Who else supports a revenue neutral carbon tax and why or why not?

Question

In a recent question http://answers.yahoo.com/question/index?qid=20140129083342AArfxzD
Raisin Cain objected to my answer because it did not offer an alternative "plan" to massive switch to nuclear power from fossil fuels. The criticism is fair, because his question did ask for plans, and my answer did not supply one. But the reason it did not supply one was that my post was truncated just at the point I was getting to the direct answer part of it. So this question, though worthy of attention in its own right, is also by way of correcting my answer to that prior, now "resolved" question.

I support phased implementation, whereever feasible, of revenue neutral carbon taxes.
http://www.carbontax.org/
http://www.carbontax.org/who-supports/scientists-and-economists/

There are some bureaucratic issues of how to do that fairly and efficiently, but if done sensibly I cannot imagine it being more difficult than figuring out how to collect income taxes, sales taxes, excise taxes, etc. which has been managed around the world for decades if not centuries. Unless one wishes to live in a cave with no public interaction or public services whatever, some taxes are required, and there is no logical reason why a tax that does not raise revenue on a net basis should be per se ruled just because it has not been done already for years, or because some politicians do not have the mental abilities to offer a fiscal platform other than "no new taxes."

In what form the revenues from a carbon tax would be rebated is debatable, but it should in my view not be regressive. A poor person should thus get at least an equal share to a rich person. That would ensure that people with low incomes would not suffer a net loss (taxes paid being more than rebate received) unless (despite their below average economic circumstances) they use MORE carbon fuels than the average person. If even that is a hardship (as it might well be in a minority of cases) then there are probably issues of inadequately functioning social services that go way beyond energy policies and need redressing regardless of whether carbon taxes or any other climate protection policies are implemented (which there certainly seem to be, but that is also a different question).

The advantages of a revenue neutral carbon tax are that it would increase the relative price of carbon fuels to levels that more realistically reflect the cost to humanity of using a one-time inheritance of natural capital with huge and solidly demonstrated and very long-lasting negative external effects. But the revenue neutral carbon tax would do so with a minimum of bureaucratic interference in producer and consumer choices, especially re how much to use of which form of carbon or non-carbon fuels. And it would not change the relative size of the public sector or its share of the economy.

I don't expect revenue neutral carbon taxes to be widely implemented soon enough to have much impact, but that is a quite different issue from whether or they make good sense. I think they do, and that would be my preferred plan for helping reduce the negative future effects of global anthropogenic climate change. Even if they were implemented promptly they would, in my view, not do enough, but I would be in favor of giving the revenue neutral carbon tax top priority, and other measures to encourage energy efficiency, research into alternative fuels, protective adaptation of vulnerable coastal areas, etc. that might also make good sense, a secondary priority. I am not absolutely opposed to NON-revenue neutral carbon taxes, and would generally favor them over cap and trade schemes, but would not advocate them as a preferred approach.

In please say in your answer whether or not you would support some kind of revenue neutral carbon tax, and why or why not.

Deliberately anti-science comments here are not welcome and posters doing so are subject to being blocked from future questions.

Answer 1

I like the idea of revenue-neutral (or nearly so) carbon taxes. I'd start them out small, then ramp them up in a predictable pattern over several years.



They are likely easier to collect than sales or income taxes, as you only need to collect revenue from oil refineries, natural gas refineries, and the like rather than every store or person in the country. If you completely replaced some other tax (such as payroll taxes or the general income tax) with a carbon tax, you could probably spend less collecting taxes for the same total government revenue.



Also, of course, it's a tax that discourages a behavior we want to discourage (emitting CO2) instead of one that discourages a behavior we want to encourage (earning money)...

Answer 2

I think one of the problems with any kind of financial impediment/incentive, be it a carbon tax or other instrument, is that it can never be truly revenue neutral. We can get close but not all the way there, there are always going to be administrative costs and overheads that reduce the amount of money in the pot.



If a trading system is introduced then there will be brokers and agents taking a commission. If that commission is 10%, then by the time a $5 carbon credit has been traded 10 times it effectively has no value as the whole of the $5 has ended up being paid in commissions to brokers.



If an incentivised policy is implemented that rewards people and organisations for reducing emissions then presumably penalising the worst emitters generates the necessary income; something akin to a cap and trade system but without the trading.



Were such a system to be established and administered by an independent body, then the overheads would be comparatively low and this value would be retained.



Those who did reduce emissions would be financially rewarded, those that didn’t would be penalised. This means that the costs of goods and services provided by the low polluters would be more competitive than the high polluters and their would be a migration of customers toward the lower polluters.



I’m not an economist and avoid politics like the plague so I don’t know how viable such a system would be, one the face of it there does seem to be merit and I would support such a scheme.

Answer 3

Our tax system has always been used to encourage investment, behaviors, innovations and such. For example, the capital gains tax has been lowered to 15% to encourage investment, even though it is a revenue source like a paycheck for some. Working at the factory is taxed at 28% for many but playing the market is taxed at 15%. We give breaks for buying energy efficient appliances and cars, or taking economic risks in exploring for gas and oil in some locations or developing new energy technologies. As a nation, we set priorities forgo tax revenues in order to further a priority.



I think that using the tax code for decrease carbon dioxide and other greenhouse gas emissions is a reasonable tool - although not the entire solution. However, when you state "revenue neutral" - that is where the problem is. What becomes less of a priority and is dropped? Do we drop all incentives for developing new energy technologies? How about removing some of the tax breaks for drilling of developing existing resources? What about tax all revenue from investment at the same rate that normal workers pay? How about removing breakes and subsidies for agriculture? Does the nation not have an interest in keeping a larger number than needed agricultural producers to ensure food security - especially if climate is going to change?



I the late 1980s, I was heavily involved in welfare economics (no- this is not the term "welfare" like a welfare check to a non-working minority to pay for their ride at tax-payer expense). Welfare economics refers to how economic policies impact the well-being (welfare) of society and groups within societies. It is related to macro-economics in a lot of ways. I came across some articles from an economist named Karl Maler that sort of hinted at today's problem. I believe he used game theory to look at the political responses to AGW and how that would likely impact the social welfare of some groups. I'm going totally from memory, but after reading that, the political outcome was "do nothing" because that was easiest. The folks that stood to loose if anti AGW policies took effect had the advantage of political and economic power to stop anything they did not like. The people wanting AGW legislation had science on their side, but this makes no real difference in the political debate - they had little power and influence there. Combating teh problem would require the cooperation of most of the governments of the world. That means the governments would need to have some trust in each other to do "the right thing." Those most likely to be impacted (talking worldwide) are the poorest, while those that need to act the most are the wealthiest. The politicians are damned if they do and damned if they don't in all cases. Therefore, do nothing and let the status-quo remain is the most likely result until extreme events build up and politicians have no choice.



Maler was a "prophet," but unfortunately, I think he may also be an optimist.



Even though a very large majority could support the revenue neutral carbon tax, it is unlikely to be adopted because the powerful forces that already profit from the current system have the most power, and it is easiest for the politicians to "think about it some more" rather than act.

Answer 4

First, I will say that while this is a plan to address the CO2 issue, you need to recognize that your plan has no timeframe, no predicted amount of CO2 reduction, and while the costs of the plan are low, this makes no predictions about the cost to the consumer.



In addition, your plan is as much a way to fund new technology growth as to use technology already present. (added: Meaning that the timing of improvement is extremely variable due to the timing of the technology becoming available for mass production.)



My first two methods of dealing with ANY problem is to ask if the gov't is doing anything to hinder resolution that can be undone and if there is anything that can be done that is NOT a tax. The answer to both of these questions is a resounding YES.



You are well aware of the fact that we are subsidizing both oil and coal. Clearly you must acknowledge that subsidizing and creating new taxes on the same thing is a waste of taxpayer money. First, drop the subsidies.



In addition, you have correctly stated that the cost of nuclear power in the US is high. But those costs are much lower in France and other nations. Why? Two reasons. 1.) We have some regulations that are not safety regulations but still hinder the development of nuclear power. 2.) We have a fear of nuclear pwoer here that causes many problems with zoning. For the regualtion, we likely have some of the same type of non-safety related regulations hindering progress on other low CO2 power production methods. Second, Deregulate.



Both of these methods are the FIRST things to do because they save gov't overhead, taxpayer money and in the end, costs to society.



Now as for a revenue-neutral tax plan. Generally, I am not as opposed to a revenue neutral plan as I am to added tax to coal and oil. And I can concede that while I hate all taxes, some are necessary evils. BUT, there are additional risks with your plan, which I will illustrate in the following 3 scenarios:



1.) Your normal monthly energy bill is $150 using coal. The next best non-CO2 energy provider can give you energy for $180 per month. Your revenue neutral tax comes in. The coal is taxed $12 and the non-CO2 is given $10, with $2 lost to overhead. So your power comes to $162 for coal and $170 for non-CO2. You have increased the cost of power by $12, but aside from people's willingness to pay more for non-CO2, you have no change over for use. This will happen if the tax is too low.



2.) Your normal monthly energy bill is $150 using coal. The next best non-CO2 energy provider can give you energy for $180 per month. Your revenue neutral tax comes in. The coal is taxed $20 and the non-CO2 is given $18, with $2 lost to overhead. So your power comes to $170 for coal and $162 for non-CO2. You have increased the cost of power by $12. This will happen if the tax is just right. After a long period of time, coal goes out and so does the tax and your power goes to $180. But likely, the slow move means the public won't scream too much.



3.) Your normal monthly energy bill is $150 using coal. The next best non-CO2 energy provider can give you energy for $180 per month. Your revenue neutral tax comes in. The coal is taxed $40 and the non-CO2 is given $38, with $2 lost to overhead. So your power comes to $190 for coal and $142 for non-CO2. You have decreased the cost of power by $8. BUT, coal will go out quickly, you will lose the tax revenue redistribution quickly and the cost will quickly go back up to $180 and the public will scream. This will happen if the tax is too high.



Even in your ideal situation, you have to recognize that this will increase people's energy cost. Now I realize that my number are made up, but you will ntoe that I kept the cost of overhead constant, no matter the tax rate, as it would be.



As for whether I would support it or not, I would be on the fence about this type of tax. I would really have to look at the nitty-gritty of implementation.



Generally, I am not against a move away from fossil fuels.



Good question. Kudos.



Edit: No space to comment fully but adding the component of money to the individual once again goes back to implementation as this could easily become a regressive type of tax.