«
»

the point of a carbon tax and offsetting cuts to payroll taxes

Michael writes, regarding the idea of a carbon tax and offsetting cuts to payroll taxes:

http://tjic.com/?p=12648#comment-217735

We have a logic loop going on over at Coyote on this. If you increase peoples disposable income to cover the increased costs of goods and fuel, how does this lead to any change? Why do I care if gas is $10 a gallon if the government is giving me $8 back.

Because you don’t get the rebate FOR EACH GALLON THAT YOU USE – you get the rebate FOR EACH GALLON THAT TYPICAL CITIZENS USE.

Let’s say that we tax every gallon of gas by $10, and knock your payroll taxes down by $10,000/yr, on the theory that a typical person uses 1,000 gallons per year.

If you use exactly 1,000 gallons, you see no difference in your wallet.

… BUT …

You are now incentivized to cut gasoline consumption. For every gallon you cut, you pocket $10.

Speaking for myself: if a 20 gallon fill up cost me $240 instead of $40, I’d sure as heck change my driving patterns a bit.

This entry was posted on Wednesday, September 2nd, 2009 at 9:57 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

3 Responses to “the point of a carbon tax and offsetting cuts to payroll taxes”

  1. coyote Says:
    September 2nd, 2009 at 10:55 pm

    I think “rebate” is the wrong way to think of it. Of COURSE if you paid a higher price and then had the exactly that amount rebated to you, then it would not be a very powerful incentive. But that is not what is being proposed.

    I think things are easier if you consider payroll taxes to be a sales tax on labor, which they are in effect. So we have a sales tax regime, with differing tax levels on different types of products. If we raise taxes on one item, but drop taxes on the others, then sales of that one item are certainly going to suffer. Its price just went up relative to all the other things we buy. Let’s imagine a simplified world where we can buy any of 10 items (call them A, B, C, etc), each priced at $10, and we have $100 in income. Now imagine the same world tilted such that we have $105 of income and all items are $10 except “A” which now costs $20 each. On average, most people will buy less “A” and more of other stuff.

    I’m a libertarian, so I grit my teeth at such games. I don’t like the taxes in the first place. I don’t like the government playing outcomes games with taxes. But my point is that if we are going to insist on doing something to limit CO2, then shifting the sales tax burden so that total taxes are the same but taxes on fuels are higher while taxes on labor are lower strikes me as a substantially lower cost solution than any of the other alternatives being suggested.

  2. Michael Says:
    September 2nd, 2009 at 11:13 pm

    OK, bad example. Coyote want’s to keep it revenue neutral. I don’t think he wants to hurt the current standard of living and politicians want to get re elected so this type of change would have to affect the fewest Americans as possible. I could see some shifting around in parts of the economy but little to no co2 reductions.

    As in my bad example, yea, you get to pocket $10 bucks for each gallon saved, but government isn’t going to take the tax loss. They’d drop the revenue neutral idea and non fuel taxes would go up.

    With current technology, co2 reduction comes only with huge costs.

  3. TPRJones Says:
    September 3rd, 2009 at 8:54 am

    “if a 20 gallon fill up cost me $240 instead of $40, I’d sure as heck change my driving patterns a bit”

    Not me, I’d just buy from the inevitable black market that would spring up overnight.