For the last fourteen years, I have advocated the elimination of all payroll taxes — including those for social security and unemployment compensation — and the replacement of that revenue in the form of pollution taxes — principally on CO2. The overall level of taxation would remain exactly the same. It would be, in other words, a revenue neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.
I think that I first thought about this idea only 8 years ago. This is something nearly everyone should support: People concerned with the environment should clearly support it. People interested in promoting employment should support it. People interested in public health should support it. People interested in terrorism should support it. People interested in creating the most efficient economy should support it because consumers and producers would be forced to internalize the costs that they are currently forcing upon others.
I would like to see, as much as possible, all of our taxes to be focused on things that produce negative externalities. Pollution and environmental destruction are the most notable.
This idea seems politically palitable as well: who could be against eliminating the payroll tax? encouraging employment? against making those who pollute pay for the harm they cause? personal responsibility?