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September 18, 2006

Gore Speaks

Around the time Al Gore's movie came out, a number of conservatives criticized the film for not advocating a carbon tax. By obscuring the necessity of that policy choice, he was making his case look too easy, and the solutions artificially simple. But whether he popped it into the film, Gore has long been a lover of carbon taxes, and today he came out for one (and basically every other pro-renewable policy you can think of) in a major speech at NYU.

The address is an enormously detailed look at global warming and the myriad ways in which America could respond, so I urge interested readers to take a look at the whole thing. For now, however, I want to comment on the most buzz-worthy of Gore's proposals: He wants to eliminate all payroll taxes (including those for Social Security, unemployment, and Medicare) and replace the revenue with pollution taxes. The proposal would be revenue neutral, which is to say that total revenue would be precisely the same. Which, concerns about progressivity aside, seems impossible.

Gore provides no specific numbers for thise proposal, but let's say, for the sake of argument, that reaching neutrality requires a $10 tax per gallon of oil (I suspect the number would actually be much higher). As Gore says, the new tax "would discourage business from producing more pollution," which is to say that it would encourage them -- and everyone else -- to use far less carbon. Which would mean less tax revenue. Which would mean either the government would grind to a halt, or we'd have to radically and rapidly increase the carbon tax, which would in turn lead to lower consumption of carbon, again depriving the government of revenue, meaning we'd have to either...and so on, ad nauseum. I'm no economist, but replacing payroll taxes, which make up more than a third of the government's total revenue, through nothing but carbon taxes seems entirely impossible. Given the size of the tax it would require, you'd certainly see a drastic reduction in carbon usage. But you'd be almost as certain to leave a wrecked and ruined economy in your wake.

You can make the argument for or against a carbon tax (I tend to fall slightly against, for reasons I've previously articulated), but this doesn't seem like a logical way to implement it. On the other hand, in the speech, Gore says that, "I was strongly opposed to the nuclear freeze movement, which I saw as simplistic and naive. But, ¾ of the American people supported it — and as I look back on those years I see more clearly now that the outpouring of public support for that very simple and clear mandate changed the political landscape and made it possible for more detailed and sophisticated proposals to eventually be adopted." Gore's a bright guy and this policy seems totally unworkable. But it is radical enough, and simple enough, to spark a conversation, as it's done here. Nicely played, Mr. Gore.

Update: Some back-of-the-envelope math from Nick Beaudrot (scroll down to the third comment) makes me think I'm wrong about this, am radically overstating how hefty the tax would have to be, and making a mistake conflating gas taxes and CO2 taxes (dammit, I know better). So be warned: The author of this post has ventured outside of health care, and may have no idea what he's talking about...

Crossposted at Tapped

September 18, 2006 | Permalink


Yet another piece of evidence Gore isn't running in '08...

Posted by: Petey | Sep 18, 2006 4:17:39 PM

Well, I don't think it is as easy to use radically less carbon all at once as you seem to imply. I think it would take a long time. And, if the carbon tax replaced the payroll tax, then there would be no added tax burden to the economy, so no radical pressure to reduce carbon - it's not like the carbon tax replacing the payroll tax would make businesses radically unprofitable all at once (in general, anyway).

But most importantly, it isn't necessary to *forever* replace payroll tax revenue with carbon tax revenue. After the initial switch you could leave the carbon tax alone and supplement with, um, new payroll taxes.

Posted by: Chuck | Sep 18, 2006 4:21:06 PM

I haven't read Gore's speech yet, but massive carbon taxes replacing payroll taxes is a perfectly practical solution as long as you phase in the transition period over a long period of time.

If you implement the carbon taxes in 6% chunks a year for 15 years, and likewise decrease payroll taxes in 6% chunks a year for 15 years, the whole thing begins to get workable.

And, of course, not only do you help save the environment, but you stop overtaxing low and low/middle income workers at the same time.

Posted by: Petey | Sep 18, 2006 4:21:20 PM

Do the math!

The US produced roughly 6 million metric tons of CO2 last year. Social Insurance taxes brought in $733 Billion in revenue Table F-3. A gallon of gas produces 20 pounds of CO2.

The math says ... $.06 per pound of CO2, or $1.20 per gallon of gas. pre-2004, gas was about $4.50/gal US in Europe, and below $2.00/gal in most of the States. This means we could enact a CO2 tax and still pay less than Europeans pay for gas (which is around $6.50 today).

What's more, the payroll tax is almost entirely born by the worker. Someone who makes $40,000/year and drives 18,000 miles in a 20 mpg car (or cars) would still come out way ahead.

Obviously, there would be losers, particularly some heavy industry and equipment manufacturers and in areas where a daily commute of 100 miles isn't unheard of. But a co2 tax doesn't change the basic equation of energy profitability. It just takes it from ludicrously profitable to ridiculously profitable.

Posted by: Nicholas Beaudrot | Sep 18, 2006 4:35:36 PM

Unlike a certain other candidate from 2000 who said, "It's clearly a budget. It's got a lot of numbers in it," I trust that Gore thinks through the policy and budgetary implications of his ideas. I'm sure he's run through the calculations at a pretty detailed level, so I'd be interested to see what his conclusions are. Maybe someone who's a reporter for a liberal monthly publication could get that information.

Posted by: SP | Sep 18, 2006 4:37:02 PM

See, Nicholas could do a calculation in five minutes, I'm sure Gore's spent more time than that. One concern is that payroll taxes are somewhat invisible to the worker while a $1/gallon jump in the gas price would be very apparent. People won't think about how they can afford $70 fill-ups because they got paid an extra $200 last month, it's just not how most people see the world.

Posted by: SP | Sep 18, 2006 4:39:31 PM

Yes it is ironic in some ways that dealing with global climate change needed be bad for the economy if we phase them in over time.

Unfortunately, we won't do anything until it is a crisis and then the shock to the economy will have meaningful fallout.

I don't recall where I read it or who supposedly said it, but you can count on democracies to do the right thing after they've tried everything else.

Posted by: Chuck | Sep 18, 2006 4:47:05 PM

Well, Gore probably had a staffer spend more time than that.

But it's sort of important not to go into too much detail. After all, if he had given any figure anywhere, people would have figured out that it meant adding between $.75 and $1.50 to a Gallon of gas.

I should also point out that just because we would be paying less than Europeans for a gallon of gas doesn't mean we should pay the same amount, or that paying the same amount wouldn't cramp our economy. Mostly because Europeean countries are smaller and more urbanized, it makes limiting car travel much more feasibile.

Posted by: Nicholas Beaudrot | Sep 18, 2006 5:10:22 PM

Petey was almost right: Yet another piece of evidence Gore isn't running in '08...

He really meant to say: Yet another piece of evidence Gore is running in '08...

A perfect platform for a candidate to run on: save the planet and make money doing it.

[tongue firmly planted in cheek]

Posted by: JimPortlandOR | Sep 18, 2006 5:11:50 PM

Chuck correctly points out that we can't simply will ourselves to use less carbon. But the reason for that is not that our activities are inherently carbon-intensive but that there aren't a whole lot of energy-saving alternatives out there. And the reason for that, in turn, is that such alternatives are not cost-effective; for many people the cost savings from buying a hybrid car or installing solar panels do not justify the expense. That, in turn, limits the market for such goods. And so on.

Wish GM would offer a Chevy Suburban that gets 30 mpg? Wish California suburbanites had convenient public transportation alternatives? Impose a serious carbon tax, and just wait a few years.

Posted by: Beale | Sep 18, 2006 5:12:04 PM

just another kind word for al gore and the hope that he will run for president.
and another kind word for jimmy carter, for his humility, intelligence, compassion and efforts for peace.
.....blessed are the peacemakers and problem solvers.

Posted by: jacqueline | Sep 18, 2006 5:14:23 PM

Jim, the full text of the speech sounds really hippy. Windmills and some sort of smart grid for electricity? Wacky stuff.

Like I said, the tax swap is a good one for most people. But it would be really, really hard to sell once people here "raise the price of gasoline by $1.25". You can say "but we'd give you a tax cut of $3,000 elsewhere" until your blue in the face but it still won't work.

Posted by: Nicholas Beaudrot | Sep 18, 2006 5:16:45 PM

I am a big supporter of this basic approach ... indeed, in general terms it is the only honest approach to "green" taxes out there. The purpose of a "green" tax is to change a price to change incentives. It is not to raise revenue. So a pure green tax collects the revenue from taxing bads and uses it to replace taxes on "goods".

However, I think that the precise political trade off is to put the funds in a revolving account and use the funds to offset payroll taxes.

This does two things. First, it allows the taxes to be phased in over time, to reduce the "sticker shock" while at the same time people have already received the social dividend from the first increment before the green tax is ratcheted up.

Second, it allows us to incrementally raise the cap and close executive pay loopholes on the Social Security "contribution" to turn it from a regressive to a neutral payroll tax.

A final note ... while a carbon tax is essential, it is also important to get into the "legacy" effect of new car sales now determining the fleet available for purchase as used cars down the track. So an excise based on gasoline inefficiency should also be put in place ... I'd suggest an increment of 0.5% per gallon per 100 miles, with the increment ratcheting up in any year that oil imports are above their previous 5 year average.

Posted by: BruceMcF | Sep 18, 2006 5:50:13 PM

CA had use taxes on Gasoline to encourage conservation, which this proposal does as well. Then, when people conserved by habit change, more efficient cars and, of course, the encouragement afforded by the higher prices of fuel, the state whined that they weren't getting enough tax so they started trying to institute a mileage tax.

What's to stop the same thing from happening with this carbon tax?

Posted by: Fred Jones | Sep 18, 2006 5:50:23 PM

I think Nicholas is underestimating the simple argument of $200 extra in your pocket every single week for the rest of your life. No one (except truckers) goes through 180 gallons of gas every week. Hell, here's a good line:

Remember Bush's big rebate? A $300 check for you and your spouse? How about we give you 2 of those a month? Every month. Forever. Sure, you'll pay more for gas, but you'll be way ahead, and save the planet while you're at it.

Posted by: JRoth | Sep 18, 2006 6:09:14 PM

Gore is a brilliant guy. Great public servant. Terrible political candidate, though, he's proven that so many times.

I'm glad he's in a place where he's influencing the debate. But god, I saw him in 2000, and I saw him in 1988....he made the Kerry 04 campaign look tight and tough.

Posted by: LarryKDemAK | Sep 18, 2006 7:19:36 PM

Maybe I'm thinking too simplistically here, but wouldn't this just push any remaining heavy industry out of the U.S. and into the third world, where regulations are much less severe? The carbon tax as it applies to gasoline is one thing but capital-i Industry can just move someplace else and pollute there, which means that we're still indirectly polluting the earth and just making poorer countries bear the local burden.
It's yet another tragedy of the commons- unless the whole world is complying with Kyoto or whatever environmental protocol the first world finally settles on, big pollutors will keep polluting in other countries and all countries will still suffer as a result.

Posted by: Ursula | Sep 18, 2006 7:31:40 PM

making a mistake conflating gas taxes and CO2 taxes

How realistic is it to tax all sources of CO2? That sure seems to me like a lot of things to be taxing: you would tax all gasoline, all other petroleum products - jet fuel, home heating oil, diesel fuel for trucks, etc. - all natural gas, much electricity, all industries that use coal, etc.

So it's not like consumers would just see the price of gas go up. EVERYTHING they buy would go up.

Posted by: Joe | Sep 18, 2006 8:07:46 PM

All I'm trying to point out is that Nicholas Beaudrot's calculation of ~$1.20/gal of gas in tax is just the tip of the iceberg, in terms of what's getting taxed under this plan. Motor fuel (i.e., gasoline) only accounts for ~20% of CO2 emissions in this country (see Beaudrot's EIA link above). So, sure, you'd be raising taxes on gas by ~$1.20. But you'd ALSO have to raise taxes on lots and lots of other things for the other ~80% of the CO2 tax...

Posted by: Joe | Sep 18, 2006 8:14:16 PM

Back of the envelope calculations:

20 mill barrels / day x 365 days = 7.3 billion bls/year

$730 bill / 7.3 billion = $100 per barrel

Rounding up, that's about $2 per gallon of oil. Europe consumes about 2/3 the amount of oil per dollar of GDP as we do, so if we reduce demand to European levels, $3 per gallon of oil.

Median person saves 7.5% directly off his check of $40,000 = $3000

Average person drives 10,000 miles a year in a car that gets 25 mpg = 400 gallons (this line is all guesses, but they seem reasonable, correct me if I am wrong)

Based purely on gasoline consumption and the personal FICA tax it seems near impossible for the median person to lose money. This ignores the reduction in the non-personal FICA tax (the 7.5% paid directly by the employers), however it also ignores the increase in the cost of all goods that depend on oil as an input.

One implicit advantage is that this may eliminate the regressive nature of the payroll tax. While wealthy people may not drive as much personally, everything they consume must be driven to them at the least, spreading the cost of the oil tax out like a general consumption tax.

I like the idea, but I still think an oil quota would be better policy then taxing an amount per gallon.

Posted by: TheJew | Sep 18, 2006 8:25:33 PM

"Mostly because Europeean countries are smaller and more urbanized, it makes limiting car travel much more feasibile."

Well, that and *they have trains*. Fast electric ones. And trams. And other forms of public transportation which people like to use.

Putting fast urban rail lines into the big cities pays off big time.

Posted by: Nathanael Nerode | Sep 18, 2006 10:01:23 PM

I'm not actually sure how much new tech in the US will drive manufacturers offshore.

For one thing, the countries where most of our jobs have migrated to are increasingly aware of global climate change - are in fact more vulnerable to it, socially and economically - and will be motivated to get on the new-tech bandwagon rather then allow themselves to be a dumping ground for old-tech. I'm thinking specifically of China, India and Mexico, which I think are within a generation of no longer being the manufacturing bargain basement that they've been so far.

Other potential manufacturing offshore sites? Corporations may be running out of them. It's a complex equation, finding countries that have enough native infrastructure to start with (some kind of transit system for cargo and employees, people who have appropriate work ethics and can be trained and, above all, political if not economic stability) which are also poor enough, with governments despotic or corrupt or just desperate enough, to let corporations set all the terms of the contract, AND which aren't in the front line of being swamped by GCC. (Even if the governments don't care, it's not cost effective to build a major manufacturing complex someplace that's going to vanish under water or be depopulated by drought/disease/famine.)

Posted by: CaseyL | Sep 18, 2006 10:01:53 PM

Ursula, you ask, Maybe I'm thinking too simplistically here, but wouldn't this just push any remaining heavy industry out of the U.S. and into the third world, where regulations are much less severe? The carbon tax as it applies to gasoline is one thing but capital-i Industry can just move someplace else and pollute there, which means that we're still indirectly polluting the earth and just making poorer countries bear the local burden.

This depends on whether we accept the current rules of the WTO game. Under the current rules of the game, it will tend very strongly to have that effect. That is because it is not permitted to disciminate against a product based on the method of production. Now, formally there is an 'environmental' exception, but (1) it is very difficult to qualify for the exception in objective terms, and (2) institutionally the claim is determined by a tribunal of people that are experts on international trade but not on environmental problems. So the environmental exception is very close to being a dead letter.

On the other hand, if the WTO rules were changed for the case of carbon charges, then we could place a carbon charge on imported goods that faced little or no carbon taxation in the country of origin, to level the playing field.

Posted by: BruceMcF | Sep 18, 2006 10:55:25 PM

One concern is that payroll taxes are somewhat invisible to the worker while a $1/gallon jump in the gas price would be very apparent. People won't think about how they can afford $70 fill-ups because they got paid an extra $200 last month, it's just not how most people see the world.

This is the beauty of revenue-neutral proposals. If the extra money merely appeared in people's wallets and the gas prices go up, they'll scream bloody murder. But if they can see a concrete link between the hike in gas prices and the disappearance of the payroll tax, they're not going to say "no" to more money in the bank. "Stop taxing work, start taxing gas guzzling" or some such slogan can tie the two in people's minds.

Of course, the right wing is going to demagogue this, and I think the best way they can do it is to focus on how this gas tax for payroll tax swap benefits suburban nuclear families much less than urban dwellers "I've got school runs and grocery runs while my husband has an hour-long commute, meanwhile this proposal is putting money in the pockets of dink-y city slickers as they smugly sip their lattes. It's not fair!" Of course, that kind of gas-intensive lifestyle is a big part of the problem at hand. But it's difficult, if not impossible, to attack people's lifestyles without alienating them. It's personal.

Posted by: Battlepanda | Sep 19, 2006 1:16:06 AM

"Gore is a brilliant guy. Great public servant. Terrible political candidate, though, he's proven that so many times."

He is not a terrible political candidate. He doesn't have Bill Clinton charisma but who does? Gore won the popular vote, he won Florida, for God's sake. And he was the only Dem that could have done so in 2000.

Posted by: LowLife | Sep 19, 2006 8:21:37 AM

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