Pricing carbon makes such obvious sense that from Robert Reich on the left to Gregory Mankiw on the right, economists overwhelmingly agree that a carbon tax that helps reflect the true costs of fossil-fuel use would be the most efficient way to spur clean-energy development.
Turns out it could also cut the deficit by a whole heckuva lot. In fact, a new report from the Congressional Budget Office [PDF] finds it would do more to reduce the U.S. budget deficit – saving $1.060 trillion in the 2014-2023 period with carbon taxed at $25 per metric ton – than any other single measure considered.
The CBO acknowledges that imposing the tax, would which rise at an inflation-adjusted rate of 2 percent per year, would “increase businesses’ costs, which would reduce the tax bases for income and payroll taxes,” and its calculations reflect those lost revenues. So that $1.060 trillion in deficit reduction is the bottom-line fiscal impact (of course, there would also be benefits in improved health, etc.).
Now, a “discussion draft” of carbon tax legislation was unveiled earlier this year, but it doesn’t seem to have prompted a whole lot of talk. Maybe the CBO report will change that. The two pages devoted to a “tax on emissions of greenhouse gases,” as the CBO termed it, is definitely worth reading. It lays out the arguments for and against such a tax in a direct way, providing an excellent primer on a discussion the country really needs to have.