17 Jun 2008

The Economist Blows It

This week's Buttonwood missed the target with its analysis of a tax and rebate scheme for global warming. By getting tangled in means-testing and marginal tax rates, they failed to suggest a simple system of high carbon tax combined with a per capita rebate. Here's what I said:
The key feature is that the carbon tax be steep on the margin, that the rebate be per capita (no means testing or "poor" qualification), i.e., a block transfer. That combination will move behavior away from carbon-inducing activities; compensation as a % of income will be highest for the poor. (Gov't "schemes" to spend the taxes will almost always go wrong...)
and here's a two-page piece [PDF] that gives an excellent summary of the benefits of a tax over cap and trade (easier to implement) and 100% rebate over government choosing where to put the money (less corruption). Great job, Professor Hansen!


  1. David, the problem, of course, with your proposal is that Bob Murphy and others are right to suspect that the government will NOT enact carbon taxes (preferring instead to hide carbon taxes via C&T), will NOT auction permits (preferring to bestow favors to rent-seekers by distributing all or a significant portion of rights free), will NOT, to the extent of any carbon tax or auction program, make any reductions in other taxes (much less any per capita rebates), and will end up using carbon revenues or even new taxes to fund hand outs to fund rent-seekers with "clean energy" technologies.

    All those who are in favor of any government action on carbon taxes or C&T should be exclaiming loudly that any revenues generated should be rebated or go to reducing payroll taxes, and that the government should NOT be making any decisions about what technologoes to bet on.

  2. TT, I completely agree. Fortunately, the three concerns you list will be immediately obvious and can be credibly legislated.


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