Dr. Robert Shapiro Unveils Paper on Tax Shift to Combat Climate Change

On Monday at the National Press Club, I attended an event put together by the U.S. Climate Task Force, which is chaired by Dr. Robert J. Shapiro, also Chair of NDN’s Globalization Initiative. At this event, Dr. Shapiro released his paper entitled, Addressing Climate Change without Impairing the U.S. Economy: The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief, which details a strategy for implementing a carbon tax and using 90 percent of the revenue to cut the payroll tax. (The remaining 10 percent would be used to fund research, development, and deployment of clean technology). The end effect would be to combat climate change while limiting the economic burden and increasing the political salability of such a solution to climate change.

The proposal is fascinating, and the event, which featured a panel of climate change experts, was equally so. The take-away from the event was that putting a price on carbon is obviously crucial to combating climate change, and that returning the money collected by a carbon-pricing scheme through a reduction in the payroll tax is an innovative and progressive idea. Internationally, it is crucial for the U.S. to lead in the effort to combat climate change, especially because any agreement will need to bring the developing world on board. China’s carbon emissions have already surpassed America’s, and will only continue to grow. Tackling the prevalent use of coal and providing consumers with alternative forms of energy, in large part through increased investment in research, development, and deployment of low-carbon sources, must also be central to confronting climate change.

Climate Wire (subscription req’d), had this to say about Dr. Shapiro’s proposal:

As energy prices climb higher, even the most environmentally minded politicians have shied away from the tax, deeming it to be too much of a political landmine.

The tax would start out at $14 per ton in 2010 and rise to $50 per ton in 2030. Most of the revenue generated -- projected to be about $4 trillion over 20 years -- would cycle back into the economy, primarily through a cut in the payroll tax.

"We are reducing one tax and applying a second tax. The reason is, we want to encourage one kind of behavior and discourage another kind of behavior," explained Robert Shapiro, chairman of the U.S. Climate Task Force and a co-author of the new report. "This is not the imposition of a tax -- this is a tax shift."

Here is NDN’s press release endorsing Dr. Shapiro’s paper:

NDN ENDORSES SHAPIRO PAPER ON CARBON
TAX/PAYROLL TAX TRADEOFF

The U.S. Climate Task Force yesterday released an important paper in the debate over how to address climate change and global warming entitled, Addressing Climate Change without Impairing the U.S. Economy:The Economics and Environmental Science of Combining a Carbon-Based Tax and Tax Relief.

Authored by Dr. Robert Shapiro, former Under Secretary of Commerce for Economic Affairs in the second Clinton Administration and Chairman of NDN’s Globalization Initiative, and economists Dr. Nam Pham and Dr. Arun Malik, the paper represents a valuable addition to the literature on potential policy solutions to the problem of carbon emissions.

NDN strongly endorses the report’s bold recommendation to put a price on carbon and supports the report's central idea that a well-crafted carbon tax, combined with a reduction in the payroll tax, has the potential to staunch the release of greenhouse gases without harming the economy and will promote job creation. In endorsing this carbon tax proposal, NDN remains committed to the effort to develop comprehensive climate change legislation that accomplishes the goal of reducing carbon emissions through a tax on carbon, a cap and trade system, a cap and dividend system, or some combination of the above.

A number of countries and localities have adopted a carbon tax to help stem greenhouse gas emissions. Such a tax, however, can increase costs to energy or industrial consumers and potentially impose a drag on economic growth. Using computer simulations that employ the U.S. Department of Energy’s energy consumption and pricing model, Dr. Shapiro’s paper makes the important point that how this tax revenue is recycled through the economy is critical to the effect of the tax on the American people.

Using carbon tax revenue to reduce the payroll tax helps to mitigate the impact on the economy by increasing disposable incomes of working families and reducing what is, in effect, currently a disincentive to employment. While the payroll tax has historically played a critical role in funding Social Security, it is levied as a tax on wages. So, reducing the tax and any future increases likely required to accommodate an aging workforce helps to promote employment. And by tying the payroll tax deduction to the revenue to be gained from putting a price on carbon, Dr. Shapiro’s proposal offers a way to limit carbon emissions without lowering economic growth.

“The idea of balancing a carbon tax with a reduction in the payroll tax is appealing because it has the potential to put a price on carbon without lowering economic growth,” said NDN Green Project Director Michael Moynihan.

Moynihan added that NDN will continue to work with the U.S. Congress, the presidential campaigns, the U.S. Climate Task Force, the clean technology community, the environmental community, industry and other interested stakeholders in meeting the important challenge of climate change.