Thursday, September 21, 2006

A Misuse of the Carbon Tax

Why do people believe that taxes are arbitrary things that can be raised and lowered at will? More importantly, why are some people nodding approvingly at Al Gore's plan to substitute the payroll tax with a carbon tax? Taxes exist to provide the various levels of government with the revenue that they need to do their thing. But that doesn't mean that governments can levy arbitrary taxes on arbitrary activities. A government should levy taxes on an activity in proportion to the amount of money it takes for the government to support that activity. This is a good rule in principle, but its difficult to calculate and execute the appropriate levy on arbitrary activities, which is why things like a general income tax are required in order to allow governments to pay for the support of activities which are not themselves taxed. Which brings me to my complaint about Mr. Gore's plan: its not appropriate to swap a payroll tax for a carbon tax because the two are supposed to serve very different functions. I think a carbon tax is a great idea; I've argued that people who cause environmental damage should be taxed in proportion to the damage that they do. But a carbon tax is not appropriate as a general fundraising tool because carbon emission is not a good proxy for the value of support that the emitter receives from the government. A payroll tax, on the other hand, is much more appropriate as a general fundraising mechanism, since income is a good proxy for the value of the support which the income recipient receives from the government. As an example, consider the case of a coal-burning power plant and a nuclear power plant. The nuclear power plant produces fewer carbon emissions than the coal-burning plant, but does it suck up fewer governmental resources? I'd argue no; nuclear power plants require special security and inspection regimes, which probably mean that they suck up more government resources per kWh produced than a coal plant. This actually argues in favor of a tax on nuclear facility to support the government's monitoring function rather than a general payroll tax, but it also demonstrate that a carbon tax is wholly inappropriate. In a nutshell: the amount that an activity is taxed must, when possible, reflect the actual cost to the government in supporting that activity. Any tax above that amount represents an unwarranted appropriation by the government. Since the amount of carbon emitted by an individual or corporation isn't a good proxy for the amount of resources the government spends to support that individual its inappropriate to use such a tax as a general revenue generator.


Anonymous Anonymous said...

I believe nuclear power plants have to pay the costs of regulating them.

8:41 AM  

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