Nobel laureate needs to be known by a new tax

Whose Tax is being Gored?

by Fred E. Foldvary,
Senior Editor

Al Gore won the 2007 Nobel Peace Prize for promoting awareness of global warming, especially with his film An Inconvenient Truth. To reduce emissions, Al Gore proposes a tax shift, replacing the payroll Social Security tax with a carbon tax.

Unfortunately, Gore's name is associated with another tax. What has been called the "Gore Tax" is a levy on phone bills that pays for the Federal Communications Commission's universal service programs. Gore was pushing for that tax when he was Vice President under Bill Clinton.

If Al Gore had made climate change the single top priority during his Vice Presidency, he would have promoted the green tax shift, and then the "Gore tax" would have been a tax on polluting emissions.

Several economists have recently published articles in favor of the green tax shift. My little article on the tax shift was published in the Summer 2007 issue of the Santa Clara University magazine.

On July 13, 2007, Laffer Associates, which does "supply-side investment research," published an important paper by Arthur Laffer and Wayne Winegarden, Global Warming: Minimizing the Economic Impact from Carbon Taxes." (You can find it by searching for "Laffer Associates" "Global Warming" "July 13".) Laffer is famous for his "Laffer Curve" that shows how tax revenues can increase if tax rates are so high they reduce total revenue.

Laffer Associates argue that it although would be prudent to reduce carbon emissions, doing so with regulations would inflict heavy damage on global output and increase poverty. They show how taxing emissions is superior to pollution permit trading. They propose that pollution taxes be "fully offset by a static dollar-for-dollar across-the-board reduction in marginal income tax rates." Furthermore, this policy needs to be implemented globally.

N. Gregory Mankiw, professor of economics at Harvard, former adviser to President Bush, and author of a widely used economics textbook with a two-thirds page feature on the Henry George land tax, wrote an article, "One Answer to Global Warming: A New Tax," that appeared in the New York Times on September 16, 2007.

Mankiw says the real debate is "between policy wonks and political consultants." Policy wonks such as economists agree that the most efficient, productive, and effective way to reduce pollution is with a tax. This concept has been recognized for almost a hundred years, going back to the economist Arthur Pigou, after which "Pigovian" taxes are named, taxes on negative external effects such as pollution and congestion. It's in every microeconomics text book.

As Mankiw writes, a Pigovian tax to address global warming was proposed back in 1992 by economist Martin Feldstein on the editorial page of The Wall Street Journal. Green taxes have been favored by so-called "conservative" as well as "liberal" economists. The logic and evidence for a green tax is so strong it transcends the left-right political spectrum.

Al Gore should have heavily promoted the green tax shift as Vice President and as the Democratic candidate for president in 2000. His name would have become attached to environmental taxes. Instead, the "Gore tax" is a silly proposal to tax telephone usage. It is even more unfortunate that Al Gore did not promote the green tax shift in Inconvenient Truth. Instead, the film is almost all about the problem, and does not confront the global solution.

As Mankiw points out, none of the political consultants and politicians are advocating a green tax shift. Republicans only talk about tax cuts, and Democrats only talk about taxing the rich. With his new Nobel stature, Al Gore should break the logjam and speak out about the green tax shift. Al Gore should make another film called The Convenient Solution. His greatest legacy would be to shift the "Gore tax" label from an annoying telephone levy to what would be the most profound policy change in economic history, the green tax shift!

-- Fred Foldvary

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Copyright 2007 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.

Also see: Local Tax Reform in Scotland http://www.progress.org/2007/greenp45.htm From Income Tax to Environmental Tax: Time for a Shift http://www.progress.org/2006/tax05.htm Collecting The Cost of Gas Guzzling http://www.progress.org/2007/pollut18.htm

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