I came upon a blog on cap-and-trade posted by Harvard economic professor Greg Mankiw this evenign. The heading of his blog was “Is cap-and-trade a tax increase?”. There isn’t a link on his blog for me to post a comment. So I sent him the following email:
Dear Professor Mankiw:
Of course cap-and-trade is a tax!! What is your point?
When Congress enacted the Resource Conservation and Recovery Act (RCRA) in 1986 requiring industries to properly dispose of their hazardous and toxic wastes, that TOO was a tax on industry and consumers. The costs of disposal are passed on to the consumers. So are we to do away with RCRA in order to keep tax on industry low? How would the population react when they find toxic wastes dumped on their front yard because that will happen when you repeal RCRA.
The same thing can be said about the federal regulations on seat belts, catalytic converters and air bags. They are all “taxes” on the consumers. Should we do away with them too?
So what is wrong with imposing a pollution tax on industry? The cap-and-trade is designed to provide a disincentive for industry to continue to spew out greenhouse gas. California has had a cap-and-trade on nitrogen oxides and sulphur oxides for some time now. Whether greenhouse gas is a danger to public health under the Clean Air Act is a separate issue. EPA seems to think it is. And if it is found to be a danger to public health, the Supreme Court has pretty much told EPA to regulate it.
Do you know of any regulatory scheme that will reduce pollution from industries that does not increase their cost of doing business (aka a “tax” on business)?
Update: Professor Greg Mankiw sent me an article in response to my email. A very interesting article on taxes and I highly recommend it.