MY VIEW: Laura Tyson

Today, on The New York Times' Economix blog, former Chair of the Council of Economic Advisers and CRFB board member Laura Tyson discusses the possible benefits of enacting a carbon tax. Along with reducing emissions, a goal cited by many of its supporters, a carbon tax could substantially reduce deficits and simplify the tax code.

This, Tyson believes, gives the carbon tax the potential to be a fiscally attractive piece of legislation. Not only could it be a tool for revenue collection by taxing negative externalities, or "economic bads," but, as she states, it could substantially reduce deficits over the coming 20 years and be a catalyst for reforming the tax code.

The Congressional Budget Office estimates that even a modest carbon tax could reduce both greenhouse emissions and the federal budget deficit. A tax of $20 per ton of carbon dioxide, which would translate to about 15 cents per gallon of gasoline, would reduce emissions by 8 percent and generate up to $1.2 trillion in tax revenues over 10 years... The revenues from a carbon tax do not have to be used for more government spending; the tax’s burden on low-income families can be offset by targeted income support measures.

Adele Morris at the Brookings Institution estimates that diverting just 15 percent of the revenues from a $16-per-ton carbon tax would provide enough money to keep low-income households whole. The remaining money could be used to finance a substantial reduction in corporate tax rates and reduce deficits by $815 billion over 20 years. Government spending would not increase.

Furthermore, Tyson stressed the effectiveness of the carbon tax relative to other carbon reducing emissions, and why economists across the political spectrum have avidly supported a carbon tax.

A carbon tax is also a cheaper and often more efficient way to reduce carbon emissions than subsidies for alternative fuels. Generous subsidies for biofuels have cost billions of dollars; by reducing the price of gasoline they may have perversely increased rather than decreased carbon emissions.

Economists have long contended that a carbon tax is the most effective and simplest way to reduce carbon emissions. Conservative supporters include Gregory Mankiw, a former economic adviser to President George W. Bush, and George P. Shultz, who was secretary of state under President Reagan. Economic centrists include Alan Blinder of Princeton and Robert Frank of Cornell University. Further to the left are the Nobel laureate Joseph Stiglitz and Robert Reich, former secretary of labor. James Hansen, NASA’s former top climate scientist, is also a vocal champion of carbon taxes. So is former Vice President Al Gore, who has advocated carbon taxes for the last 35 years as the policy most likely to be successful in combating carbon emissions.

As lawmakers look to reform the tax code, the carbon tax is one way to raise revenue to reduce the deficit, reduce other taxes, or both.

Click here to read the full op-ed.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

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