Slash spending, reduce deficit by adding carbon tax

2013-03-05T00:00:00Z Slash spending, reduce deficit by adding carbon taxThe Washington Post The Washington Post Arizona Daily Star
March 05, 2013 12:00 am  • 

The following editorial appeared in Sunday's Washington Post:

What if there were a policy that could cut future deficits, slash taxes, eliminate wasteful government spending and reduce climate change? As sequestration kicks in, you'd think every politician in Washington would be desperate to embrace such a win-win-win-win.

Last week the Brookings Institution's Adele Morris laid out what an intelligent tax on carbon emissions could accomplish, and the results will astonish anyone - seemingly much of Congress - who hasn't given the idea the consideration it deserves. Morris proposed starting with a $16-per-ton charge on carbon dioxide, setting it to rise by 4 percent annually and using most of the money to cut corporate taxes and the deficit.

Want to slash government spending? The tax would replace the inefficient web of clean technology subsidies that overspend the country's wealth on electric cars and biofuels. Morris reckons that would save about $6 billion a year.

Want to get rid of government regulations? A carbon tax could justify suspending the Environmental Protection Agency's carbon dioxide program, which will proceed if Congress continues to refuse to establish better policy.

Want to cut the deficit? The plan would decrease it by $815 billion over two decades. That's not enough to put the country on comfortable financial footing, but it's serious money.

Want to reduce carbon emissions? Morris calculates that, though energy prices would hardly skyrocket, the tax would lead to 12 percent fewer emissions over two decades, relative to what's likely to happen. Capital would flow into cleaner energy because consumers would demand it.

Want to cut taxes? The plan would finance a seven-point drop in the corporate tax rate, the most economically distortional on the books. By encouraging more investment in the United States, this tax swap would produce immediate economic benefits.

Want to protect the poor? The Brookings proposal would raise electricity, gasoline and heating oil prices by only 5 to 6 percent early on. But it would still reserve 15 percent of the carbon tax revenue to enhance the safety net for low-income Americans, with the money perhaps devoted to the earned income tax credit or Medicaid. This way, Americans in the bottom 20 percent to 30 percent of the income scale wouldn't pay anything more to the government, on balance.

The plan would eliminate lots of central planning going on in Congress, the Environmental Protection Agency and the Energy Department, and it would be easy to administer. By collecting the tax from upstream fuel producers and a few big sources of CO2, such as cement makers, the government would only have to charge thousands of businesses, not millions of Americans.

For years, conventional wisdom has casually dismissed a carbon tax as politically unfeasible. But if Republicans could say they lowered taxes, slashed the deficit and cut spending, and if Democrats could say they did something serious about carbon emissions, each side could claim a politically helpful narrative - or at least one attractive enough to allow politicians to suspend the demagoguery and shortsightedness for a bit.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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