Monday, January 22, 2007

Pigou Club News

A loyal reader alerts me to an article in the latest issue of The Atlantic by Pigou Club member Clive Crook, including this paragraph:

Tax increases are unlikely to happen accidentally, as a natural result of partisan contention. They will require courage and creativity. But a solution is available that practically cries out: the gas tax. Raise it modestly to start with, but announce a schedule of further increases over the next ten years. On grounds of economic efficiency, the case for a bigger gas tax is unassailable. Politically, it could be linked to deeply resonant issues--the environment, energy independence--and might offer a measure of face-saving for the administration. You could sweeten it further: promise up front that 50 percent of the proceeds will go to deficit reduction, and 50 percent to reductions in the Social Security tax, or to an expanded earned-income tax credit (both of which especially help the low-paid).
Another reader points out that Nobel economist Dan McFadden has joined the club:
McFadden suggested imposing a carbon emissions tax or introducing tradable emissions licenses as incentives to promote energy conservation.
The Boston Globe reported today that President Bush will focus on global warming in his state of the union speech tomorrow. I am hoping for the outside chance that he will propose a Pigovian tax, perhaps in exchange for permanence of his income tax cuts. The options mentioned in the article--tighter regulations and greater subsidies to energy alternatives--are more intrusive, require higher distortionary taxes, and are less effective.