Why taxing carbon might pass next Congress

imgresA September 6th article in the New York Times by renowned economist Gregory Mankiw caught my eye because I realized that even Republican members of Congress might decide to do something about limiting carbon emissions. It could be done in a manner that uses the funds generated by a carbon tax to reduce other taxes, resulting in a tax-neutral outcome.  This has been done for several years in British Columbia and is now on the 2016 ballot in Washington State. Use of fossil fuels has fallen somewhat in British Columbia versus the rest of Canada and economic growth has not declined.

Putting a tax on carbon or using a cap and trade approach has been anathema to Republicans. That is because these approaches have generally used the income generated from the carbon “tax” to fund or encourage investments that would also lower carbon emissions, such as wind or solar energy generation. The proposed Washington state initiative reduces state sales tax and tax on manufactured goods and provides a $ 1500 tax rebate for low income working families. The $25 tax on carbon dioxide translates to a 25 cents per gallon increase in gasoline costs. This is obviously a good time to enact this tax as gasoline prices are quite low and are expected to stay low for several years. A carbon tax, as readers surely know, encourages people to buy more fuel-efficient cars, form car pools, use more public transportation, and turn down thermostats.

It is unfortunate that this approach is not being considered at the Federal level at a time when gasoline and diesel prices are low and the highway trust fund is almost depleted. There is no courage or wisdom in Washington and that is the reason, among others, why Mr. Trump is doing so well in the polls.

 

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