This could start with something as simple as raising the gasoline tax in Massachusetts. Currently we are taxing at 41.9 cents per gallon (state+federal tax), lower than most states (see map), and much lower than other progressive states such as California (67.1 cents), New York (60.9 cents), and even Detroit’s own Michigan (59.4). Friedman champions the idea of “revenue-neutral” carbon taxes, where all revenue gained is returned as income tax rebates/offsets. This is the key to carbon and gasoline taxes: make them politically palatable by making it clear that all of the increased revenue will return to the taxpayers:
Many people will tell Mr. Obama that taxing carbon or gasoline now is a “nonstarter.” Wrong. It is the only starter. It is the game-changer. If you want to know where postponing it has gotten us, visit Detroit. No carbon tax or increased gasoline tax meant that every time the price of gasoline went down to $1 or $2 a gallon, consumers went back to buying gas guzzlers. And Detroit just fed their addictions – so it never committed to a real energy-efficiency retooling of its fleet. R.I.P.
If Mr. Obama is going to oversee a successful infrastructure stimulus, then it has to include not only a tax on carbon – make it revenue-neutral and rebate it all by reducing payroll taxes – but also new standards that gradually require utilities and home builders in states that receive money to build dramatically more energy-efficient power plants, commercial buildings and homes. This, too, would create whole new industries.
More on the revenue-neutral idea: Nationally, carbon tax rebate checks could be sent out like stimulus checks (although this is perhaps a little too contrived for our new President). Alternatively, simply announce very publicly that the income tax percentage rate will be dropped by 0.4% this year (for example). This could be done in Massachusetts now. Raise the gas tax 25 cents this year (for example), and another 25 cents every year for four years (to start). This creates an immediate long-term incentive for consumers to continue buying efficient cars the next time they need one, phasing it in with a time-scale similar to the long life cycles of automobiles. With gas prices having dropped below $2 in Massachusetts, now is the time to create take action: citizens have certainly noticed the amazingly high prices of $4 a gallon, so 25 cents on $2 gasoline doesn’t seem unreasonable, especially if it offsets income taxes. The offsetting the income taxes part is important: those who buy efficient vehicles or drive less will save more because the reduction in income taxes is uniform – hence those using less than the average will be rewarded. It’s just like that economists’ saying: tax what you don’t want (fossil fuel consumption) not what you want (income!).
Legislators should resist the urge to use this as a revenue builder. Keep it separate from our current state gasoline tax, so this revenue-neutral part is obvious. The political capital is here now for this. If it’s done right (through the revenue-neutral idea), it will have broad citizen support. Our Governor Deval Patrick commented on this on his live-blogging last summer:
Danny wrote about the gas tax. I am not hostile to the gas tax, but it’s not my first choice. But I think we owe the public every attempt and strategy to get savings and efficiencies out of the systems before we go out asking for broad-based tax increases. I also question whether the gas tax will produce the level of new revenues that have been projected, when we are at the same time pursuing strategies to reduce emissions and gain fuel efficiencies.
He’s clearly sensitive to the political difficulties of “broad-based tax increases”. But this is where the need for the revenue-neutral idea should be paired with it. As Friedman, and those writing at the carbontax.org group (a great source of information), and others have pointed out, there has to be some economic (dis)incentives in order to decrease emissions. Compared to outlawing inefficient cars (talk about political difficulties), carbon and gasoline taxes are the most agile policy tool.
Footnotes: diesel and heating oil are another interrelated problem. You don’t want everyone to switch to Diesel (if it is not taxed), so automobile diesel should be included. But you don’t want individual homeowners to suffer with higher heating bills unless it is coupled with a program for increased home insulation and heating efficiencies. Automobile diesel could be taxed similarly to gasoline, but home diesel distributors/sales would not be included in the short-term (first few years), until a coordinated home fuel efficiency program is implemented.