Tuesday, December 15, 2009

carbon tax in the news

To continue from a VAT to an even more politically challenging tax reform, I note a post of mine from June:
...Had the Stelmach government understood the situation, they would have gotten ahead of this by signing on to a national carbon tax (something I've long advocated, as readers of this blog would know). A carbon tax would be bourne by Canadians in proportion to consumption, and therefore far more regionally equitable than by production. As an aside to those who believe climate change is a hoax, support for a carbon tax does not necessarily mean support for the idea that climate change requires fiscal action. We have to get taxes from somewhere, right? Why not get it by taxing consumption like on sales of SUVs instead of taxing everyone's personal income? We should be taxing consumption instead of income and investment anyway. Whenever I say I support a carbon tax I mean a revenue-neutral tax.

... Stelmach has tried to impress environmentalists by throwing billions of Alberta taxpayer dollars at the boondoggle of carbon capture. Needless to say, no one has been much impressed...

From Jeffrey Simpson's G&M column of this week:
The best way to spread the burden would have been a carbon tax, applied on both producers and consumers. The tax could have been collected regionally and recycled into the regions where it was collected, thereby easing Alberta's and Saskatchewan's pain.

But those governments had their heads in the sands
, hoping the whole issue would subside. So they did nothing in the one area that really counts: putting a price on carbon. ...

Both are big supporters of carbon sequestration, an unproven, expensive method of lowering emissions. In Alberta's case, the taxpayers will spend $2-billion to reduce emissions by perhaps five million tonnes, which is about 2 per cent of the province's total emissions. The world sees this policy for what it is – expensive and inadequate...

no government anywhere, from authoritarian China to semi-authoritarian Russia through all the democracies of the world, believes the climate-change deniers.

Here's a quote lifted from testimony to Congress by Ted Gayer (a former Deputy Assistant Secretary at the Treasury, equivalent to an Assistant Deputy Minister at Finance Canada):
The most frequent criticism of a carbon tax is that it would be politically unpopular. But to quote Milton Friedman, I think my role is to “prescribe what should be done in light of what can be done, politics aside, and not to predict what is ‘politically feasible’ and then to recommend it.”

Economists like fiscal measures like the GST, and most other consumption taxes which would include a carbon tax, in no small part because they are simple and transparent. Yet these are the very qualities that make politicians hate them. Politicians prefer complicated and opaque taxes as those can be hiked in the future with minimal political penalty.


Anonymous said...

While I agree with the economic utility of general VATs or consumption taxes, I don't agree that a carbon tax has the same merits. At its core, a carbon tax is a tax levied to modify social behaviour, and it thus invites all the political interference you rightly despise. Further, a tax on energy use is essentially a tax on productivity - whether you are growing grain, building cars, or developing software, you will consume more energy the bigger your operations get, and that seems rather regressive, no?

Anonymous said...

Carbon tax? Are you serious? Wow, I won't be supporting the Wildrose Alliance anymore with views like this.

Brian Dell said...

A consumption tax is identical in terms of attempting to "modify social behaviour." The idea is to encourage saving and investing. I wouldn't call that "social behaviour" so much as economic behaviour, however. A carbon tax would encourage energy efficiency and/or investment in solar, wind, etc since returns on those investments will be more competitive.

Productivity means greater output per level of input, so I disagree that a tax that increases the greater the inputs used discourages productivity, when the input is not a lasting addition to the physical capital stock but something that is consumed in use. Quite the opposite, in fact.

Burning fossil fuels does not increase the size of the capital stock, because it quite literally goes up into thin air. No equipment, increased plant, or other physical property is left in the wake of energy that is dissipated this way.

Corporate taxes, on the other hand, are a tax on productivity, as are income taxes, although less so. But taxes on investors cannot just be slashed dramatically overnight in isolation without creating a windfall and aggravating the deficit.

The "science" of climate change accordingly falls out as irrelevant. Even if global warming is a hoax, it would make more sense for Alberta to have the lowest corporate tax rate and an average gasoline tax, than the the lowest gasoline tax and an average corporate tax rate.

On top of this is the fact that if absolutely nothing is done re emissions, people in other jurisdictions believe something should be done such that sooner or later Alberta will be unable to export without having to pay tariffs, and that tariff revenue will be going to a foreign jurisdiction.

In any case, I don't suppose for a minute that Albertans, never mind Wildrosers, will support a carbon tax any time soon. I merely note what the consensus of economists across the political spectrum is. A carbon tax makes more sense than either cap and trade, which can be abused, or carbon capture.

Brian Dell said...

re "modifying social behavior", I would also ask if being innovative or creative allows a corporation to avoid corporate tax, or an individual income tax. It is, in the fact, the opposite case: the more innovative or creative one is, the more money one is making and the more taxes one must pay.

Innovative and creative people and organizations can avoid carbon taxes, however.

People getting rich is good for me, because the rich can buy more of what I or my employer sells, or invest in property, plant, or equipment and create a job for me. Someone else burning gasoline, on the other hand, doesn't make my life any better, and that alone creates an argument for making it a top priority for being taxed, before even starting into a debate over whether anyone's life is actually made worse. It's what economists call opportunity cost.