This week’s IGM Economic Experts Panel statement:
The Brookings Institution recently described a US carbon tax of $20 per ton, increasing at 4% per year, which would raise an estimated $150 billion per year in federal revenues over the next decade. Given the negative externalities created by carbon dioxide emissions, a federal carbon tax at this rate would involve fewer harmful net distortions to the US economy than a tax increase that generated the same revenue by raising marginal tax rates on labor income across the board.
Keyword: labor income
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This week’s IGM Economic Experts Panel statements:
A: One drawback of taxing capital income at a lower rate than labor income is that it gives people incentives to relabel income that policymakers find hard to categorize as "capital" rather than labor".
B: Despite relabeling concerns, taxing capital income at a permanently lower rate than labor income would result in higher average long-term prosperity, relative to an alternative that generated the same amount of tax revenue by permanently taxing capital and labor income at equal rates instead.
C: Although they do not always agree about the precise likely effects of different tax policies, another reason why economists often give disparate advice on tax policy is because they hold differing views about choices between raising average prosperity and redistributing income.
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