AEI Economist: Address Climate Change and Income Inequality Together

A carbon tax proposal from the conservative side of the spectrum

Friday, January 10, 2020

By Ted Knutson


Climate change and income inequality are issues usually associated with progressive political agendas and denied or demurred on the conservative side. Aparna Mathur, resident scholar at the conservative-leaning American Enterprise Institute, doesn't fit the mold.

Mathur does not deny climate change, but, in acknowledging inequality, does not embrace far-reaching wealth transfer proposals that, in her view, have little chance of being financed. She believes there is a connected solution.

“My solution for the Green New Deal goals is different from its liberal advocates, because I see we can use a carbon tax to address economic inequality,” explains Mathur, who earned an MA in economics from Delhi School of Economics and an MA and PhD in economics from the University of Maryland, and recently wrote on Rethinking the Green New Deal in the National Tax Journal.

“The way we do that is to use the [carbon tax] revenues to help low-wage workers through expanding the earned income tax credit (EITC) program, make the child tax credit refundable, and pay for paid family leave,” she said in a phone interview.

The money could also be invested in paid apprenticeship programs, in clean technology R&D, and in lowering payroll taxes for low-wage workers.

Mathur is critical of Green New Deal promoters for not demonstrating in a practical way how to pay for their objectives. At the same time, she does not agree with those carbon-tax opponents who believe such a levy would hurt industry by increasing the cost of goods, and that the government would not put the proceeds to productive uses.

How It Would Work

Mathur suggests an approach in which a tax of $15 to $40 per ton of carbon emissions would be imposed on the producer. That could be, as an example. a utility providing electricity to a shopping mall from a coal-fired plant.

Aparna Mathur Headshot
Aparna Mathur, American Enterprise Institute

The power company would probably pass on the added charge to the mall's owner.

Over time, the per-ton rate would be increased to maintain revenue levels, because businesses would be cutting the tax base by lowering their emissions.

She estimates such a tax would bring in $100 billion per year.

As stated in her paper's abstract, she uses “a micro-simulation tax model to estimate the costs and distributional impacts of several other tax reforms. Ultimately, the paper presents two hypothetical reform proposals that implement a carbon tax, additional revenue raisers, and other targeted low-income tax reforms . . . to create revenue-neutral solutions to reduce greenhouse gas emissions and raise the average after-tax income of the bottom quintile.”

Helping the Neediest

Using the money to reduce inequality makes sense, Mather says, because low-income people suffer the most from climate change.

“If you have a higher income,” she adds, “you are insulated better against it. If you live in a low-lying area, it's easier to move to escape the flooding that climate change brings.”

Also in the revenue-raising toolbox is to lift the Social Security payroll cap on individuals from $128,400 to $150,000 per year, generating $26 billion in revenue that could be used for the same purposes as the carbon tax.

The scholar does not believe that a carbon tax would lead to cheating and loophole-seeking, as happens with other taxes.

“Tax avoidance issues should be minimal,” she says. “Emissions are something we can track. It is not like not reporting some types of income.”

In a CNBC interview last fall, Mathur asserted that the best way to close the earnings gap between CEOs and lower-level workers would be to tax the CEOs directly, rather than the corporations, because a corporate tax burdens the entire business including the workers.

Also associated with the paid family leave issue, Mathur serves as director of the AEI-Brookings Project on Paid Family and Medical Leave. She was listed in the 2017 Politico 50, with the magazine saying: “A big reason [paid parental leave] has some traction on the right is Aparna Mathur, an economist who studies women in the labor force at the free-market American Enterprise Institute.”


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