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Your Take: Tax Carbon Emissions?

This is one of the proposals economists love but politicians hate [3] and we’re going to discuss their first proposal – eliminate the mortgage tax deduction [4]. This proposal is pretty straight forward:

Tax carbon emissions. Yes, that means higher gasoline prices. It’s a kind of consumption tax, and can be structured to make sure it doesn’t disproportionately harm lower-income Americans. More, it’s taxing something that’s bad, which gives people an incentive to stop polluting.

It’s not clear how carbon emissions would be taxed but it appears that the main thrust would be adding a tax on gasoline to cover externalities. An externality is a cost or benefit that isn’t covered by price. With burning gasoline as a fuel, there’s a cost that you, as a driver, are not paying. Unlike a company that has to buy carbon credits to offset the pollution from their manufacturing process, we don’t have to pay a similar tax to cover the pollution from our driving habits.

I think the tricky part with taxing this is the implementation. A consumption based tax makes the most sense, add a tax to each gallon of gasoline, with the proceeds going to cleaning up the impact of that pollution. The problem is that a basic one would disproportionately harm lower income Americans because anything that taxes everyone equally would disproportionately harm lower income individuals. While I like the idea of a tax on pollution, I don’t think it’s an easy one to develop.

What do you think about taxing carbon emissions?

(Photo: robbn1 [5])