Monday, September 02, 2013


Greg Mankiw likes the idea of carbon taxes ("A Carbon Fee That America Could Live With ... To deal with climate change, internalize the externalities"). This is is the part of economics everyone likes. It's in all the textbooks. But mainstream economics places less emphasis on the political economy context. Public choice analysis, if it is even included, appears in a separate chapter.

In the Mankiw piece, there is this, almost at the end: 
A bill introduced this year by Representatives Henry A. Waxman and Earl Blumenauer and Senators Sheldon Whitehouse and Brian Schatz does exactly that. Their proposed carbon fee — or carbon tax, if you prefer — is more effective and less invasive than the regulatory approach that the federal government has traditionally pursued.

The four sponsors are all Democrats, which raises the question of whether such legislation could ever make its way through the Republican-controlled House of Representatives. The crucial point is what is done with the revenue raised by the carbon fee. If it’s used to finance larger government, Republicans would have every reason to balk. But if the Democratic sponsors conceded to using the new revenue to reduce personal and corporate income tax rates, a bipartisan compromise is possible to imagine.
The IRS code is close to four million words. Why so complicated? Because every revenue measure is inevitably politicized. This is why Mankiw has to to end with "imagine" -- as in John Lennon.