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18 May 2009 08:20 pm

by Patrick Appel

Manzi explains problems with the carbon tax proposed by two Republican law makers last week (the bill would offset the new tax with an equal cut in the payroll tax):

...remember that FICA [the payroll tax] is theoretically a dedicated funding source for Social Security and Medicare. They are already underfunded. This proposal would massively reduce the collections that support these programs, which would serve to ratchet up exactly the pressure to increase FICA tax rates that will then serve to make this a net tax increase. The idealized carbon tax is an almost perfect example of what Coase famously called “blackboard economics” – abstract economic theory that proceeds by ignoring a detailed knowledge of the actual economic system.

I found the cap and trade vs. carbon tax debate last week helpful, though a carbon tax is probably politically unfeasible because it is harder to cram it full of concessions to make it politically palatable. For more on this front, see Marginal Revolution and John Broder in the NYT.

That said, it's clear that legislators on both sides like to pretend that their chosen global warming plan will be cheap or free. They might be a bargain in the long run compared to the havoc global warming will wreak, but both plans constitute a massive new tax. There is no hiding that. And unlike a new entitlement – which voters grow accustomed to and will fight strongly against cutting – either global warming plan is simply an attempt to slow the rate of carbon emissions and maintain the status quo or improve it slightly. Even if the Waxman-Markey cap and trade bill passes, I wonder whether it will be vulnerable to political attacks for this reason – especially in its current form.

The Congressional Budget Office recently had a good paper recapping of the science and implications of global warming. I agree that we need to act and am leaning towards supporting the bill, but I would prefer to see more bill-specific projections first. The World Resources Institute has analyzed it here and here, though like Tyler Cowen, I'd find more cost-benefit analysis helpful. Krugman's pitch:

As the Center for American Progress has pointed out, by 2020 the legislation would have the same effect on global warming as taking 500 million cars off the road. And by all accounts, this bill has a real chance of becoming law in the near future. So opponents of the proposed legislation have to ask themselves whether they’re making the perfect the enemy of the good. I think they are.

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