, to cutting spending.
A carbon tax should go into a fund that completely distributes it's revenue on a per capita basis. Preferably on a monthly schedule.
This way the government doesn't get the money to spend, and we have largely ameliorated the regressive effects of carbon taxes.
spencer: "[Massachusetts Governor Deval] Patrick considered raising the gas tax to raise revenues to fund road repair. But he took the Mankiw's argument that as a nation we should use higher taxes to reduce oil consumption seriously and concluded that a gas tax would not be a good long run source of revenues to fund road and bridge maintenance."
I'm not exactly a fan of Gov. Patrick, but I find it really hard to believe he's as silly as this makes him sound. An increase in the gas tax would be so effective at reducing gas use that it would reduce gas-tax revenues within a few years? And this is a reason not to increase the gas tax? (Nevermind that it's the flip side of the simplistic supply-side 'a tax cut will lead to a revenue increase' idea that Megan was ridiculing last week.)
No one has anything to say about GPS-based road-pricing? Whereby it can be assumed the gov't. will have a record of the location of your car at all times? Is the next move a permanent ankle bracelet so they can tax you for sidewalk or public park usage? And thereby know where you, not just your car, are?
Bouffant, those were some of my first thoughts when told about the GPS-road tax. Heck, they've put computers in the cars for years, and they can tap into the 'little black box' if they want to look at what you were doing just before that big accident (to find out who was at fault).
The LoJack, the chips in the hand phones...heck, there are many ways to track people now, as is. Don't need no stinkin' ankle bracelet, just a little doodad stuck into your belly button.
The only way a carbon tax makes sense is if the revenue goes toward building alternative energy infrastructure. Because the cost of the tax will be shared by everyone in the form of increased costs on everything (tanstaafl, remember?). So raising a tax and letting the government piss away the money, or turning it into some sort of grand redistribution scheme -- with the government undoubtedly taking a big bite in the process -- doesn't accomplish anything except to raise taxes. Personally, I'm agin that.
Yeah sure, raising the cost of gasoline $0.50 a gallon will reduce the amount people consume, but not much. How much did the price spike from $1 to $3 a gallon we've seen in the last four years reduce consumption? Enough to make a meaningful difference in co2 production? Raise the price to $30 a gallon and you'll not only be shivering in the dark, you'll be awful hungry while you do it.
Not like we out here in flyover country do all that drivin' for the fun of it, ya know. Punish us for producing your food and energy? Great idea. If we're forced to cut way back on the amount of driving we do, and thus on the amount of food and energy we produce, do you really think we're going to share our limited food & energy with you? Well maybe, but it's gonna cost you. A lot. Like about $30 a gallon plus a little for pain & sufferin'. The farmers aren't going to suck it up. The truckers aren't going to either. Nor will we out in the oilfield. We'll take that increased cost, add a little overhead, and pass it right on to the consumers. That's you.
And despite my earlier quip, electric tractors and electric semi trucks aren't really a solution unless you find some way of generating a great deal more electricity that doesn't involve burning fossil fuels.
Swen,
By distributing all the revenue on an equal per capita basis, we would be building the incentive for whatever alternative energy infrastructure would turn out to be economically feasible.
The idea behind the distibuting the funds is that it serves as the rent of an individual's portion of the atmosphere.
Many people think such a system counteracts itself, but it really does not. The main incentives/disincentives occur at the points of transactions for energy. It may be that an average citizen will recoup almost all, or more of the tax he has paid, but he will respond to the new, higher price for fossil fuels since their price has been changed relative to those of the alternatives.
microscopist meniscotheriidae poesis arched disponer cracking glucolipid muzo
http://www.torsofever.com >Torso Fever
http://www.tbolt.net