Gregory Mankiw, tax reform, and the carbon tax

Republicans are proposing and are excited about the possibilities for a huge overhaul of the U.S. tax system.  Here is Mankiw, probably the most prominent and well-respected Republican economist in the US, in January:

Consider the following tax reform:

1. Impose a retail sales tax on consumer goods and services, both domestic and imported.
2. Use some of the proceeds from the tax to repeal the corporate income tax.
3. Use the rest of the proceeds from the tax to significantly cut the payroll tax.

Before moving on, ask yourself: Do you like this plan?  As I understand it, this plan is, in effect, what the Republicans in Congress are proposing.

Here is Mankiw on a carbon tax:

First, the federal government would impose a gradually increasing tax on carbon dioxide emissions. It might begin at $40 per ton and increase steadily. This tax would send a powerful signal to businesses and consumers to reduce their carbon footprints.

Second, the proceeds would be returned to the American people on an equal basis via quarterly dividend checks. With a carbon tax of $40 per ton, a family of four would receive about $2,000 in the first year. As the tax rate rose over time to further reduce emissions, so would the dividend payments.

Third, American companies exporting to countries without comparable carbon pricing would receive rebates on the carbon taxes they’ve paid on those products, while imports from such countries would face fees on the carbon content of their products. This would protect American competitiveness and punish free-riding by other nations, encouraging them to adopt their own carbon pricing.

Finally, regulations made unnecessary by the carbon tax would be eliminated, including an outright repeal of the Clean Power Plan.

Here are links to news stories from Science and the Washington Post.  Older commentary (from pre-Trump era, 2009!) is here.  Economic Rockstar Podcast with Mankiw is here.

I hope we do have a debate on these big picture issues and good legislation gets passed.  Don’t we all?  But I guess I am pretty pessimistic that Republicans, despite their  majorities, are not going to be (extremely?) influenced by the carbon emitters lobby.

P.S.  Sundstrom adds:  …the loosening of other regulations “made unnecessary” needs to be done judiciously, for a variety of reasons. For one thing, pollution pricing is problematic when there are large local effects. This turns out to have been true for SO2, it appears…   …  A carbon-tax-plus-revenue-neutral-rebate proposal not unlike Mankiw’s was actually on the ballot in Washington state this past fall, and failed. It was championed by Yoram Bauman, known as the stand-up economist (he is a professional economist-comedian, and a friend of Shin’s). The story is fascinating and, to me, a little depressing. 

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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