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Wednesday, March 04, 2015

'Rep. Paul Ryan is Getting the Economics Wrong on Cap and Trade and a Revenue Neutral Carbon Tax'

Paul Ryan says "I do not like cap and trade because I think the costs far outweigh the benefits." John Whitehead (who provides the Ryan quotes) responds:

Rep. Paul Ryan is getting the economics wrong on cap and trade and a revenue neutral carbon tax: Way wrong...
The costs of cap and trade do not outweigh the benefits. It might be the case that the costs of a climate policy, any climate policy, outweigh the benefits. But cap and trade is a policy instrument, not something for which you conduct a benefit-cost analysis. The economics says that if the government decided to undertake climate policy, cap and trade would be one of the most cost-effective ways of doing it.

Ryan also says (when asked about a revenue-neutral carbon tax), "I don’t like that either. I think these tax-and-spend ideas are the wrong way to go. They hurt economic growth. They’re very regressive. They hurt people who rely on disposable income solely — the poor. And they make our manufacturing industry much less competitive. So why don’t we get faster economic growth, more upward mobility, help increase people’s take-home pay, and finance research to innovate ourselves to come up with better technology. This is Madison, Wisconsin. We’re good at researching stuff. So why don’t we just research."

John Whitehead once again:

And that brings us to the revenue-neutral carbon tax (another cost-effective way of undertaking climate policy). The idea behind this is to tax a bad thing (pollution, carbon) and reduce taxes on a good thing (work effort). Revenue neutral means that the additional tax revenue from the carbon tax would be completely offset by the reduction in tax revenue from lower income taxes. The income tax reduction could be designed such that any regressivity of a carbon tax could be avoided. 
Tax and spend policies are usually thought of as an increase in taxes (carbon and income) where the additional revenue is used to pay for a government policy. But, a revenue neutral carbon tax would not raise any additional revenue. I really don't see how a revenue neutral carbon tax could be classified as a tax and spend idea. ...
The only conclusion that I can reach is that Rep. Ryan doesn't understand climate economics very well.

    Posted by on Wednesday, March 4, 2015 at 09:54 AM in Economics, Environment, Politics | Permalink  Comments (63)


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