Charles Wheelan, author of Naked Economics has a new Big Idea: An Energy Tax (link no longer works because Yahoo doesn’t understand the Internet)
Create a carbon tax — basically a tax on energy calculated based on its carbon content — and use the new revenue to provide offsetting cuts in the income tax, the payroll tax, or both.
The whole package should be revenue neutral, meaning that it will not increase or decrease the total amount of revenue the government collects. The money will simply come from different sources.
The idea is a great one and constitutes a progressive tax that also happens to be completely “fair”.
The tax burden will go up for those who use more than the average amount of carbon-based energy and down for those who use less.
In the grand scheme of global injustice (e.g., being born in a malarial village in rural Africa), that just does not strike me as terribly unfair. If you contribute more than your fair share to global warming, traffic congestion, air pollution, and propping up a repressive regime in Saudi Arabia, then you should pay more.
And if you bicycle to work from your modest, solar-powered home, then society should cut you some slack.
The only drawbacks I see are that the tax base could erode as more people reduce their carbon usage and the cost of reducing carbon usage could cause some inflation in consumer goods. I like the idea of axing the income tax altogether and instead using just a carbon tax and a sales tax (with some modifications for luxury and near-luxury items to make it less regressive). Something like this tax is the only way to get people to seriously consider reducing their use of fossil fuels. Smugness can only get us so far.