part 1 is here. The carbon tax would work in practice when it comes to gasoline as follows:
Let’s say that without any taxes the cost of one gallon of gasoline at the pump would be $3. The government levies a $5 a gallon tax. The new price at the pump is $8 (actually it would be slightly less but let’s assume that there’s no adjustment by retailer). Let’s assume further that there are 100 million Americans (I know there are more) and that each month the total number of gallons that these 100 million Americans consume is 1 billion or 10 per person (I know it’s more).
Now, let’s divide the 100 million Americans into a rich half and a poor half. The rich half burns a little more gasoline on average – they drive Mercedes and Hummers – let’s say. The poor burn a little less. They walk more. They car pool. They drive Camrys and Ford Focuses (Focii?). The live in smaller houses and heat and cool them less. So each rich person on average burns 11 gallons per month and each poor person burns 9.
Doing the math we find that the total amount collected in taxes is $5 per gallon per month or $5 billion. Now we divide the $5 billion by the total number of Americans to come up with $50 returned to each American which is the amount that each on average purchased. But because the rich consume a little more, each has paid $55 per month so on average the wealthier half is out $5 a month.
On the other hand the poorer half burns on average 9 gallons per month and therefore pays $45. Since each individual gets $50 back, poorer Americans are on average better off monthly by $5.
People will do everything to avoid buying the newly expensive gasoline such as car-pooling, taking public transportation, walking and bicycling, and moving closer to work. Auto manufacturers will market more efficient vehicles and alternative modes of transportation will spring up as entrepreneurs try to take advantage of people’s additional disposable income (so long as they cut back on gas consumption).
Disclaimer – obviously, I used the roundest of figures and ignored corporate purchases of energy. But factoring them in would actually strengthen the conclusion that a carbon tax will improve the quality of life for the poor and middle-class in the aggregate. This is the case so long as the revenues are returned on an equal basis to each of us. I will return to this subject soon and address the complicating factors alluded to in this paragraph. Part 3 is here.