In 1993, as Vice President, Al Gore introduced a tax on carbon emissions that would be completely offset by reductions in payroll taxes and an increase in the earned income credit using the phrase “tax what we burn, not what we earn”. According to Gore in a speech he gave at the New York University School of Law in 2006, “Penalizing pollution instead of penalizing employment will work to reduce that pollution”. This proposal could find new traction with the levels of unemployment experienced in 2008 and expected in 2009 and the growing need to face the climate crisis head on.
According to the Social Security Administration, in 2009 employees pay employment taxes of 7.65% and the employer pays a matching 7.65%, for a total of 15.30%. The Social Security portion, which covers old age, survivor and disability benefits, is 6.20% and applies on up to $106,800 of taxable earnings. The Medicare portion is 1.45% and applies on all earnings, with no limit.
Robert Walker, in his article Global Warming Response – Markets or Taxes? points out that a carbon tax would encourage businesses and consumers to use alternative energy sources and reduce carbon emissions through prices. A carbon tax would provide a market-based incentive that would drive new innovations and products in fuel efficiency. Walker adds that most Americans pay more in payroll taxes than they do in income taxes. Since there is a cap on the amount of earnings subject to the social security tax, low and moderate-income taxpayers carry more of the burden. And the portion of the payroll tax that employers must pay can be a disincentive for job creation, deterring them from hiring. Proponents of the carbon tax therefore argue that the tax would reduce pollution and encourage job creation.
In an article entitled We Need a Global Carbon Tax published in the Wall Street Journal in December 2008, Ralph Nader, consumer advocate and three-time presidential candidate, and Toby Heaps, coordinator of a campaign to help negotiate a successor to the Kyoto Protocol that includes all major nations, supported Al Gore’s proposal, arguing that a carbon emissions tax, rather than a cap-and-trade system, “offers the best prospect of meaningfully engaging China and the U.S.”. Nader and Heaps propose applying the carbon tax at a relatively small number of major sources of greenhouse gas emissions, including trunk pipelines for gas, refineries for oil, railroad heads for coal, liquid natural gas terminals, and cement, steel, aluminum and chemical plants.
According to the American Enterprise Institute for Public Policy Research, a tax of $15 per metric ton of carbon dioxide emissions would collect nearly $80 billion in fiscal revenue per year, assuming a short-term reduction of 10% in carbon emissions. The revenue generated would be enough to cut Medicare taxes by nearly 40%. And, assuming the tax was fully passed on to consumers through prices, it would raise the price of gasoline by 13 cents a gallon, the cost of electricity generated by natural gas by 0.6 cents per kWh, and the cost of coal-generated electricity by 1.4 cents per kWh.
Gerald Prante, writing for The Tax Foundation argues that the proposal to tax carbon emissions and not employment ignores the question of who would bear the burden of a pollution tax, believing that most likely it would be the workers of the companies that emit carbon. According to this argument, it would be blue collar workers who would bear the most burden since theirs are the companies doing much of the polluting. Companies with predominantly white collar workers often do little polluting.
The Canadian Centre for Policy Studies has issued a report pointing out various arguments against a carbon tax in Canada, primarily from an economic standpoint, which could also apply to other countries. The report claims that a carbon tax ignores the macroeconomic reality of the current worldwide recession, and that in a world with already high energy prices, a carbon tax is not necessary to reduce energy consumption. A carbon tax in one country, such as Canada or the U.S., would be inconsistent with emerging international efforts, which include the cap-and-trade system implemented by the European Union. Unless the carbon tax is imposed in other countries, companies based in one country could be placed at a competitive disadvantage, and while carbon emissions may be reduced in that country, polluting companies and their jobs would move to other countries that do not impose the tax. And, a carbon tax could discriminate against energy-producing areas of a country.
The coordination of efforts, either for a carbon tax or cap-and-trade system, or some combination of the two, and cooperation among all countries of the world will be necessary to meet the challenge of reducing greenhouse gas emissions while at the same time reversing the current worldwide economic downward spiral.
Al Gore Suggests Carbon Tax Replace Payroll Taxes, by Gerald Prante – The Tax Foundation
Carbon Tax a Better Idea?, by Ucilia Wang – Greentech Media
Eight Arguments Against a Carbon Tax, by David Murell Ph.D. – Canadian Centre for Policy Studies
An Energy Tax Policy for the Twenty-First Century, by Kevin A. Hassett and Gilbert E. Metcalf – American Enterprise Institute for Public Policy Research
Global Warming Response – Markets or Taxes?, by Robert Walker – Get America Working!
Gore’s climate-policy speech today at NYU: a carbon freeze and a carbon tax proposed, by Amanda Griscom Little – Gristmill
We Need a Global Carbon Tax, by Ralph Nader and Toby Heaps – The Wall Street Journal