Somewhat related to yesterday's post on using consumption taxes to fight carbon emissions, Congressman Bob Inglis and economist Arthur Laffer argue in the NY Times for a carbon tax that is offset by income tax cuts. In doing so, they say:
The United States can’t solve climate change alone. The Kyoto climate treaty was rightly rejected by the Senate because China and India weren’t subject to its provisions. If China and India join the United States in attaching a price to carbon, their goods should come into this country without a carbon adjustment. But if they do not, every item they place on our shelves should be subject to the same carbon tax that we would place on our domestically produced goods, again offset by a revenue-neutral tax cut.
If World Trade Organization rules entitle members to an unwarranted exemption from such a carbon tax, then we should change them.
I wasn't sure exactly what they meant by this last statement. I think their concern is that under WTO rules, a carbon tax would have to be imposed only on domestic products, and not on imported goods. That seems wrong to me as a matter of WTO law. At least in theory, you should be able to impose a carbon tax on all products sold domestically, including both imports and domestically produced goods. In practice, of course, such a law might be written in a way that violates WTO rules, by adding various discriminatory elements, for example. So, my advice to the authors is, don't worry about WTO rules preventing the use of a carbon tax. Instead, worry about writing the law in a neutral, non-discriminatory way.
