Carbon Taxes and the Budget Deficit

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


Matt Yglesias wants the liberal community to drop its longtime love affair with a VAT as a way of raising revenue and instead start showing some love for a carbon tax:

I really think the VAT is a decent idea whose time is past and is now obsolete. VAT recommends itself as an economically efficient revenue raiser, with the downside being that it’s regressive. The result is that from a 2010 point of view it’s completely dominated by the idea of a carbon tax. A carbon tax is also an efficient, but regressive, form of consumption tax. But by specifically taxing consumption of carbon dioxide emissions it also manages to contribute to solving a massive ecological problem. The political obstacles to a carbon tax are formidable, but so are the obstacles to a VAT. Under the circumstances it would be tragic for a political coalition to muster the power necessary to implement a hefty regressive consumption tax that isn’t specifically targeted at greenhouse gas pollution.

I agree, and the regressive nature of both kinds of taxes can be minimized with decent implementation choices. There are plenty of plans on the table for doing this.

But I’ll add one other thing. A few days ago I wrote a poorly phrased post in which I said that any plan for reducing the budget deficit should also include a plan for reducing the trade deficit. It sounded vaguely as if I was suggesting that reducing the trade deficit would directly affect the budget deficit, but that’s not really what I meant. What I meant was that, other things equal, you can only reduce the budget deficit if you also reduce the trade deficit at the same time. One corollary of this is that policies to reduce the budget deficit are more likely to be effective if they work with policies to reduce the trade deficit rather than against them.

A carbon tax is a good example of this. On one level, it raises revenue and helps close the budget deficit. But it also makes energy more expensive and is likely to reduce our imports of oil. Whether it actually does or not depends on a lot of other issues, but at least it pushes in the right direction. You’re giving budget deficit reduction a tailwind instead of a headwind.

So: a carbon tax is good for the environment, probably good for the trade deficit, and therefore probably also helpful for reducing the budget deficit. What’s not to like?

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate