Carbon Tax / Corporate Income Tax Swap

Kevin Drum proposes swapping the corporate income tax for a tax on carbon emissions and a tax on financial activities. At this point, I’ve sort of lost interest in pretending to believe that different kinds of proposed tax shifts might or might not gain support from congress or the business community, both of which are afflicted by a kind of insanity that seems to hold that no taxes of any sort should ever go up.

But it’s worth saying that the CBO did evaluate a version of the ecological element of this, asking what would happen if we auctioned carbon permits and used the funds to finance cuts in corporate income taxes:

Figure2 1

This was deemed more economically efficient than lump-sum rebates or giving the permits away for free, but also more distributively regressive. As per the CBO’s usual—and annoying—habit, its evaluation of these proposals doesn’t include the benefits of preventing catastrophic climate change (which is dumb) so once you look at these things holistically all three policies look a lot better. Consequently, this particular tax switch would be a large improvement on the status quo but I don’t think it’s obviously superior to the main alternative ideas.