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!