Malo periculosam, libertatem quam quietam servitutem.



January 2015

The Carbon Tax Schism

Written by , Posted in Taxes

The center-right tends to be united on issues of taxes. We’re against them. But there’s a push from some among this coalition – like the R Street Institute, and the newly formed Niskanen Center – to put a tax on carbon. Do they think Americans need to be taxed more? Have they been bought out? Have they suddenly gone insane? The answer to all three is absolutely not. Their arguments are based on the presumption that burdens can be shifted from economically destructive taxes like those on income and capital and put on far less destructive, and perhaps even beneficial, taxes like those on carbon. In theory I agree, but political reality must be taken into consideration.

The economics are sound. The politics are not. The problem is that any gains would only last until the next Democratic majority, which would raise the income/capital taxes right back to their previous level or higher. Then we’ll have our current taxes plus a carbon tax. And that’s a step back, not forward, for advocates of limited government.

I explain more in depth in my recent column for EveryJoe:

To understand where they go wrong, we must first consider the case for a carbon tax. Obviously, supporters start from the assumption that carbon is bad and that we want less of it; if they thought otherwise we wouldn’t be having this discussion. In economic parlance, they identify carbon production as a negative externality, meaning it places costs on those not involved in the economic transaction from which it was produced…

The most market-friendly solution … is the Pigovian tax. Simply put, by taxing activities responsible for negative externalities, market participants are forced to price in its full costs, thereby reducing supply and correcting a market inefficiency.

…After carbon taxes are collected, conservative supporters argue they can be used to reduce other, more destructive taxes. As mentioned, when you tax something, you get less of it. This means that taxes on things that are good – like work, savings or investment – are particularly harmful to the economy. Replacing taxes on good things with taxes on bad things thus makes a lot of economic sense. Unfortunately, it’s just not that simple.

You can read the rest here.