Saturday, March 8, 2008

Less Carbon, More Employment?

Most people know that when you tax something, whether it be a good, a service, or an event, you usually see less of it in the economy.

For this reason, some people are advocating a carbon tax to lower greenhouse gas emissions and to curb the use of foreign oil.

I'm undecided if I like this idea more than a cap-and-trade scheme, but I still wanted to highlight one idea related to the implementation of a carbon tax that NYC Mayor Michael Bloomberg recently cited (as many others have previously).

Although passing a new tax is a non-starter in an election year, there would seem to be some (minimally) creative ways to make it politically palatable while preserving the effectiveness of its primary intent (to lower fossil fuel usage).

Jobs are something all politicians want to see more of and claim credit for. Therefore, it is ironic that we actually tax employment in this country. Remember, whereas the payroll tax requires YOU to pay 7.65% of your income to fund Social Security and Medicare, it also requires YOUR EMPLOYER to pay a matching 7.65% on top of the gross salary they pay you. This makes providing a job more expensive and therefore almost certainly leads to less of them.

So...why not phase out part (or all) of the payroll tax and replace it with a carbon tax?


Tim said...

Jared, maybe I'm not totally understanding you, but how would you make up for the shortfall in SS/Medicare tax receipts?

Jared said...

In practice, you would leave the payroll tax untouched for at least a year or two to see exactly how much revenue would be generated by the carbon tax. Once you had some confidence in the revenue stream, you could scale back the payroll tax accordingly.

My thinking is that this proposal would be close to revenue neutral, but I admit to not knowing a lot about the math - so perhaps this is not feasible.

Still, it seems to me to be an interesting enough proposal to be worth a few economists' time to figure out...

Unknown said...

In keeping with my policy of hijacking your blog to point out John McCain's failures as a human, here's his latest: John McCain doesn't understand science or government spending.