Out of Control Policy Blog

I support Al Gore

...partially, on at least one topic. Reuters reports that Gore advocated a tax shift to replace all payroll taxes, including those for Social Security and unemployment compensation, with a tax on carbon dioxide emissions in a speech at New York University School of Law on Monday.

Of course, the idea of a revenue-neutral swap of taxes on labor for taxes on environmental "bads" isn't Gore's. Folks that are familiar with Arthur Pigou's work on economics in the 1920s–and indeed, folks that are familiar with economics at all–were doubtless gratified to hear Gore characterize payroll taxes as "penalizing employment."

The green tax shift has been underway in Europe for more than a decade now, but the claims of US green tax advocates that these reforms would create a "double dividend" or win-win by both reducing pollution (the first dividend) and increasing economic efficiency by replacing other more distortionary taxes (the second dividend) are regarded skeptically by most experts today (a sampling here and here and here and here). Even less appealing is the idea of lumping environmental taxes onto the distortionary tax structure we already have.

So, if Gore wants to make economists happy for the second time this week, he'll announce support for eliminating payroll taxes first, as a good-will gesture.

(Side note–Gore's new book is to be titled The Assault on Reason. We'll be on the lookout for said assault this spring.)

Skaidra Smith-Heisters is Policy Analyst


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