I thought I would offer this "real" world example of how a tax shifting policy could be an attractive option. One of my neighbors is currently considering putting in a geothermal system for his home. The cost is quite high, between 25-30 thousand, a large sum for an average middle class family. My neighbor is debating the pros and cons, he would have to borrow the money to install the system, but it would result in knocking off 80% of his fuel and hot water expenses. You do the math, factor in you yearly savings, add a reasonable projection on future traditional fuel costs, to calculate how long it would take for the investment to pay for itself. It's still a fairly daunting proposition, especially when you factor in the interest on any upfront loan.
We were talking about this option, and it really is something to wrestle with, because the bottomline for most of us, while we want to do our part, it comes within the reality of affordability. Anyways, I mentioned the tax shift policy, without knowing the details, just the general thrust. With a heavy emphasis on IF it happens, you could see how an income tax reduction, coupled with a price on carbon, would provide the last push, to make installation economically feasible, far more attractive. If my neighbor did go ahead with his plan, within a tax shift framework, then he essentially would avoid any additional taxes on his energy usage, while simultaneously gaining considerably on the income tax side. The net result of going geothermal, he would end up paying less taxes overall, more money in his pocket, making the initial cost of the system far more sensible. In other words, if this tax shift idea was in place, all of the current hand wringing would be a far easier decision, it would tip the economic consideration, it would actually make the jump far less risky.
It's just one example, but it does serve as some indication of how the carrot and stick could provide the necessary incentive for people that want to change behaviors, but struggle with the economics. IF we had a tax shifting policy, the numbers are far more attractive, the internal debate almost a no brainer.
Interesting perspective on the politics of a carbon tax.