• Jeffrey Zalles

The fair (and simple) way to tax carbon.

An old saying goes something like this; “There is a simple solution to most complex problems.” A significant majority of economists and environmentalists agree that the quickest and most efficient way to fight climate change is to impose taxed on carbon. Yet, there is massive international opposition to increasing carbon taxes, known as Yellow Vest movements, in progressive countries like France and Canada. More confounding, why was a carbon tax initiative defeated in Washington, certainly among the most progressive American states?

The answer is obvious. Proceeds from these carbon taxes were to be used to fund important green initiatives but, in fact, were also regressive and would have caused economic hardship to many families already under stress.

If we are to succeed in imposing taxes on carbon, they must result in an economic benefit, not an economic burden. So how could a carbon tax be structured to appeal to the average American consumer? First, revenues from carbon taxes should be returned to taxpayers. The energy department and the IRS should set carbon tax rates, project total annual revenue from those taxes, including those taxes paid by corporations, take 75% of that amount, and divide it up equally among households with incomes up to $250,000.

Next, use 20% of the revenues to fund substantial rebates to consumers for purchases of energy efficient autos and appliances. Rebate amounts could be structured to reflect the efficiency rating of the product – the more efficient, the higher the rebate. The remaining 5% of revenues would go to paying interest on the bonds necessary to fund the advance payment of rebates.

Yes, you read that right. Pay the rebates in advance. Make the carbon taxes effective on January 1 but send every qualifying family their annual rebate before the new year, around November 1 and just in time for the holidays. Since the payments would be derived from all carbon taxes, most recipients would get much more than enough to cover the increases in energy costs in the following year, thus providing a significant and needed windfall to struggling lower and middle class families.

Lastly, encourage those families to use their windfalls to invest in green products whose prices would be discounted through product rebates. Energy savings from these investments would offset their costs and, once paid off, would leave households in better shape financially than they are now.

So, no pie-in-the-sky initiatives. Just give the money back to those who need it most and let the private sector do the rest. Think of the explosion in consumer demand for energy efficiency. Think of the new companies and jobs that would be created to meet that demand. Think of the incentives to produce green products. Think of the competition among producers. And think of the economic benefit to average Americans who would get a big slice of the carbon tax pie.

Did I mention the environment?

In the existential battle against climate change, there’s never been a better time for America to move from obstruction to leadership. Let’s make sure that everybody wins.