McHugh Favors $10 Gas Tax? :Eek!:

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I’m not saying that the goal is rational, but if you really think “we’re all gonna die!” because of global warming, “peak oil” or whatever, and you want to quickly reduce the use of fossil fuels, there is one and only one honest, transparent, effective and non-economically destructive way to do it:

 

Gradually phase-in over many years a $5 or $10 per gallon carbon tax on all fossil fuels – like 50-cents per gallon increase per year – but with one minor condition: It must be revenue neutral. My preference (and that of the the WSJ) is for the new revenue to be offset dollar-for-dollar by corresponding decreases in marginal income tax rates, capital gains taxes, etc. (supply-side tax cuts). (Liberals like Tom Friedman and Robert Samuelson prefer that the offset come from payroll taxes – ie, the “F.I.C.A.” Social Security tax. That’s OK – lets make a deal.) 

 

Include a refundable, graduated income tax credit to hold harmless low or middle income people who pay little or no income tax (refundable meaning the government would send them a check). A payroll tax has a similar effect, but the refundable credit (or even a “prebate”) is better because it’s more transparent and also helps people who aren’t working. The goal is for each income bracket in the aggregate to experience full revenue neutrality – whatever increased energy tax they pay they get back from lower income tax payments or credits.

 

Because it’s revenue-neutral this proposal is not economically destructive; it would raise the disincentive on socially and economically non-useful consumption of fossil fuels, and reduce the disincentive on the socially useful activities of working, studying, saving, investing, and taking risks. It’s classic Adam Smith stuff. 

 

It would also remove the (phony) rationale for government central planning in the area of energy. Rather than a handful of subsidized and centrally directed experiments in “alternatives” and “renewables,” the high energy tax would generate millions of experiments and adjustments by consumers and providers, and create massive incentives for innovative energy providers and/or conservation entrepreneurs seeking to get rich by replacing fossil fuels and/or reducing consumption.

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One Response to “McHugh Favors $10 Gas Tax? :Eek!:”

  1. Revenue-Neutral Carbon Tax NOT “Just a Higher Gas Tax” « Jack McHugh’s Blog Says:

    […] Gillman responded to the revenue-neutral carbon tax proposal I’ve described by saying that transportation taxes (gas tax) should only be used by […]

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