Home » Uncategorized » Carbon Dividend or Economically Efficient Allocation of Carbon Tax Revenues?

Carbon Dividend or Economically Efficient Allocation of Carbon Tax Revenues?

Economists will generally argue that returning all of a carbon tax to the people is a poor idea. A basic principle for mainline economists like me is to equalize marginal benefits. If subsidizing solar or insulating city hall has a bigger social return than giving me a check, then that’s the way to spend the money. Economist and many others are attracted to Economically Efficient Allocation.

The advantages of the Carbon Dividend approach are mainly political. First, It is probably easier to sell a carbon tax if we can explain clearly how we make it revenue neutral. The Carbon Dividend is the simplest formulation to sell.

Second, it also appeals to base instincts in a useful way. For the majority of the population – especially the low income end, it will return more than it costs. That should help make it easy to sell.

Third, once it is in place, it will be very hard to take it away. Specific spending plans can be cut back by an unsympathetic government. The Carbon Dividend is politically robust.

Fourth, and this is very important, we will have to raise the carbon tax again and again. The Dividend will make that MUCH easier. Every time the tax goes up the dividend also rises, undercutting political opposition, possibly even getting people to cheer for a higher tax!

Finally, – and this is an equity argument, not a political argument – The dividend will work like a guaranteed annual income. Like it or not, jobs are getting scarcer and we have to find ways to guarantee income for everyone. If we can’t find ways to share the wealth, as Marx pointed out, capitalism will collapse because it is just so darned productive – it constantly replaces workers with machines that don’t buy anything.

It is true that eventually carbon revenues will fall and we will need another solution. The carbon tax is supposed to work itself out of a job! (That might b e a good reason not to cut other taxes.) But we can worry about falling revenues later. In the meantime we will be solving today’s most serious problem.

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