Wednesday, June 5, 2013

Climate Change and the Income Tax

Perhaps the greatest moral and political decision that society must make in this decade is with regard to climate change, and how we will reduce our emissions of greenhouse gases. As with any science, there will always be deniers out there, as evidenced by the fact that some people still think the earth is flat.

In order to reduce greenhouse gases, it is generally accepted that the best way to do this is economically. As a result, two main options have emerged; a cap-and-trade scheme and a carbon tax.

I don't really trust any trading schemes, especially after the taxpayers bailed out the banks just so they could turn around and start making record profits. I still rent.

Nobody wants any more taxes however. So we are stuck with two unattractive options which are both political hot potatoes. The oceans could evaporate before our eyes before some would support a new tax.

Americans are already taxed pretty good. The biggest chunk of this comes from the income tax, of which 42% comes from personal income taxes and 9% comes from corporate income taxes. This is just over half of all federal revenue!

I can't think of anyone who really likes the income tax, and I don't think there are many out there who feel morally comfortable with messing up the climate for their kids and grand-kids. So maybe we could kill two birds with one stone?

I vote to abolish the income tax and replace it with a carbon tax. We can get rid of the completely dysfunctional tax code, make business and people happy, and do something environmentally good for the future...all at the same time. We already have the infrastructure in place (IRS) to provide the oversight.

If we're lucky, we may even get some more line dancing videos out of it!


  1. A few questions-
    You're suggesting people be taxed based on their carbon footprint?

    What about the things that rely on revenue from income tax?

    I think I just need clarification....

  2. I think the best way to describe it is through an example.

    Suppose we take data from the year 2010. In that year, the US received $2.2 trillion (t) in tax revenue. 42% of this came from individual income taxes and 9% came from corporate income taxes, leading to a grand total of 51% from the income tax.

    51% of $2.2t is $1.122t. Therefore, if we wanted to keep revenue the same and replace it with a carbon tax, we would have to have a carbon tax that brought in $1.122t.

    Now there are lots of ways CO2 gets in the air, but one of the more common ones we think about is our vehicle emissions. Remember, cars are only a fraction of our emissions, so this is only to put the issue in perspective.

    Suppose we wanted to make this carbon tax based purely on gasoline. In the same year (2010) the US consumed 7.0 billion (b) barrels of oil. So we take $1.122t ÷ 7.0b and get $160.29. That means a tax of $160.29 per barrel of oil would replace the income tax.

    To boil this down to gasoline, a barrel of oil yields about 19 gallons (gal) of refined gasoline. So we take $160.29 ÷ 19gal and get an $8.44/gal.

    So, in order to replace the income tax solely with a gas tax, it would cost us $8.44 per gallon more than whatever you are paying now.

    If you had a 15 gallon tank and filled it up once a week, you would pay a total tax of $6,583.20 for the year.

    Don’t forget, this example is just illustrative, and the tax would be spread across different industries and different methods of consumption such as home energy use.

    Hope this helps!