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A Carbon Tax That’s Genuinely Revenue-Neutral

April 18th, 2016 by dk

If there was a calendar of oxymorons, today would read, “Happy Tax Day!” When your accountant tells you there will be no additional taxes due, it means one of two things. Either the government kept more than its share of your earnings or you didn’t earn enough to merit their attention. It’s good news! It’s bad news! Happy Tax Day!

It’s like when a doctor reports on exploratory tests: “I’m happy to inform you, the results are negative.” Learning there’s nothing in there can be good news — anytime when it’s your body, but only for one day when it’s your cupboard of taxable earnings.

Tax is seldom the topic of choice among free adults, unless preceded by the modifier “too much.” We’d rather not think about taxes, thank you very much. One day every year is more than enough, but today is that day.

For that reason — and really, no other — let’s discuss how we might cure ourselves of our carbon addiction without bloating the government.

Most carbon tax proposals promise they are revenue neutral, but none suggest that each consumer would pay no more and no less for what they consume. That would produce no behavioral change, which is what any carbon tax is hoping to accomplish. But there is a way to change behavior without actually taking people’s money. Simply holding it for a little while is enough.

Researchers have shown that people respond very differently, depending on the circumstances, to identical economic impacts. In the most famous experiment, a person considers buying a ticket to a Broadway show for $40, then learns he has $40 less in his wallet than he expected. Almost everyone (88 percent) still buys the ticket.

In the second scenario, the $40 ticket is purchased, then lost — so the same value is subtracted from the vacation budget, but this time the value is emotionally attached to the show. Fewer than half (46 percent) buy a replacement ticket, even though the economics are exactly the same.

My carbon tax proposal would use this psychological anomaly, but in reverse. A carbon tax would be paid at the pump, but then refunded in full as an income tax credit. The check mailed to each of us would be based on recorded purchases throughout the previous year.

Even if we know we’ll get the money back, we’ll still feel a new pain when we’re buying stuff that’s damaging the planet. We’ll hesitate at precisely the moment when the planetary harm occurs, even though the money will be refunded to us.

If every American received their windfall check on Earth Day (April 22), the choices those checks represent — past and future — would be impossible to avoid. Imagine how many environmental groups would gear up to help people choose how to spend their refund on that day.

For the first time, every American would know how much their purchases have contributed to this environmental problem. What they choose to do about it would be entirely up to them.

If government leaders wanted to, they could shape those choices. Simply publishing the amount collected and then rebated each year would give the conversation a new and very personal data point. Everyone would know if they are consuming more or less than their neighbors. Nationwide consumption would be tracked, year to year.

Environmental organizations — or the government itself — could set up annuity-style investment funds for consumers. The pitch would go like this: “You can have every penny we collected from your carbon-based purchases mailed to you this April. Or, if you’d prefer, we’ll invest that money and return to you a check for twice that amount in 20 years, or triple the amount in 30. If you die before the investment matures, payment will be made instead to your heirs, according to your wishes.”

We’d be giving this generation the choice and the means to help the next generation adapt to whatever planetary changes may result from our habits of consumption.

If economists have learned anything over the past 50 years, it’s that nothing drives innovation and efficiency better than informed consumers — even if the test results are positively negative.


Don Kahle ( writes a column each Friday for The Register-Guard and blogs at

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