Should We Give Politicians a Carbon Tax as a New Source of Revenue?

I’ve written many times about the dangers of a value-added tax. I obviously think it’s a bad idea as an add-on tax, but I also think it’s dangerous as a replacement tax.

Not because it’s a horrible tax from a theoretical perspective (like the flat tax and national sales tax, it’s a single-rate system with no double taxation of income that is saved and invested), but instead because I don’t trust politicians.

The VAT in Europe, for instance, almost surely played a role in enabling the huge expansion in the burden of government spending – thus helping to set the stage for the current fiscal crisis.

All these arguments also are equally relevant to the debate about imposing a carbon tax.

As with the VAT, there are features of a carbon tax that make it a less-destructive alternative when compared to other forms of taxation. The problem is that politicians wouldn’t permanently lower or eliminate any other tax, and the new revenues would be used to further expand the size and scope of the federal government.

Andy Quinlan of the Center for Freedom and Prosperity discusses the issue in a column for Forbes. Here are some key excerpts.

With the economy sputtering toward what can at best be described as a meager recovery, it seems like an obviously poor time to consider raising taxes on any form of energy. …Yet that is also precisely what an unholy coalition of big spending liberals and misguided conservative economists is proposing – to raise taxes on carbon and send the economy spiraling toward another recession. Last month, Rep. Jim McDermott (D-WA) introduced the “Managed Carbon Price Act of 2012,” a bill that would require greenhouse gas emissions to be reduced by 80% from 2005 levels over the next 42 years – ultimately leaving the United States with per capita emissions levels lower than that of Haiti today. …At the fifth annual National Clean Energy Summit held in Las Vegas last month, Senate Majority Leader Harry Reid expressed his hope of enacting a carbon tax by next year. Senate Environment and Public Works Chairman Barbara Boxer went as far as to say that she would like to see it included in a year-end budget deal. …The motives of the left in pushing for a tax are easy to understand, they want more “revenue” to spend. A recent paper from the MIT Global Change Institute estimated one carbon tax proposal would generate $1.5 trillion over ten years, and politicians and the media immediately began to salivate at the idea of using such a tax as an excuse to further expand the burden of government spending. …If the political climate was such that cap-and-trade or other big government carbon regulations were on the horizon, proffering a more economically efficient carbon tax as an alternative might not be a bad strategy from a do-the-wrong-thing-in-the-least-destructive-fashion perspective. But that is not the case. …More generally, the very idea of offering a new tax in exchange for lower rates elsewhere is flawed. Even if leftists agree to lower taxes on income to keep a new carbon tax revenue neutral, there’s nothing to stop them from raising rates in the future. On the other hand, given the love politicians have for taxes, eliminating an entire tax would be much harder. A similar logic can be seen in the experience of Europe, where less economically destructive value-added taxes did not replace income taxes, but instead helped usher in the bloated, unsustainable European welfare states which are today circling the drain.

Wow, Reid, Boxer, and McDermott. That’s like the Three Stooges of Statism.

But this isn’t a laughing matter. Politicians would love to get their greedy hands on $1.5 trillion of new tax revenue. And Quinlan points out in the article that some Republicans are sympathetic to the idea.

Keep in mind, by the way, that $1.5 trillion would be the floor, not the ceiling. As we’re seeing in Japan, politicians can’t resist boosting the rate whenever they want to spend more money.

P.S. Read this if you want to see what happens when politicians get a new source of revenue.