Rumors, arguably more than rumors, have been circulating concerning the possibility of including a tax on carbon (carbon dioxide emissions actually) as part of the grand deal preventing the U.S. from going over the looming “fiscal cliff.” Under this scenario, President Obama would get his increased revenues to pay down the deficit and/or continue funding green energy projects or other programs he favors, and be able to claim he’s doing something to prevent global warming. Republicans could argue that they stuck to their guns and did not allow new “income” tax increases, while still showing they could work with the President through compromise and fix the deficit, avoid defense cuts, and maybe even work a deal for additional tax reductions.
Though I am skeptical concerning whether humans are currently causing dangerous changes to the climate, I have argued in the past that a carbon tax is preferable to cap and trade purely as a mechanism to reduce CO2 emissions. My reasoning was that the tax could, at the extreme be avoided, short of that it continues to allow freedom of choice regarding transportation and electric power as long as one was willing to pay the costs, but most importantly, it was transparent, so people would know exactly who to blame for the increasing costs of energy – Congress and the President, not “greedy” big energy companies. If voters don’t like the tax, they know exactly who to blame and how to remove those who imposed the tax from office.
That having been said, I would argue that a carbon tax is a bad idea and using it as a way to avoid the fiscal cliff is foolish. There is never a good time for a bad tax. And during the U.S.’s ongoing economic malaise this would be one of the worst times to increase the price of energy to business and the general public. Energy, by this I mean energy from carbon emitting fossil fuels, is the foundation of modern society. Every commercial, industrial and retail activity involves energy use. As importantly, almost every individual in the U.S. depends on fossil fuels every day, to heat, cool or light their homes. To cook, to bathe , to travel, not just to work and to and from the grocery store but to their parents, grandparents, children or other family and friends – even if they live along mass transit corridors (which most don’t). Take away fossil fuels and you take away exotic vacations, nighttime city skylines, weekend getaways, recreational boating, eating out at the restaurant you read about across town, family reunions, concerts, festivals and fairs, and little things like comfortable homes, schools, hospitals (not to mention reliable operating rooms and things like respirators, iron lungs, blood pumping machines, etc…) refrigerated and frozen goods, etc… Basically a tax on carbon is a tax on life – try breathing without emitting CO2.
What’s ironic is that carbon taxes, being highly regressive, are the very kind of tax that President Obama and liberal politicians claim to loathe and swear never to enact – a tax that disproportionately harms the poor. Why? Because as I and others have written before, the poor spend a greater proportion of their income on food (which is grown and delivered using fossil fuel energy) and fuel than the relatively rich. Under current economic conditions, many poor and those on fixed incomes are struggling to pay their mortgages and have to debate every month which bill to pay and when and which to put off and suffer the late-notice letters and calls. People die every year when they can’t pay their power bills and have their heat turned off during the depths of winter or air conditioning turned off during a heat wave. Others die, not because their power was turned off, but because they turned the heater or air conditioner off to save money to help them pay their other bills. For the poor, a carbon tax is the worst tax I can imagine.
Proponents of a carbon tax/fiscal cliff fix might argue that the tax can be made revenue neutral by providing energy tax credits or by cutting checks to everyone facing a tax increase due to the new carbon tax. Either option is as bad as or worse than the original idea itself. First, from a climate change point of view, if the government allows a tax credit or cuts a check for the energy cost increase to drivers/homeowners, then the incentive to reduce energy use, and thus the amount of emissions reduced becomes negligible since the credit or check can then be used to buy more fuel or continue heating or cooling as usual. In addition, if the revenue is returned to the public then new revenues are unavailable to either cut deficits or prevent cuts to programs. In addition, there is a new set of economic losses, since the new bureaucracy or the existing agencies with expanded responsibilities which would be needed to avoid cheating (or to catch and prosecute it when it takes place), calculate the tax savings/payment and send the check will simply be another black hole to pour money down. New bureaucrats, functionaries and government fiefdoms will be born, with the money used to fund them drained out of the economy reducing innovation and the creation of new life saving or life enhancing goods and services.
To misquote a good song, “Carbon taxes, ooohhhh! What are they good for, absolutely nothing! Say it again!