Hot coals.

FOR those interested in increasing carbon taxes, a perfect storm has gathered. That storm combines three smaller storms. First, you have those concerned about global warming, who have been worked into a political frenzy by Al Gore and his friends in Hollywood. Second, you have neoconservatives who feel that U.S. consumption of Middle Eastern oil provides key financial support to our enemies. Finally, you have supply-siders, who are keen on raising energy taxes if other taxes can be lowered at the same time.

This third group draws support from a voluminous economic literature on the "double dividend." If you impose a tax on something you do not want to consume--say, oil--then the tax reduces consumption of the targeted item, providing a "dividend." Government can then use the revenues, in theory at least, to reduce other taxes. The economic boost from this step provides the second dividend. If a country starts with a tax system that is bad enough, the benefit from step two can be so great that the economy is better off after the swap.

Our taxes on corporate income are so high, compared with those in other countries, that it seems likely that a tax swap could increase economic activity if an energy tax were used to reduce corporate income taxes. If the greens want a carbon tax to address global warming, an alliance of the three groups would be natural, and formidable.

So a carbon tax seems more possible than ever. If one considers the geographic incidence of such a tax, however, the political feasibility of higher carbon taxes seems much more questionable.

What would a carbon tax do? In a new paper, Steven Hayward and Kenneth Green, my colleagues at the American Enterprise Institute, explored the question ...