Regressive but necessary taxes: Road tolls and a carbon tax

imagesCAKNMM5W We may be heading for a new normal with respect to tax policy. Ever since the income tax was established in the early Twentieth Century as a progressive way for the government to raise taxes, most people have favored a tax policy that would take more money from those who can afford to pay more, in other words a graduated tax system. Real estate taxes are also progressive. By contrast, sales taxes are totally regressive as are gasoline taxes. So, there is already a difference on how taxes are assessed.

It has now become clear that politics in Washington will not allow the government to spend the huge amount of money required to repair and further develop our country’s infrastructure. Even more importantly, our deficit keeps rising to almost everyone’s despair. To start to solve these problems this would, in the past, have required an increase in federal tax revenues (public and corporate), raised with our traditional progressive tax system. With such action now more and more unlikely(except for closing tax loopholes), states and municipalities are moving increasingly to public-private partnerships to improve or build highways and bridges financed via toll collection, which is totally regressive. But there is currently no other way. Raising the current Federal gasoline tax could also make substantial amounts of money available, but would require Congressional action. A less regressive version of this would raise revenues from motorists and truckers for “miles driven” but the complications of such a system boggle the mind. In any case, it seems unlikely that Congress will raise the gasoline tax, which would result in a huge public outcry. So, public-private partnerships and more (regressive) tolls seem to be the new normal for infrastructure improvements.

On the other hand, there is now growing belief that there will, sooner or later, be a “carbon tax” on fuels used for transport and electricity generation. This is, of course, anathema to many Republicans and to people in general who either do not believe in “global warming” or believe that reducing carbon emissions will have little or no effect on the earth’s temperature. But the public would probably look more favorably on a carbon tax than on a gasoline tax because its implementation would be less dramatic and a majority of the population is concerned about global warming and climate change (Sandy was considered prima facie evidence by many).  A carbon tax could raise a great deal of money -hundreds of billions of dollars – that the government sorely needs for various expenses, as well as debt reduction. Such a tax would increase gasoline and diesel fuel prices and electricity costs – perhaps substantially, depending on size of tax – in a totally regressive way (though high users of electricity and fuel will pay more “taxes” than low users.  A carbon tax would have the desirable effect of making people buy more efficient vehicles or appliances. It has a lot going for it and its time may be coming, in part because energy prices will be lower than originally projected, due to this country’s new wealth of oil and gas riches. Lower energy prices will make a carbon tax easier to swallow.

Will Congress consider a carbon tax. There is some indication that even some Republicans may start to look at this. (Grover Norquist, are you listening?)

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