Research & Commentary: Carbon Tax Swaps

Published August 6, 2012

Carbon taxes have regained traction with several prominent Republican lawmakers and political leaders publicly voicing support for a “revenue-neutral” carbon tax in exchange for tax cuts on capital or investments. Most notably, a new political interest campaign led by former Congressman Bob Inglis (R-SC), the Energy & Enterprise Initiative, is working to generate bipartisan support for a carbon tax to be offered in the lame duck session of Congress.

Inglis is joined by Art Laffer, former economics advisor to President Ronald Reagan. Although Laffer says he has “no clue” about global warming, he argues a tax on carbon dioxide emissions would be less damaging to the economy than a tax on income and is thus a revenue-neutral way to increase economic output while averting any risk from manmade carbon-dioxide increases.

Heartland Institute experts regularly have challenged the alleged long-term revenue-neutrality of tax swaps. Research Fellow Steve Stanek states, “We should never support a new tax in exchange for a cut in an existing tax because experience shows the new tax will be permanent and the cut in the other tax will be temporary.”

The claimed need for forced carbon dioxide reductions by the United States is also dubious. The International Energy Agency (IEA) states U.S. carbon dioxide emissions have fallen 7.7 percent since 2006, the largest reduction by any nation, yet this had little to no appreciable effect on global carbon dioxide emissions. IEA found the reduction in U.S. carbon dioxide emissions is largely due to the ongoing switch from coal to natural gas in electricity generation.

Also, as Heartland Institute President Joseph Bast notes, “Carbon dioxide is not a negative externality, it is a measure of energy use, and energy—as Julian Simon and others have pointed out—is the ‘master resource,’ the single most important input into our economy, the source of prosperity, innovation, and opportunity.”

Instead of adding a new tax, elected officials should keep taxes at low, competitive rates applied to a broad base. If we truly want to cut carbon dioxide emissions, we should develop our nation’s abundant natural gas resources, which will be much more effective than a burdensome tax in protecting the environment, lowering unemployment, and spurring economic productivity.

The following documents offer additional information on carbon taxes.

Ten Principles of Energy Policy
In this Legislative Principles booklet, Heartland Institute President Joseph Bast identifies the ten most important energy issues facing the nation and outlines the energy policy actions that will lead to the highest, most efficient production at the lowest cost to consumers. 

Dissecting the Carbon Tax
American Enterprise Institute Resident Scholar Kenneth Greene tells how he was first deceived by the supposed economic benefits of carbon taxes and how his views have evolved in light of the dubious track record of other eco-taxes being raided for general spending. 

Inside the Strange World of “Green Energy” Politics and How it’s Ruining the U.S.
Manhattan Institute Senior Fellow Robert Bryce recounts how the shale gas revolution and the power of market forces have lowered U.S. greenhouse gas emissions far more quickly and cheaply than expensive and burdensome mandates, taxes, and cap-and-trade schemes could do. 

Kansas Legislature Was Wise to Reject Carbon Tax
Writing in the Heartlander digital magazine, Cato Institute Senior Fellow Patrick Michaels discusses a Kansas state bill on carbon dioxide emissions. If the bill’s costly provisions were applied to every country in the world that signed the 1997 Kyoto Protocol, the law would prevent 0.27 º F of warming per century, a figure too small to even measure, Michaels reports. 

A Primer on the Economics of Carbon Taxes and Cap-and-Trade Systems
Economist and Heartland Institute Board Member Jim Johnston analyzes the pros and cons of the two most prominent government proposals to combat carbon dioxide emissions: cap-and-trade schemes and carbon taxes. 

White Paper on Global Climate Change
In a 38-page white paper on global climate change, Heartland President Joseph Bast devotes considerable discussion to the inherent shortcomings of a carbon tax, including the improbability that a politically determined tax level would achieve significant carbon dioxide reductions and internalize the unknown costs to society posed by CO2 emissions. 

Heartland Institute Announces Its Opposition to Carbon Taxes
Heartland Institute experts respond to a new, apparently bipartisan campaign to promote a carbon tax swap during the upcoming lame duck session of Congress, citing the poor track record of tax swaps, unaddressed spending problems, and skepticism toward claims of an imminent manmade global warming catastrophe. 

Global Carbon Dioxide Emissions Increase by 1.0 Gt in 2011 to Record High,27216,en.html
The International Energy Agency releases key findings from its signature report, World Energy Outlook 2011, including the United States’ world-leading reduction in carbon emissions failing to prevent a record high in global carbon emissions from fossil-fuel combustion. 

For further information on this subject, visit the Environment & Climate News Web site at, The Heartland Institute’s Web site at, and PolicyBot, Heartland’s free online research database, at

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, contact Heartland Institute Policy Analyst Taylor Smith at [email protected] or 312/377-4000.