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An article published by National Review Online, “Let the Carbon-Dividends Debate Begin,” is a microcosm of the battle for the soul of the Republican party over the issue of climate change. On one side are establishment Republicans – in this case those who make up the Climate Leadership Council (CLC) – who argue the government should impose a tax on carbon dioxide emissions to reduce the threat from purported human caused global warming. The members of the CLC, represent the moderate, Rockefeller Republican wing of the party, who in the past have pushed activist foreign policies and government interventions in financial markets in particular, and the free market in general.
On the other side are people who represent what the Republican party, and its platform, says is stands for: Smaller government, lower taxes, less regulation – members of the libertarian and tea party wing of the party, including advisors and members of President Donald Trump’s transition team.
Leave it to the CLC to out Democrat the Democrats, pushing class warfare, new subsidies, and new taxes, and call it a “market” solution to fight the liberal bete noire climate change. Taxes are the opposite of markets. In markets people freely exchange something of value, usually money, for the goods and services they believe will satisfy their needs and desires most readily. Taxes are not market solutions to anything – instead they use the coercive power of the state to generate revenue for the government, and/or to influence or redirect peoples’ free choices in the market to purchase or avoid goods or services government mandarins and paternalists feel they should or should not be choosing. Don’t pay taxes and see how voluntary they are.
I have critiqued the need for and economics of the carbon tax proposed by the CLC elsewhere. Suffice to say, economic analyses of various carbon tax proposals have shown they would harm the poor in particular and the economy in general, cost American’s jobs and make American businesses less able to compete internationally. That’s why Congress passed a resolution in 2016 rejecting carbon taxes.
The CLC says their proposal is different and avoids the regressive nature of previously proposed carbon taxes and the disparate impact on American businesses. I want to address these two claims in particular.
Taxing the Poor
CLC recognizes a tax on energy alone would have a disparate impact on the poorest Americans since they spend a greater portion of their incomes on energy and energy intensive products than the upper middle class and relatively wealthy Americans. To avoid punishing the poor, CLC proposes to rebate the energy taxes it would impose to the public. You’d think from the way CLC touts its plan, this is the first ever revenue neutral carbon tax proposal anyone had ever proposed but in truth, their proposal is not novel at all. Indeed, almost every previously considered carbon tax plan proposed returning the revenue generated to taxpayers. And each of these plan’s suffer from the same series of flaws, some of which the the CLC actually touts as virtues.
To be fair, it was environmental lobbyists who first pitched the idea of a revenue neutral carbon tax in order to get conservatives in Congress to buy-in efforts to fight climate change. However, recently, environmentalists showed their true stripes, the idea of returning the carbon tax revenue to the public was just a ploy to get the tax, covering their true motives — generating revenues for green energy schemes. We know this because environmentalists opposed the first ever carbon tax proposed in the United States when it was on the ballot in Washington State. Indeed, the carbon tax went down to defeat with the help of environmental groups.
Ballot initiative, I-732 would have imposed a carbon-dioxide tax of $25 per metric ton on fossil fuels consumed in Washington State. The revenue generated would have been used to reduce the state’s sales tax and provide up to $1,500 per year tax rebate for 400,000 low-income households. In addition, in a nod to the fact the carbon-dioxide tax would have increased the cost of manufacturing in Washington State relative to competing states, the initiative would have effectively eliminated the state’s Business and Occupation tax for manufacturers.
You’d have thought, since they’d been pushing the idea for years, environmentalists would have jumped at the chance to tax carbon and show it could be done in a manner that didn’t hurt the poor or cost jobs, but not so. Indeed, most environmental groups—including the Sierra Club, the Washington Environmental Council, Climate Solutions, and the Alliance for Jobs and Clean Energy— opposed I-732 because rather than using the revenues generated by the tax to fund programs they support, the referendum returns the money to taxpayers.
“Revenues from its carbon tax would not be invested in ramping up jobs in clean fuels infrastructure or energy efficiency,” complained the Sierra Club on its website
There’s no reason for thinking environmentalists wouldn’t fight just as hard to oppose any national carbon tax unless it provided special earmarks for renewable energy and other environmental programs they support.
Even if environmental opposition could be overcome and the CLC’s revenue neutral carbon tax and rebate scheme could be enacted, it would still introduce distortions in energy markets, raising the costs for reliable fossil fuels and incentivizing the use of less reliable, more expensive “renewable,” sources of energy. With the government’s track record of cost overruns, inefficiencies, and history of throwing good money away on failed green energy boondoggles, why should anyone believe the CLC knows better than the general public what energy sources people should freely choose in the market.
Punishing the Middle Class
Their plan, as they describe it, is part class warfare and part fairy tale. Concerning the class warfare part of the scheme, as CLC writes:
Under our plan, which would begin with a carbon tax rate of $40 per ton, a family of four would receive approximately $2,000 in the first year. According to the Treasury Department and several independent studies, the bottom 70 percent of Americans would come out ahead if our plan were enacted, meaning that they would receive more in dividends than they would pay in increased energy costs. In other words, we could help alleviate climate change while benefiting 223 million Americans economically.
That’s great unless you are in the 30 percent that pays more for energy and doesn’t get a full rebate. Since the rebate is aimed at eliminating the tax’s regressive impact on the poor, we can only assume those receiving a subsidy – getting more than their fair share of the rebate – are the poor and lower middle class, and those paying more than their fair share, are the upper middle class and the relatively wealthy.
CLC brags about this soak the rich, subsidize the poor scheme. Since when did Republican’s become the “tax the rich, subsidize the poor party?”
I should also note, the $40 per ton tax is actually a higher rate than the Obama administration’s own social cost of carbon calculation of $36 per ton. In other words these old guard Republican’s want to impose a tax on carbon that cost more than the costs carbon dioxide are supposed to impose on society. And, by the way, since most of the costs the Obama administration counted in its social costs of carbon calculations were imposed on other countries — even if one believes humans are causing harmful climate change, by most estimates the U.S. either benefits or suffers little harm compared to the rest of the world – the CLC is actually taxing Americans to benefit people and businesses in other countries.
High Government Costs
The fairy tale part of the plan is that CLC makes it seem virtually cost free to run the program or writes as if it would impose no transaction costs. First, how are we to calculate or track the amount people pay in new energy taxes to qualify for their rebate? Will everyone have to receive national carbon tax ID card — or will they use their social security card – to be used when they purchase gasoline or pay their electric bill so the government knows automatically who gets what rebate. This would raise the hackles of people who oppose a national id.
Or are we to expect people to itemize the carbon taxes they pay, meaning taxpayers will have to keep up with even more bits of paper, receipts, to file their taxes – how much time and effort will this add to filing one’s taxes, and how much more will tax services reap and taxpayers pay in an attempt to ensure their taxes are filed correctly. And the additional audits in an attempt prevent fraud and underpayment! Ye, God’s, what a nightmare!
And expect the carbon tax to result higher policing costs as the criminal justice system has to deal with tax cheats, and the organized and disorganized criminal gangs one should expect to arise to create false carbon tax id’s for illegal aliens and others, or to sell untaxed, black market gasoline and other fuel.
Are we to expect, unlike any other government program, the government will not have costs associated with collecting, tracking, auditing, and archiving the taxes paid and rebates paid out? Of course not. New employees will have to be hired, indeed, unless a whole new government bureaucracy is created – perhaps as a branch of the IRS, or the Treasury department, or the Department of Energy, or the way government schemes usually work, multiple bureaucracies with overlapping jurisdiction within multiple agencies – existing federal workers or contractors will have to be diverted from other tasks to administer these programs. And, of course, Congress will exercise oversight of the program. These transaction costs will be substantial amounting to billions of dollars annually. Unless these costs are paid directly out of the revenues the tax generates, in which case, all the taxes charged will not be paid out in rebates to energy users as proposed – meaning the tax is not neutral vis-à-vis their bank accounts – then taxpayers will have make up the costs of the program out of general revenue or more likely through deficit spending adding more billions to the national debt.
The higher energy costs the carbon tax will impose on American businesses will make them less competitive and encourage companies to flee the country. To prevent that, CLC proposes:
Border adjustments for the carbon content of both imports and exports would protect American competitiveness and punish free-riding by other nations, encouraging them to adopt carbon pricing of their own. Exports to countries without comparable carbon pricing systems would receive rebates for carbon taxes paid, while imports from such countries would face fees on the carbon content of their products. Proceeds from such fees would benefit the American people in the form of larger carbon dividends.
Neeto, a win-win for everyone right! Wrong.
CLC’s proposed “border carbon adjustment,” is just a fancy name for protectionist tariffs imposed on imports, and subsidies for domestic industries. American consumers will pay more for their goods and services. This part of the scheme will not likely hold up when challenged under various international trade agreements and organizations our country is a party too, including the World Trade Organization. No trade agreement requires any country to impose taxes on carbon dioxide emissions within it borders. If the United States unilaterally imposes a carbon tax, it won’t be allowed under trade rules to coerce countries to follow its lead and impose a similar carbon tax in their own countries. Using tariffs to force other countries to adopt environmental standards the U.S. thinks they should have is not allowed under international trade rules – it’s the worst form of eco-colonialism. Even if CLC’s proposed border carbon adjustment is upheld or allowed under various trade agreements, other countries will likely respond with protectionists policies of their own and regardless the U.S. – which means taxpayers – will spend millions fight to defend the policy before various international courts or regulatory bodies.
There is no good time to enact bad policy and a carbon tax is a terrible policy. The Republican party shouldn’t let the climate wars make it into the party of protectionism, larger government, higher taxes, and less freedom – Democrats already have that political niche covered.