Politics & Policy

The Carbon Tax Has Something for Everyone

(Mykhailo Shcherbyna/Dreamstime)
It would help the economy and reduce pollution.

‘There is a tide in the affairs of men which, taken at the flood, leads on to fortune; Omitted, all the voyage of their life is bound in shallows and in miseries.”

The Bard was right, and it is not too much of an exaggeration to say that we have reached just such a point. We have a unique opportunity to end the rancorous debate about climate change, a debate that is poisoning the air — the political air, that is — and inhibiting progress on two fronts: progress on addressing the possibility that we are on the road to a catastrophic warming of the globe, and progress on reforming our anti-growth tax structure, which is so inequitable that it is straining the public’s belief in the fairness of capitalism and what we like to call “the American Dream.” All we need do is stop pretending that the cost of carbon emissions is certainly zero, and that regulation provides a more efficient solution than the market.

It would be simple to build a coalition in support of this move. Start with the president. He believes so strongly that the globe is warming and that disaster awaits that he calls the science “settled.” When anyone disagrees with him, he does what he always does when challenged — attacks them as self-interested defenders of some private interest or other. He long ago proposed a carbon tax, and was turned down by Congress. He recently repeated his preference for such a tax — reflecting, perhaps, his understanding that any edict he issues at next December’s climate summit in Paris will likely not survive his return to private life. A congressionally approved tax, on the other hand, would become part of the legacy he is so eager to create. So Obama’s signature can be counted on.

Conservatives, on the other hand, have always had two objections to pricing carbon. The first is that, like any tax, it would provide funds for a further increase of government spending. But this need not be the case. We can make a carbon tax revenue-neutral by providing a simultaneous reduction in payroll taxes, accomplishing two conservative goals: lowering taxes on work and risk-taking while raising them on consumption.

The second conservative fear has always been that a carbon tax would impede growth, rendering the U.S. uncompetitive in world markets as China went merrily along emitting CO2. The weight of the evidence now suggests that such a fear, while not completely unwarranted, should not be allowed to outweigh the efficiency gains to our economy from substituting a market-oriented tax for far blunter regulation, and from setting the stage for ending subsidies to wind, sun, and other uneconomic schemes.

More important, a review of the rules governing the World Trade Organization suggests that if any country did try to take advantage of an American decision to tax this pollutant, we could impose a tax on imports that would mimic the tax on American manufactures. An exception contained in Article XX of the General Agreement on Tariffs and Trade, the guiding document for the WTO, states, “nothing in this agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures . . . (b) necessary to protect human, animal or plant life or health; . . . (g) relating to the conservation of exhaustible natural resources.”

Note that support for a carbon tax does not require signing on to the new religion of global climate change, which supports government intervention in the economy even if (when) the theoretical models yield to recent reality and start to project a new ice age. Such conservative support would depend solely on a desire to get the economy growing faster by shifting the tax burden from good stuff like work to bad stuff like pollutants.

With Obama and the conservatives on board, we turn to liberal Democrats. They have always worried that any tax on carbon emissions would drive gasoline prices to levels that put a crimp in the budgets of middle-class and lower-income consumers. The recent plunge in gasoline prices should mitigate that fear. More important, a revenue-neutral carbon tax would make possible a reduction in the highly regressive payroll tax, which is taking a bigger bite out of many workers’ take-home pay than are income taxes. Surely that would produce a tax code that is both more efficient and fairer.

As for Republicans, they, and most especially incoming majority leader Mitch McConnell, have a decision to make. Does McConnell really believe he can beat back the war on coal by forcing the president to cap his hyperactive pen, and somehow constrain the EPA? I would doubt it, because the mere presence of such a war, not to mention low prices for natural gas, will deter investment in new coal-mining and coal-burning facilities. True, such a hopeless rear-guard action would win McConnell wonderful headlines back home in Kentucky — until its futility became obvious, as it surely would by the time he next stood for election. Meanwhile, if his colleagues deferred to his wishes, he would tar his party with the brush of narrow self-interest. Better to accept a carbon tax, as a host of oil and energy-using companies have already done, and remove the disincentive to investment in carbon-capture technology that a regulatory strangling of the coal industry is producing.   

Surely all of this constitutes just the tide in our affairs that could lead us, if not to fortune, at least to a better functioning, fairer economy. If you like your reason for supporting a carbon tax, whether it be the need to accelerate growth or the need to save a heating planet, you can keep your reason.

And I promise my patient readers that this is the last you hear from me on the subject of carbon taxes this year.

Irwin Stelzer is a contributing editor at The Weekly Standard, the director of economic policy studies at the Hudson Institute, and the U.S. economic columnist at the Sunday Times of London.


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