Carbon Tax

I've been thinking about the Big C.T. lately, as opposed to the cap-and-trade, or C&T, that Obama and others have proposed.

One statement that really struck me came from Al Gore, I believe. It was that Big CT could generate enough tax revenue to allow us to eliminate the payroll tax (Soc. Security and Medicare), and that change would generate millions of new jobs.

The last part--the new jobs that could come out of the economy's rally if payroll taxes for workers and employers were eliminated or cut sharply--sounds right to me, and an extremely relevant prescription for the current Great Crater, towards the bottom of which we are currently rolling at top speed.

I also think that Big CT could be a lot simpler to implement than C&T, which promises to be a grim vertical turf war for cap room through loopholes and other Mickey Mouse (think of NBA trades and the contortions taken on in order for teams to bid on LeBron in '10).

I've got two problems with Big CT, before I endorse it fully:

1) All this theoretical stuff sounds fine, but I've got to think we're talking about estimated carbon usage as the basis for both the Big CT and C&T systems. The weak link in this chain seems to be measurement of actual carbon usage. Consider, as a close analogy, the difference between "Estimated EPA mpg" and "what one gets". If the little gizmos that measure the carbon usage aren't in place, aren't sufficiently accurate or are somehow tricked, we let the cheaters take the advantage, with a possible cascade toward defeating the environmental objective. (possible investment tip--find the gizmo makers and buy them?)

2) If we eliminated the payroll tax and then--heaven forbid!--we succeed in reducing our carbon usage, then how are we going to pay for Social Security and Medicare? Better not eliminate the mechanism, ever. It would still be significant to cut the rates (!) by 20-25%, phasing in Big CT sooner rather than later, but keeping Big CT rates relatively low in the initial stages to control inflation. I actually like this approach better than the tax rate cuts proposed in the stimulus plan, though I know those are pretty close to a core Obama position.