Greg Mankiw's Blog on a Revenue-Neutral Carbon Tax

Professor Greg Mankiw’s blog notes that based upon the CBO’s new report on Budget Options, a $1 increase in the gasoline tax would provide sufficient revenue to reduce all ordinary income tax rates, AMT rates and dividend and capital gains rates by 2 percentage points. Mankiw describes the result as an approximately revenue-neutral tax reform, but anticipates opposition based upon "status quo bias."

The status quo bias noted by Professor Mankiw is an important concern, particularly when combined with the obvious reluctance of politicians to utter the "T" word. We are convinced, however, that proposing a revenue-neutral tax with either progressive tax-shifting or a rebate, combined with the increasing acceptance of the need to do something soon about global warming, will inevitably result in passage of a carbon tax.

Last modified: February 25, 2007