Rick Snyder, we need to talk.
First, congratulations on winning the Michigan governorship. Yes, I know the polls don’t close until 8 p.m., but face it: You’re going to win — by a lot. Of course, it helps that between the primaries and the general election that you’ve only had opponents who are crazy, incompetent or both. Still though, it’s not every day you become governor.
But seriously, Mr. Snyder, we need to talk policy. In 2011, you need to introduce a new business tax — specifically a tax on carbon emissions. Comprehensive federal legislation to fight global warming is bogged down, thus we need to start at the state level to reduce greenhouse gas emissions now.
Yes, I get it — you are a Republican. Yes, I know you think taxes are strangling businesses. Yes, I know you probably think reviving the economy comes before protecting the environment. But hear me out — I have a deal for you.
You’re a University graduate and hopefully you’re smart enough and have enough intellectual honesty to understand that global warming is real and will have horrific consequences for the planet. But, you want to cut business taxes.
I’m a Ph.D. student — I know enough economics to understand that taxes and unnecessary regulations drag down economic growth and entrepreneurs. But I want a carbon tax. Here’s my proposal: Let’s do both. Institute a carbon tax and use its revenues to reduce taxes on businesses and individuals.
This isn’t a crazy idea. In fact, it makes a lot of sense.
Taxes provide a disincentive to do something by raising an activity’s costs. Levies on businesses reduce the profits of entrepreneurship and decrease economic activity. In general, moderate (or sometimes even high) levels of taxes on businesses, consumption and individuals are reasonable because they help the government provide public goods. Public goods are positive things like infrastructure, public security and education that simple market interactions do a poor job providing. They also often help economic development more than the taxes depress it.
Ideally, however, we wouldn’t tax “good” things like economic activity. We need to start directly taxing destructive things, like smoking, water pollution or carbon emissions. This strategy accomplishes three things. First, it provides the government with the necessary revenue to provide public goods. Second, it keeps the burden off of entrepreneurs who drive economic growth. Finally, taxing harmful activities reduces their occurrence and therefore, their harm to society.
Take cigarettes, for example. In 1970, according to the Centers for Disease Control, the average national excise tax on cigarettes was $1.08 (adjusted to reflect the dollar’s current value). By 2009, the average tax had more than doubled to $2.19. During that time the adult smoking rate in the United States decreased from 37.4 percent to 20.6 percent, according to the CDC. Though there were other factors as well, cigarette taxes have brought in billions in revenue while reducing the economically harmful activity of smoking, which causes vast increases in health care costs and a loss of economic productivity.
A tax on carbon consumption would do the same thing. It would nudge businesses and individuals to reduce their use of carbon-intensive fossil fuels by making those fuels more costly and it would promote cleaner policies. It would also provide the state the necessary revenue to promote economic development. Finally, we could use the revenue from a carbon tax to cut taxes on businesses.
And this isn’t pie-in-the-sky economic theory — we have a case study that shows this can work. In 2008, the Canadian province of British Columbia began to phase in a $30-per-ton tax on carbon emissions targeted at carbon-intensive fossil fuels. As the tax has been ramped up over the past two years, the province has taken in $860 million from the carbon tax. All of that revenue has been refunded to taxpayers in rate cuts, including a 20-percent cut in the tax rate for small corporate businesses in addition to cuts in personal income tax rates. The carbon tax encourages organizations to re-evaluate alternative energies and invest in energy efficiency projects — like the University of British Columbia, which is investing $43 million in projects that will drastically curtail its energy use. Additionally, all this has happened without noticeable effects to the province’s unemployment rate in comparison to the rest of Canada.
So how about it, Mr. Snyder? Take the burden off of innovative businesses and taxpayers, safeguard state revenues and strike a blow against global warming. That sounds like a legacy any governor would want to leave his state.
Patrick O’Mahen can be reached at firstname.lastname@example.org.