By Craig Hanson

Gregory Mankiw is the latest public figure to call for a substantial increase in the gasoline tax:  $1/gallon phased in over ten years.  Mankiw is a leading economist now at Harvard University and a former chairman of Bush's Council of Economic Advisors. In a Wall Street Journal editorial, Mankiw cites many reasons why a gas tax is a good idea, including environmental protection (including global warming), national security, and economic efficiency.

Mankiw is far from alone.  For instance, leading columnists Thomas Friedman (New York Times) and Charles Krauthammer (Washington Post) have been pushing the same idea for years.

From an environmental perspective, higher gasoline and oil taxes are a good thing.  Higher taxes mean higher gasoline prices, which, as we've recently seen, create demand for more fuel-efficient cars.  Greater efficiency means less air pollution.  Most economists (including Mankiw) believe that simple fuel taxes are superior to regulations like CAFE that have the same goal, better vehicle efficiency.

Enter the Carbon Tax

Energy taxes are a form of green tax, but they aren't necessarily the best.  A WRI and Duke Energy issue brief looks specifically at carbon taxes—a type of green tax—as a way to combat global warming and reform the tax system.  A WRI/Brookings Institute policy brief explores green tax options in more depth.  For instance, carbon taxes and other green fees could be offset by reductions in other taxes, such as payroll, so that the overall impact is revenue-neutral.
 
Carbon taxes have other benefits besides environmental and economic:

• Simplicity. A carbon tax is much less complicated than, say, income taxes.
  
  
• Freedom of Choice. Carbon taxes are consumption-based, so consumers have control over how much tax they pay.  Consumers who don't like paying taxes (and who does?) can choose lower or zero carbon fuels, and perhaps avoid the tax altogether.  This is not true for most other taxes, like property, sales, or payroll.
  
  
• Broader is Better. A simple gasoline or oil tax would miss a major source of greenhouse gas emissions, namely coal used for electricity.  Coal has higher carbon content than oil or gas, and accounts for almost 35 percent of CO2 emissions in the U.S.  A broad carbon tax makes lower-carbon electricity sources more competitive, which reduces greenhouse gas emissions.  A carbon tax would also encourage technology innovations such as carbon capture, which stores carbon emissions back underground.