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Calculating the Cost of a Carbon Tax

by Carl Milsted, Jr.

Over at Holistic Politics, I have updated my chapter on cheap and pleasant ways to fight global warming.

In particular, I have incorporated more recent tax and energy statistics for my calculations of what carbon tax rates are needed to replace either the income tax or FICA and the impact on energy prices. Assuming no immediate conservation, a $0.67/kg tax on fossil fuel carbon could replace the income tax. This translates roughly into a $2 hike in gasoline prices and a $0.106 hike in the cost of a kilowatt hour of electricity. In actual practice, we'd have to go with higher rates to offset the effects of conservation.

If people conserve too much, completely replacing the personal income tax with a carbon tax would be impossible without deep spending cuts. But there are other possible uses for a carbon tax: deficit reduction, cuts in other taxes or funding a Citizen's Dividend. To this end, I added some carbon tax calculators so you can design your own carbon tax.

Enjoy.

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Comments

Great stuff, Carl.

I suspect something like this would need to be phased in. That implies that the conservation and technological change might be even greater and come online faster, I suspect.

# posted at by Robert Capozzi

Carl,

I don't buy the premise of why this is necessary, although it does make an interesting thought experiment.

I still favor a tax system that links the function provided with the revenue stream. Spending that protects home, hearth and housing investment should be paid for with a property tax or LVT (things like police, fire, recordation - although this has a separate fee and corrections/community mental health care). Sales taxes should take care of the regulation of commerce - unless they are collected more as a VAT or hidden as a business income tax, in which case they can serve as services to employees and their families - things like education, health care, poverty spending (if used to help people become workers) and any income redistribution to families. An income tax could also serve that purpose.

A carbon tax, if it is to prevent warming, might go for health care (treating asthma) but would also go for natural resource programs and flood prevention. Of course, if flood prevention is your aim than replacing a progressive income tax with a carbon tax whose purpose seems to be to stop global warming and the protection beach front property seems like adding insult to injury - unless you are poor in low lying areas. More and more of the beach front land is going to the wealthy of the world, at least in the U.S. (the lower ninth ward of NOLA and Bangladesh being the exceptions).