A REPUBLICAN GROUP THAT includes elder statesmen James Baker, George Shultz and Henry Paulson lobbied White House aides this week for a carbon tax to fight global warming. There’s a snowball’s chance in a forest fire that the White House or GOP Congress will run with it, but kudos to the group for making the effort.
The best things about the proposal are that it takes climate change seriously and it protects low- and moderate-income households from the higher costs that a carbon tax would impose. More problematically, however, it also would sharply curtail the Environmental Protection Agency’s regulation of greenhouse gases, a non-starter for many leading environmentalists.
Policymakers generally agree that climate change legislation shouldn’t make poor families poorer or push more people into poverty. By providing an equal dividend to everyone with a Social Security number, the proposal satisfies this principle. The tax hit is large as a share of low-income households’ budgets but, because their budgets are much smaller than the average households’, their dividend would exceed their tax hit.
In fact, well-designed carbon-tax legislation can generate enough revenue to fully offset the hit to the most vulnerable households’ budgets from higher energy prices, cushion the impact for many other households, and leave plenty to spare for other uses, as this analysis of policies to protect low-income households under a carbon tax shows. By using all of the revenue for dividends, this proposal precludes fights over how to satisfy competing demands for the revenue beyond what’s needed to protect low-income households. At the same time, it forgoes opportunities to use some of the revenue for purposes that might better serve the national interest than providing cash relief to high-income households.
Per-person dividends also favor larger households. A family of four would get twice the dividend of a family of two, even though the hit to their budgets is unlikely to be twice as large. Creating the payment mechanism also could prove complicated, since the Social Security Administration is only prepared now to deliver benefits electronically to those already receiving benefits, not to most working-age people or their children.
The biggest challenge for conservative supporters of a carbon tax – and they exist – is to engage a critical mass of Republican officeholders in the effort. It faces long odds, but this conservative case for carbon dividends is a worthy effort.