Last week, reader Alex asked, “Would libertarians approve of a carbon tax if it was accompanied with an abolition or 50 year suspension of the federal income tax?”
Putting the political infeasibility of this aside, my answer is no for two fundamental reasons.
1.) Different taxes carry different deadweight losses. The deadweight loss for a carbon tax (at least the ones that have been proposed) is huge. Heritage finds that 2012 to 2035, the accumulated GDP lost is $9.4 trillion. Brookings and the National Black Chamber of Commerce have similar estimates. Tyler Cowen writes, “A tax on carbon, by raising the prices of goods and services, also lowers the real wage and discourages labor supply (holding constant its effect on climate), just as an income tax does” If an abolition of the federal income tax reduces the deadweight loss more than that created by a carbon tax, then we can talk. But I don’t know if that’s true. It’s one thing for a tax swap to be revenue neutral, but if a carbon tax has a much bigger deadweight loss effect, we’re going to be living in a less prosperous world. The way to reduce the deadweight loss is to reduce the capital gains tax or the taxes on the super rich, and while this has to deal more with political feasibility, I’d love to see the politician suggest cutting taxes for the wealthy and big businesses at the expense of middle and lower class America.
2.) I don’t believe carbon dioxide is a pollutant. It is a naturally occurring component of the air and is also the ubiquitous and unavoidable result of fossil fuel production and other naturally occurring events. Regulating CO2 opens the door for even more regulatory environmental overreach when I think we all have plenty.