Early in President Obama’s first term the forces of common sense beat back what might have been one of his most dangerous policy priorities—the introduction of a cap-and-tax system for carbon.
Carbon taxes are a pet project of not just the radical environmentalists and the climate change alarmists, but also of those Government Class social engineers who like to use tax and other policies to shape society in the direction they think it should go. Because they know best, you see. They’re in the government.
And it’s not just the left that’s pushing. Some on the political right have also joined the chorus.
But a tax on carbon is a terrible idea, for several reasons.
Almost everything that is wrong with tax policy in this country is because someone wanting to encourage or discourage some practice, product or industry introduced a credit, deduction, penalty, or favorable tax rate. The result is an accumulated landfill of policies, many of which are contradictory or at least inconsistent. And according to a recent analysis by the Mercatus Center, complying with such a tax code is a deadweight loss of almost a trillion dollars each year to our economy.
The purpose of tax policy, as IPI has long said, is to raise the necessary revenue to fund government while introducing as few distortions in the economy as possible. A good tax code should not attempt to manipulate anyone’s behavior or decision making—it should stay in the background and out of people’s lives as much as possible.
The carbon tax, of course, would specifically introduce a strong distortion designed to manipulate the decisions made in the marketplace. It would be perhaps the worst example yet of economic engineering and manipulation through the tax code.
A carbon tax would also be terrible domestic policy. It’s becoming clear that the United States may be the nation on earth most blessed with energy resources. We’re the “Saudi Arabia of coal,” we’ve long known, but it turns out that we’re the Saudi Arabia of natural gas and maybe even of oil. The world has changed dramatically since the oil shortages of the 1970s, yet our policy making has yet to recognize and adapt. The U.S. could be the major exporter of oil, natural gas and coal in the world.
And, of course, the United States has pioneered and largely achieved the responsible use of fossil fuels, having met our proposed Kyoto Treaty targets without ever signing the treaty.
For us to place a punitive tax on carbon would be like Brazil putting a punitive tax on beaches.
September 25, 2013