A reasonable hope would be that those who wish to tell us of the economics of taxation about climate change know some modicum of each of the three subjects under discussion. This hope being dashed when we consider The Observer’s Phillip Inman on the subject(s). For he’s telling us that we still don’t know the solution to climate change here, that there’s still something we don’t know about how to tax to prevent it. More specifically, he’s whining that it’s the poor who would be hardest hit by a carbon tax and boy, isn’t that a problem?
The bit being missed here is that the knowledge of this is built into the very proposal itself for a carbon tax in the first damn place. Which really is something someone desiring to pontificate on the subject should already know.
The fuel tax wars can’t be won without a greener alternative
The major international agencies should devise a progressive tax regime that penalises the biggest carbon emitters and offsets costs for the poorest
So, apparently we need the IMF, OECD and the International Organisation Of Aunt Sallies to tell us all how to build this new taxation system. Rather than, say, just reading the Stern Review which insists that the carbon tax is the solution. Or the 30 year old work of this year’s Nobel Lauerate, William Nordhaus, who made the suggestion before that. Or perhaps the near century old work of Arthur Cecil Pigou who designed the idea of Pigou Taxes in the first place? You know, why not just use the standard economics on the point?
Assuming that those who write newspaper editorials know the standard economics of course. Sadly that, as above, not being a reasonable hope.
What is an elected politician to do? Simply slapping fuel taxes on diesel and petrol won’t work. Fuel taxes are regressive, like any sales tax, and affect the poorest the most. It is people in the bottom half of the income scale who pay a greater proportion of their wages in fuel and so would pay a greater proportion of any fuel tax. Sadly, all carbon taxes ultimately raise the price of using fossil fuels and the things that are made by burning them. And while the objective of any tax might be to encourage the use of renewables, that can mean a costly upfront investment, especially for an individual household. What is needed (to help the poor hapless politician) is for the major international agencies to devise tax schemes that win over even the most ardent fan of the combustion engine to the cause of higher taxes on petrol and diesel.
It’s a mission that the International Monetary Fund and the Organisation for Economic Cooperation and Development should devote themselves to, and quickly. These organisations are still widely respected and influential, especially with an ageing and conservative audience that clings to the old ways of doing things.
Ghastly t**ttery – ghastly ignorant t**ttery.
It’s worth pointing out that such a carbon tax doesn’t nee to be in addition to all the taxes we already have on fossil fuels. The underlying economic point is not that more money need be raised to deal with things. In fact that’s not it at all. Rather, that market prices don’t fully encapsulate the third party costs of the emissions from fossil fuels. Thus we need to raise the price of making those emissions so that prices are correctly including those third party costs.
What the revenue is spent upon and even what other justifications we might have for the same tax rate are irrelevant. Pigou Taxation works by changing market prices. If we’re already changing market prices through tax then we’re done already. So, for example, Macron doesn’t need to increase fuel taxes to beat climate change, France already changes prices enough through tax. But, you know, excuses for increasing taxation.
But this thing about carbon taxes being regressive. Yup, they are. So, the proposals for a carbon tax are that it be revenue neutral. Some other tax should be reduced at the same time the carbon tax is implemented. This turns up in all the economic proposals – no, obviously not all the campaigning ones but all the serious, yes.
And yes, again, the tax is regressive. So, we should reduce a regressive tax to keep everything revenue neutral. The usual offer is to reduce national insurance contributions – these are a regressive tax. It’s also true that booze, tabs and other excise taxes are regressive but no one does propose reducing them.
That is, Inman has this idea that there’s some great problem with the regressive nature of a carbon tax. That the vast international organisations should tell us all what to do. When reality tells us that his problem is a) recognised and b) solved in the basic and early discussions of the tax. All Inman, or any politician, has to do is ask any passing economist and they’ll get the same answer. The carbon tax should be revenue neutral, it’ll be regressive so reduce some other regressive tax, payroll taxation being a damned good choice.
But then, obviously enough, those who write the newspaper editorials telling us how the world should be run tend to know remarkably little about how the world does run. Almost as bad as politicians in this manner.