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Lower Taxes + Lower Carbon Emissions = Possibility?

A carbon emission tax (or a similar cap & trade program) has been instituted in many European nations, Australia, and Canada. In Washington, mentioning the word “TAX” and “CARBON”, is anathema and political suicide.

But let’s try to look at the glass half full. What if we could reduce carbon emissions and the corporate income tax rate simultaneously? Huh? That is as strange a pairing as Rush Limbaugh and Rachel Maddow partying together for a weekend in Cabo.

Well, in British Columbia, it is happening. And not only is it happening, but last Sunday the government actually raised the tax from $25 to $30 per metric ton of carbon dioxide, making it more expensive to pollute. With this revenue, the corporate tax rate has just been lowered from 12% to 10%.

Here is how it works:

By replacing a carbon tax for taxes on payroll, on businesses, or on workers is a no brainer — that’s what this does. Additionally, carbon taxes reduce carbon emissions. So, in this scenario, both sides of numerous political “debates” get something. The progressives get a reduction of something harmful to the environment, and the conservatives get a reduction in corporate and personal tax rates. This carbon tax swap can reduce the economic drag created by our current tax system and increase long-run growth by nudging the economy away from consumption and borrowing and toward saving and investment.

It sounds too good to be true, so lets look at the numbers in more detail:

If the US were to apply the same $30 carbon tax, it would generate approximately $145 billion a year. With this revenue, corporate and personal income taxes could be reduced to 10%, costing a total of about $100 billion, with $45 billion left over. This $45 billion could be used to pay down debt or fund causes for either political party.

Of course, a carbon tax would decline over time, as the country reduces carbon emissions, but this could take decades and, in the mean time, it could pay for big reductions in existing taxes. Furthermore, it could instigate energy conservation and facilitate investment into clean fuel technology.

In order for this idea to come to fruition, we need political courage and a paradigm shift in the corporate sector from “profits” to “responsibility.”

Finally, the carbon tax would provide Americans more control of their tax destiny. By creating a revenue-neutral (or even revenue-positive) tax swap, it is an opportunity to reduce existing taxes and clean up the environment. It would increase personal freedom and energy security at the same time.

Scott Raybin @greensavingsco

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