Climate Policy in the Trump Era: Carbon Tax Rising?
40 Pages Posted: 3 Mar 2017 Last revised: 5 May 2017
Date Written: March 14, 2017
Climate policy in the United States always seems to face strong political headwinds. It is not so much that voters dismiss the threat of climate change, or that they believe climate change is a "hoax," but coming up with a fair and effective policy has always seemed so daunting. This Article argues that the simplest answer is not, contrary to initial appearances, daunting at all. The most effective and most efficient climate policy at the federal, state, and local level is a carbon tax.
Carbon taxation has always seemed politically implausible, due in large part to an inherent public aversion to taxes, but also due to a vicious campaign of misinformation, paralleling the campaign against climate change itself. An important way of countering this bias and this campaign is to emphasize the revenue side of carbon taxation. Without a robust discussion of the uses of carbon tax revenues, the only salient part of a carbon tax to voters is the all-too-apparent cost. There is no sense of the benefits of revenues.
This Article fills this gap by presenting a menu of revenue options, along with a discussion of the macroeconomic and the distributional consequences of the different options. This analysis is an input into a political process, which must ultimately decide on the objective, but only with the guidance of some quantitative analysis. This article closes with an argument for a "lump sum distribution" approach, in which carbon tax proceeds are returned directly back to carbon taxpayers on a largely per-capita basis. This approach largely insulates the poorest two-thirds from increases in energy and other goods, and may not be macroeconomically inferior to other options, as economists have historically assumed.
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