Taxes, carbon and tribalism. Can a tax-related environmental policy save us?

Explaining climate change

An introduction to the causes of modern-day climate change, signs that the climate is already changing, and how climate change affects the environment and human well-being.
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An introduction to the causes of modern-day climate change, signs that the climate is already changing, and how climate change affects the environment and human well-being.

Destructive tribalism grips our country. Confronted with critical issues from taxation to climate change, people across the political spectrum dismiss the guidance of leading experts, siding instead with their political tribe. When Bernie Sanders advocated a combined marginal income and payroll tax rate of 77% for the richest Americans, many in his tribe subscribed to the idea. Yet Nobel Laureate Peter Diamond among other experts warned that marginal tax rates above the 50%-70% range would actually reduce tax revenues by disincentivizing work. And when Donald Trump claimed that humans don’t contribute to global warming, many in his tribe followed suit. The evidence to the contrary is summarized by a statement from 18 scientific associations that, “greenhouse gases emitted by human activities are the primary driver” of climate change.

Tribe-led decisions take us down dangerous paths. Taxes that are too high or too low reduce our standard of living. Worse, lax environmental standards threaten the environment we rely on for food, productive inputs, and life itself. The many problems with tribalism warrant attention to solutions.

Some people will never stray from their tribe. Others may side against science for personal convenience. Without consulting the science of which plan is better for society, I might favor Elizabeth Warren’s tax policy over that of Bernie Sanders because Warren’s is focused on people with more than $50 million in assets—a class I don’t expect to join. Yet I’m open to straying. I’d support Sanders if there were strong evidence that the sacrifices would be small relative to the benefits for society.

Now consider the more critical realm of climate change, in which there are climate-change deniers who fear that protecting the environment would entail painful sacrifices. Would a solution with minor pains and major gains tame their tribalism?

A tax-related environmental policy offers such a fix. The Energy Innovation and Carbon Dividend Act of 2019, H.R. 763, would place a tax or “fee” on the carbon released in the combustion of fossil fuels. Carbon is among the greenhouse gases mentioned above as the primary driver of climate change. If adopted, H.R. 763 will encourage energy conservation and the use of clean energy. But what of the pain and sacrifice?

The beauty of this carbon-fee plan is that the incentives come at a surprisingly low cost. The poor receive net gains, jobs are created, and everyone benefits from a healthy environment. The pain relief comes from a return of the revenues to the people. After collecting the fees from fossil fuel producers, the government divides the revenues evenly among all Americans and distributes them in a monthly check for us to spend as we please.

Suppose the average American pays $20 in fees per month, which are built into the price of energy. Average fossil fuel users will feel no pain because they will pay $20 per month and subsequently receive a check for $20 each month. Anyone using less than the average amount of fossil fuel energy will pay less than $20 in fees per month and enjoy a net gain from their $20 monthly check. Relatively heavy users of fossil fuels will pay more than $20 in monthly fees, but only be out the difference between their payment and the $20 they receive back.

The policy will create jobs in the clean energy industries, which already outnumber jobs in the fossil fuel industries. Purchases spurred by the monthly checks will create even more jobs. Most importantly, the incentives of H.R. 763 will take us on a path toward cleaner air and water, better health, and less climate change.

Can this solution tame tribalism? The high benefits relative to the costs, and a provision to pause new regulations on emissions covered by the fee, have already garnered bipartisan support for H.R. 763. More support is needed. Whatever your tribe, please share this promising plan with your friends and legislators.

David Anderson is Blazer Professor of Economics at Centre College in Danville.