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Monday, October 22, 2012

Strategic CSR - Carbon Tax

What would public policy look like if our political system focused on substance rather than rhetoric (and also threw in a bit of intelligence for good measure)? The article in the url below suggests that, regarding carbon emissions and taxation policy at least, it might look a little bit like British Columbia, Canada:

[Last July], the best climate policy in the world got even better: British Columbia’s carbon tax — a tax on the carbon content of all fossil fuels burned in the province — increased from $25 to $30 per metric ton of carbon dioxide, making it more expensive to pollute.

Why is raising tax on carbon emissions so good? Because the provincial government uses the revenue as an offset to lower both individual income and corporate taxes:

Thanks to this tax swap, British Columbia has lowered its corporate income tax rate to 10 percent from 12 percent, a rate that is among the lowest in the Group of 8 wealthy nations. Personal income taxes for people earning less than $119,000 per year are now the lowest in Canada, and there are targeted rebates for low-income and rural households.

As the authors argue:

Substituting a carbon tax for some of our current taxes — on payroll, on investment, on businesses and on workers — is a no-brainer. Why tax good things when you can tax bad things, like emissions? The idea has support from economists across the political spectrum … . That’s because economists know that a carbon tax swap can reduce the economic drag created by our current tax system and increase long-run growth by nudging the economy away from consumption and borrowing and toward saving and investment.

This tax policy, of course, also lowers carbon emissions:

Economic theory suggests that putting a price on pollution reduces emissions more affordably and more effectively than any other measure. … British Columbia’s carbon tax is only four years old, but preliminary data show that greenhouse gas emissions are down 4.5 percent even as population and gross domestic product have been growing. Sales of motor gasoline have fallen by 2 percent since 2007, compared with a 5 percent increase for Canada as a whole.

The authors argue that the U.S. should adopt a similar approach to taxation policy and have gone to the trouble of outlining what such an approach would look like:

According to our calculations, a British Columbia-style $30 carbon tax would generate about $145 billion a year in the United States. That could be used to reduce individual and corporate income taxes by 10 percent, and afterward there would still be $35 billion left over. If recent budget deals are any guide, Congress might choose to set aside half of that remainder to reduce estate taxes (to please Republicans) and the other half to offset the impacts of higher fuel and electricity prices resulting from the carbon tax on low-income households through refundable tax credits or a targeted reduction in payroll taxes (to please Democrats).

All of that might be possible if, of course, our political system cared anything about substance and meaningful change, rather than empty rhetoric.

Take care

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The Most Sensible Tax of All
By Yoram Bauman and Shi-Ling Hsu
July 5, 2012
The New York Times