We Need a Revenue-Neutral Carbon Tax

George P. Schultz and Gary Becker take to the opinion pages of the Wall Street Journal to call for a revenue-neutral carbon tax:

The tax should also further increase over time if the apparent severity of the climate effects is growing and, alternatively, the tax should fall over time if the severity appears to be decreasing. Finally, to equalize the present and future burdens, the carbon tax rate should rise over time approximately at the real interest rate (say, the real return on 10-year Treasurys), so that the present value of the burden would be the same to future consumers and producers as it is to present ones.

A revenue-neutral carbon tax should be supplemented by a reasonable and sustained support for research and development in the energy area. However, we would eliminate any program (loan guarantees, etc.) that tempts the government to get into commercial activities. Clearly, a revenue-neutral carbon tax would benefit all Americans by eliminating the need for costly energy subsidies while promoting a level playing field for energy producers.

There are, of course, a variety of ways such a tax could be made revenue-neutral. I prefer replacing portions of the payroll tax with a carbon tax, for instance. But what matters is the idea. Even without climate change, we should be shifting the tax burden from labor to consumption. This is part of how we get there. And, by the way, if it manages to unleash the free market in search of a post-carbon future, even better.

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Justin Green

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