Revisiting Dumping The Payroll Tax For A Carbon Tax

Felix Salmon takes note today of an article in the New Yorker advocating replacing the payroll tax with a carbon tax.

If you follow this blog that may remind you of a post I had in December that referred to Greg Mankiw’s suggestion that we follow that course. Here is a link to my post which has links to Mankiw’s. His contains some other links that will let you explore the subject in more depth.

The beauty of the proposal has always been that you could get immediate benefit from eliminating the payroll tax. Given its regressive nature it would target most of the relief at those more inclined to spend the money. The carbon tax can be phased in as the economy recovers and would in my opinion be a far more transparent approach to limiting carbon emissions.

Felix Salmon suggests that politically this would be difficult if not impossible. As he says, if it were ever to be possible, now might be one of those few times. I’d probably disagree a bit. I think the prospect of relief from the payroll tax would be such a big carrott that the carbon tax stick might be ignored.

Realistically, there the Obama administration probably has too much invested in their fiscal stimulus bill and the course they’ve set. If things don’t turn around for them though then this proposal might find some legs. Certainly if we are considering a second stimulus a few months down the road then hopefully some creative minds will take a look at it.

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