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November 19, 2012

Carbon Tax is Being Floated, But No One's Biting - Yet

By

For the first time since its 1988 debut in the vice presidential debate between Lloyd Benson and Dan Quayle, climate change—or global warming as it was then known—was entirely ignored during the national debates. In an April interview with Rolling Stone, President Obama indicated that he expected it would be a campaign issue and that he would “… be very clear in voicing [his] belief that we’re going to have to take further steps to deal with climate change in a serious way.”

While the issue never materialized during the campaign, the president resurrected it in his acceptance speech stating, “We want our children to live in an America that isn’t burdened by debt, that isn’t weakened by inequality, that isn’t threatened by the destructive power of a warming planet.” Before the week was out, however, The Hill quoted an anonymous White House official as stating, “The Administration has not proposed nor is planning to propose a carbon tax.”

Why would a lame duck president who openly promoted a cap and trade system under which “electricity rates would necessarily skyrocket” and who choose an Energy Secretary who—although he has subsequently jettisoned the position—opined that rising gas prices would be good, shy away from the issue? A recent Huffington Post-YouGov poll might hold part of the answer. The Oct. 29-30 poll found only one in five Americans would be willing to pay significantly more for gas or electricity, even if assured that it meant solving a climate change crisis.

Carbon tax as hostage in deal

The Competitive Enterprise Institute’s Myron Ebell sees another angle. “… [T]he alarmists and the left have a strategy to make a carbon tax part of a big budget and tax reform deal and … realize that it will never fly unless it is proposed and fronted by one or more prominent Republicans in Congress,” Ebell says.

And he isn’t alone.

Gerard Wynn and the Washington Post’s Steve Mufson make similar arguments.

In Reuters, Wynn writes: “Academics and lawmakers have proposed a U.S. carbon tax to curb carbon emissions and trim the debt pile, but the idea depends on prominent Republican support, so far absent.”

Mufson opines that, “As a matter of negotiating strategy, now might be a bad time for the Obama Administration to advertise interest in a carbon tax.”

Derrick Morgan, vice president of domestic policy for The Heritage Foundation, has followed the issue closely.

As Morgan sees it, “If carbon tax advocates manage to trick conservatives into biting, they will get a liberal policy victory and force conservatives to share the blame for its economically devastating consequences.” Carbon tax advocates are scouring the conservative ranks for possible takers.

In a pro carbon tax editorial, the Washington Post notes that economists at Resources for the Future (RFF) find that a carbon tax “could bring in serious money.”

Phillip Sharp, RFF president says, “Contrary to what almost everybody universally would have said two years ago, we have gotten ourselves in such a pickle on the fiscal side of things that it opens up the possibility.”

Indeed, Sharp insists, his group has been “surprised at the number of political groups across the political spectrum considering this.”

RFF and like-minded organizations such as the Brookings Institution’s Climate and Energy Economics Project and the International Monetary Fund recently gathered at the American Enterprise Institute for a conference titled “The Economics of Carbon Taxes.”

The Obama administration’s Gilbert Metcalf, Assistant Secretary for Environment and Energy at the Treasury Department, delivered the luncheon speech. Conference attendees then discussed how to divvy up the loot from a carbon tax as the final panel explored “Compensation and use of revenues.”

While the Post’s Editorial Board yearns for, “some policy that would reduce carbon emissions and raise federal revenue,” RFF’s Sharp does not see Congress adopting a carbon tax as an environmental policy. Its greatest appeal, he suggests, is as “… an important enabler for other things the Congress wants to do, namely eliminating the deficit and tax reform.”

Grover Norquist of Americans for Tax Reform rejects the idea that a carbon tax would be used to “eliminate” the deficit. All it would do, he insists, is enable more government spending.

Carbon tax advocates are trying to sell the carbon tax as a tax on consumption. They hope that labeling will differentiate it from taxes that discourage investment and economic growth.

As the Post’s Mufson asserts, “Because it would tax fossil fuel use, the carbon tax pleases economists who want to encourage investment and discourage consumption.”

However, while many economists may prefer consumption taxes, a carbon tax is no such creature.

As economist J.D. Foster, The Heritage Foundation’s senior fellow in fiscal policy explains, “It is not a consumption tax. It is an activity tax, and that means every activity that uses productive capital in combination with energy derived from hydrocarbons, most especially manufacturing, but a great many other sectors, as well.”

First appeared in Human Events.

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