Last month, Congress joined with President Donald Trump to deliver a substantial tax cut to the American people. Leaving more money in the hands of the people, instead of under the thumb of government bureaucrats, is always a good idea.
This particular tax cut is already paying dividends as retirement funds and stock portfolios have boomed, corporations are repatriating billions of dollars they sheltered overseas, multiple companies have indicated they are going to invest right here in America with new factories and business expansion, and millions of workers have reaped benefits totaling thousands of dollars each in tax cut bonuses, stock options, etc.
Because of these evident benefits, it might surprise you to hear some liberal governors and members of Congress are already angling to raise taxes once again.
In this essay, I discuss why various proposed carbon taxes can’t work as promised and would be unfair. In the next edition of Climate Change Weekly, I will explain why any carbon tax scheme is doomed to fail and would be immoral.
The governors of Washington and Oregon and Democrat members of Congress are pushing bills to raise the price of energy through a tax on carbon dioxide emissions or by establishing a cap on carbon dioxide emissions and forcing industry and businesses to buy allowances to emit carbon. Capping carbon dioxide emissions and selling allowances to emit certain amounts of carbon dioxide is just a carbon (dioxide) tax by another name.
These tax schemes penalize the use of the cheap, abundant energy sources which built the modern, prosperous economy and are largely responsible for pulling the United States out of 2008 recession. While the rest of the U.S. economy was foundering, the fracking revolution brought about tremendous growth in domestic oil and natural gas production, dramatically reducing energy prices in the process. Lower energy prices helped raise the economy out of the depths of the recession. Energy is the lifeblood of any economy. Economies and people with access to relatively cheap, abundant, reliable energy resources prosper and are freer than those lacking the same. As a result, a carbon dioxide tax is a tax on freedom and prosperity.
In addition, carbon dioxide taxes are regressive, an especially pernicious tax on the poor and those on fixed incomes. A Congressional Budget Office (CBO) report found a $28 per ton carbon tax would cause the burden of energy costs to be 250 percent higher for the poorest one-fifth of U.S. households than for the richest one-fifth because “Low-income households spend a larger share of their income on goods and services whose prices would increase the most, such as electricity and transportation.”
The plans from Oregon and Washington substitute governments’ spending priorities for the people’s, taking money from the poorest among us to fund green energy schemes favored by the wealthy. This makes the carbon tax a transfer of wealth from the poor to the rich.
The state of Washington’s proposed carbon tax would begin at $20 per metric ton emitted in 2019 and increase annually by 3.5 percent. It would amount to a whopping $3.35 billion tax increase over four years, in addition to a 20-cents-per-gallon increase in the cost of gasoline. The new tax revenue would then be used to fund renewable-energy programs—or so proponents claim.
In an effort to reduce regressivity, Sen. Chris Van Hollen (D-MD) and Rep. Don Beyer (D-VA) propose giving taxpayers the money raised from the sale of carbon allowances to industry. The U.S. Treasury department would conduct the emissions auctions, and the IRS would return the revenues to every person with a (valid, one hopes) Social Security number each quarter.
There are multiple problems with this plan. I’ll highlight just a few. First, government rarely leaves a revenue scheme alone for long. Once the federal government starts receiving the revenue, past experience shows us Congress and the President will soon decide to keep some or all of the money to finance their preferred government programs or pay down the debt. After all, gas taxes were supposed to be dedicated solely to funding roads and bridges, but legislators have siphoned money away from highways to finance bike trails, museums, visitor centers, and other programs that don’t help move people down the road quickly and safely. Hundreds of millions of dollars are diverted from road and bridge construction and repair each year, yet legislators complain current fuel taxes don’t raise enough money to maintain or expand basic infrastructure. Highways and bridges crumble while Congress raids the piggy bank to fund pet projects.
There is no reason to think Congress won’t find other uses for carbon tax revenue rather than returning it to the people as promised.
Second, even if Congress keeps its hand out of the till, it’s just a fact some of the money, probably a good portion, will be diverted to the bureaucracies involved in selling the allowances and cutting the dividend checks. No government program is cost-free.
How are we to calculate or track the amount of the dividend each individual should receive from the Internal Revenue Service each quarter? Will the government just give an equal check to everyone with a Social Security number? This would end up shorting some people, including truck drivers and others who use a lot of energy in their daily lives or at work, while overcompensating those who use little energy. On the other hand, maybe everyone will have to use their Social Security cards when purchasing gasoline or paying their utility bills, with the government assuming an additional set amount in payment for the higher costs of food and other goods for which fossil fuels are used in creation and transportation.
The carbon (dioxide) scheme would also result in higher policing costs: the criminal-justice system would have to deal with carbon cheats, efforts by organized criminal groups to profit by creating false Social Security numbers for illegal aliens, and attempts to sell fake carbon allowances to companies. In addition, some companies will almost certainly try to underreport their emissions, necessitating more bureaucracy, investigation, and recordkeeping costs.
Just as with every other government program, there will be huge transaction costs for collecting, tracking, auditing, and archiving taxes paid and rebates paid out. New employees will have to be hired, or existing federal government workers will have to divert their time from other responsibilities to focus on selling carbon (dioxide) allowances, policing the program, and sending out the quarterly dividends.
These and other costs will eat up billions of dollars each year. Unless these costs are paid directly out of the revenues from the sale of the allowances—in which case all the revenues will not be returned to taxpayers as promised—then the government will have to impose other taxes or take on additional debt to pay for the program.
Third, although the fees paid by companies buying carbon allowances could, in theory, be returned to taxpayers, that would still not reimburse people for the higher energy prices they will pay as a result of the program. As fossil fuel use is limited under the carbon cap, more expensive, less reliable, alternative energy sources will have to be substituted. Wind and solar power are many times more expensive, than coal and natural gas, so prices will rise because of the need to purchase allowances and because higher-cost energy sources are substituted, an amount not accounted for in this energy tax scheme.
Whatever the system—a straight tax or a cap and refund system—these government-imposed restrictions on fossil fuel use will cost billions, reducing people’s disposable income and making it harder for U.S. businesses to compete around the world.
— H. Sterling Burnett
IN THIS ISSUE …
Neno Dimov, Bulgaria’s Environment Minister, ascended to the presidency of the European Union’s (EU) Environment Council on January 1. Dimov previously served as Bulgaria’s deputy minister of the environment, from 1997 to 2002, simultaneously serving as a member of the management board for the EU’s European Environment Agency, which is comparable to the U.S. Environmental Protection Agency (EPA). Dimov is unique as an Environment Council president because he is an explicit climate skeptic, or realist.
Like U.S. President Trump, whom he has told the press he admires, Dimov is known for arguing environmental protection must be balanced against economic growth. In his book From Environmentalism to Freedom (2012), Dimov argues EU environmental regulations have gone too far, harming people and the economy for little or no environmental gain.
Forbes reports Dimov has said in myriad interviews the theory of global warming is being used as a tool of intimidation. In a May 2017 television interview, Dimov said, “Climate change is a scientific debatе; there is no consensus, and every part has arguments,” and said he disagrees with the theory. In an online video from 2015, Dimov says global warming is a “fraud … used to scare the people. The melting of the ice will not raise the sea level even a millimeter.” In the same video, Dimov also said, “The main factor for climate change is solar activity.”
Germany is leading a parade of EU member states falling behind in their carbon dioxide reduction goals under the Paris climate agreement. The Wall Street Journal reports Austria, Belgium, Finland, Germany, Ireland, Luxembourg, and Malta have each fallen behind in reducing emissions, with Germany facing the largest gap between commitments and current emission levels. In early 2018, Germany announced it would miss its target of cutting carbon dioxide emissions 40 percent below 1990 levels by 2020. Germany announced in 2016 its emissions rose for the second year in a row, emitting 2.6 million tons more greenhouse gases than in 2015. A government spokesman announced, “The environment ministry is preparing itself to purchase emission allowances from countries that have surpluses in the coming years.”
A report commissioned by the BDI German industry group estimates meeting Germany’s share of the EU’s overall long-term target of cutting emissions 80 to 95 percent below 1990 levels by 2050 would cost Germany $1.2 trillion. This price will rise if Germany’s emissions continue their upward trajectory in the short term.
The Pentagon released its 2018 National Defense Strategy, and for the first time since 2008, it doesn’t mention anthropogenic global warming as a national security threat. The Daily Caller reports the Huffington Post did a keyword search of the National Defense Strategy’s 11-page summary and found neither “global warming” nor “climate change” was mentioned.
In 2008, the Bush administration added global warming to the defense strategy for the first time, with the Obama administration expanding on that in subsequent years. The 2018 report follows the National Security strategy released by the Trump administration in December 2017, deemphasizing climate change as a security threat. The National Defense Strategy’s discussion of energy issues is brief, saying the United States would “foster a stable and secure Middle East” and “[contribute] to stable global energy markets and secure trade routes.”