In response to the Waxman-Markey cap and trade bill to reduce carbon dioxide and other greenhouse gas emissions, GOP lawmakers Bob Inglis of South Carolina and Jeff Flake of Arizona are set to introduce carbon tax legislation.
A carbon tax is a direct, more predictable tax on carbon emissions, but that does not make it any more acceptable. Proponents argue that it is better than a cap and trade because it will not unpredictably fluctuate with the ebbs and flows of the market as evidenced by Europe’s carbon trading problems.
Regardless of the efficiency of a carbon tax, any tax to reduce carbon dioxide similar to those proposed in cap and trade would cause significant economic damage and would do very little to reduce global temperatures. Furthermore, the economic pain of higher energy prices will reduce disposable income for other goods and services. Once the economy expands, bureaucrats would likely raise the tax on businesses, which would ultimately be passed on to the consumer.
As with a cap and trade bill, America’s poorest would be hit the hardest. Congress would likely tinker with income tax policy further, making it even more regressive to compensate while increasing the overall burden on Americans in the same way Europe has tinkered with its systems to compensate for the regressive effects of its insidious value-added tax.
Many proponents of a carbon tax emphasize that the economic burden would be less if the plan were coupled with a reduction in the capital gains tax or the payroll tax. Although cutting taxes further would encourage entrepreneurial activity and investment in labor and capital, this would do little to offset the high energy prices that fall particularly hard on low-income households. Higher energy prices would reduce economic activity by forcing businesses to cut costs elsewhere, possibly by reducing their workforce. Regardless of how policymakers implement a national energy tax, it is inherently flawed.