Planet Gore

Doug Holtz-Eakin on Cap-and-Trade

ICYMI, Doug Holtz-Eakin writes in The Corner:

Beware Liberals Bearing Miracle Cures: Blinder’s Case for a Carbon Tax

My graduate-school professor Alan Blinder took to the pages of the Wall Street Journal today to extol the job-creation virtues of a carbon tax: “The ‘bang for the buck’ from a phased-in carbon tax would be infinite at first: lots of jobs at zero cost to the federal budget.”

Wow, that sure sounds good. Unfortunately, it ignores some Economics 101.

Only in a government-centric view of the universe would something be “free” because it has no budgetary impact. It is costly — very costly — to change from one energy portfolio (and the infrastructure that supports it) to another. Period. Nobody should pretend otherwise. A principled argument would acknowledge this cost and provide convincing evidence of compensating benefits , and certainly any argument should propose keeping the costs as low as possible. So it is curious by omission that Professor Blinder does not mention the need for complete pre-emption of provisions of the Clean Air Act (and Clean Water Act, and Endangered Species Act…) that lead to draconian command-and-control outcomes. Why argue for markets and then chain them to regulatory anchors?

Worse, Professor Blinder’s argument is a classic Politics 101 bait-and-switch. He pays lip service to the need to cut spending in the future (“lower spending as shares of GDP”) but argues for passing a tax increase right now. This would inevitably reduce pressure for needed spending discipline over the near term, lead to a permanently higher level of spending and taxes, and harm U.S. growth and competitiveness.

Professor Blinder could have solved this probably by arguing that any carbon-tax revenues should be deposited into a trust fund that could be used for a single purpose: cutting payroll and corporation taxes. That way, the carbon tax would not cause government to grow, and would in a single stroke address the competitiveness and fairness issues usually associated with a carbon tax. Low-income workers would get a tax cut to offset higher traditional-energy costs, and U.S. corporations would get agreed-upon relief from the onerous U.S. corporation income tax.

The rest here.

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