Everything old shall become new again

Torsten Bell tell us that there’s a terrible problem with carbon taxation:

The public was sceptical that green taxes would be effective and worried they would hurt the poor. So the to-do list for eco-warrior economists is to design policies that protect lower-income families...

In the jargon, such consumption taxes are regressive, they eat a larger part of the income of poor people than of rich.

Well, yes. Except this observation is baked into all of the sensible discussion of such taxation in the first place. The point, the aim, is to alter market prices so as to reflect the externalities, to insist that the larger costs to others are included in the costs that economic actors face. There is no argument at all which states that government should gain more revenue as a result. So, all long the argument is in favour of a revenue neutral carbon tax.

For some this means a carbon tax and dividend - the money raised is paid out again to each household on a per capita basis. The problem with this being that the correct level of carbon taxation - from The Stern Review we can peg this at £30 to £40 billion a year for the UK in total - means that such a dividend will be small and probably not worth the cost of the payment system to distribute it. For the more sensible this means reducing some other regressive tax by the same amount of the revenue being raised by the carbon tax.

The usual suspect identified is national insurance. So, impose that carbon tax and reduce national insurance payments. The combination of the two makes the carbon tax both adjust market prices to reflect externalities and also increases the progressivity of the system - or at least doesn’t reduce it.

This is so much part of the mainstream that when John Gummer instituted the landfill tax - another form of Green taxation - he specifically linked it to a reduction in national insurance payments. And let’s be honest about this, if even John Gummer could grasp the point a quarter century ago then it should be within reach of the rest of us by now.

The argument for carbon, as with all other forms of Green, taxation has always been that it should be revenue neutral. This means reducing other taxation by the same amount that is being raised - and yes, reduce regressive taxation to counter the regressive nature of the carbon imposition.