Monica Prasad had an op-ed in The New York Times yesterday called "On Carbon: Tax, Don’t Spend." It’s … peculiar.
This basic pitch: "if reducing emissions is the goal, then a carbon tax is a tax you want to impose but never collect." That is to say, per the headline, you Don’t Spend the tax revenue.
Far as I can tell, though, what Prasad calls not spending looks al lot like what the rest of us call spending. She says the revenue from the tax should be returned to industry in the form of investments, "earmarking much of it to subsidize environmental innovation."
Investments aren’t spending?
Then there’s the formulation that we should "lock the tax revenue away from policymakers and invest in substitutes." Who does she think is doing the locking away, fairies? It’s policymakers! Choosing to spend the revenue exclusively on technology investments is making policy. And it is spending.
Don’t get me wrong, I’ve got no problem investing in environmental innovation. Everyone agrees the U.S. should do much more of that. But Prasad is arguing that such investments are the only effective or justified use of carbon tax revenue.
I don’t see why we should accept that. Why not spend "lock some of the tax revenue away" to cushion the blow of higher energy prices on low-income and working families? Why not use it to reduce the (regressive) payroll tax? Why not use it to help train workers laid off in fading industries? Why not use it to fund weatherization and retrofitting of existing buildings, to reduce energy use? Why shouldn’t social and economic justice enter the picture? Yes, revenue will decline over time, but so will the regressive impact of a carbon tax. The two could be "locked" to decline in tandem.
Prasad’s example, Denmark, is actually quite instructive. It’s one of the few countries that’s lowered its net GHG emissions, in part using a carbon tax. Prasad notes that the gov’t largely returns carbon tax revenue to industry as investment.
What she doesn’t note is that while Denmark boasts impressive economic growth, it also boasts a robust welfare state, on that, in the Wall Street Journal‘s words, places "a higher priority on things like generous health care, free schools and guaranteed pensions than on profits, low taxes and individualism."
If I lived in a country that like I’d say, sure, what the hell, give the carbon tax revenue back to industry. It’s not like I’m going to be struck down by a debilitating health condition and find myself out of work, uninsured, and bankrupted by medical bills!
In the U.S., however, matters are more precarious. That’s why carbon tax proponents talk about using the revenue to reduce payroll taxes, create green job training programs, finance retrofitting and efficiency programs, and otherwise mitigate the impact of energy price increases.
Hell, if we used the revenue for social investments like Denmark’s made, I bet the U.S. could even be as successful in reducing emissions as they’ve been!
Prasad emphasizes Denmark’s business-friendly investments but not its public-friendly investments. Perhaps the real lesson from that country is that the U.S. needs both to succeed in a generational task like creating a new green economy.
