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Hasty taxes might not be what people of the future need

Bob Tippee
Editor

Raising taxes to fund uncertain benefits far in the future can be worse than rising sea levels.

The politics of global warming largely assumes that people have a moral duty to act on behalf of future generations, which obviously have no way now to express their wishes.

Yet acting now presupposes knowledge about those wishes. It also denies people of the future options and wherewithal that might make future environmental responses more efficient that anything undertaken immediately.

In a report distributed by the National Center for Policy Analysis, David R. Henderson, a research fellow at the Hoover Institution, says immediate action relies on technology inferior to what should become available in the future.

Furthermore, money spent on immediate responses might instead be invested so as to increase national wealth. The forgone return represents opportunity cost.

"Investments people make today are likely to increase the wealth of their descendants, giving future generations greater resources to exercise their preferences regarding environmental protection," Henderson says. "The higher the rate of return that can be earned by investing a dollar today, the more wealth future generations are deprived of if the money is spent now."

If the social cost 100 years from now of carbon dioxide emitted into the atmosphere is $300/ton, Henderson says, citing data from Kevin Murphy of the University of Chicago, the appropriate immediate tax, if the prevailing interest rate is 6%/year, is 88¢/ton. If the prevailing interest rate is 4%/year, the appropriate tax now is $5.94/ton.

Those values equate to 0.3¢/gal and 2¢/gal of gasoline, the federal tax on which is 18.4¢/gal.

Modern politics won't find much use for the suggestion that US motorists already pay fuel taxes sufficient to cover a generous assumption about the social costs of carbon dioxide emissions a century in the future.

But Henderson doesn't stop there in his challenge to political orthodoxy.

Noting that generations tend to be wealthier than their forebears, he says, "If the government taxes people today explicitly or through regulation to reduce climate change 200 years from now, the government will be taxing the poor to help the rich."

(Online Feb. 19, 2009; author's e-mail: bobt@ogjonline.com)


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