Prominent right-of-center groups and individuals have floated the idea recently of backing a carbon tax that uses its revenue to offset other taxes or pay down the national debt. But a new industry report casts doubt on the viability of that policy, and the contradictory proposals of carbon tax proponents underscore those concerns.
Many of those proponents have touted right-of-center support for a carbon tax proposal that would use revenue raised for fiscally conservative ends: shifting the tax burden from income (e.g. the payroll tax or the income tax) to consumption, and a reduction in the federal budget deficit.
A report released Tuesday by the Institute for Energy Research (IER) says that such hopes are misplaced. As IER points out,
Even if the carbon tax revenues are initially devoted 100 percent to reducing the burden of other taxes, it would be quite naïve to trust the government to honor this deal forever. It is far more likely that during the next fiscal crisis, the government would raise payroll, income, and/or other tax rates, while keeping the new carbon tax in place.
Indeed, Americans for Tax Reform president Grover Norquist said Tuesday that a full repeal of the income tax would be required before he would consider supporting a carbon tax. Even then, he added, “it would be a foolish and economically destructive thing to do.”
But there is a flip-side to IER’s point: future policymakers could also decide to use the increased revenue from a carbon tax – whether derived from that tax itself or from future hikes in other taxes initially intended to be offset by the carbon tax revenue – to fund other federal spending schemes.
One need only look at the stated objectives of carbon tax supporters to see the irreconcilable views on where its revenue should be directed. While prominent conservative voices have floated the possibility of a revenue-neutral carbon tax, its proponents on the left often see it as a means for further “investment” in green energy companies or technologies.
A new report from the Brookings Institution, for instance, proposes directing some of the carbon tax’s revenue toward “growth-driving tax reductions…or deficit reductions,” but also stipulates that the federal government should “set aside at least the first $30 billion of revenue annually for clean energy- and EE-related RD&D and technology deployment.”
That could make the plan a non-starter, even among conservatives who have voiced tentative support for a carbon tax.
The Energy and Enterprise Initiative, a free-market environmental group headed by former Representative Bob Inglis (R-SC), has been working to get a revenue-neutral carbon tax proposal on Washington’s legislative radar. But spokesman Alex Bozmoski told Scribe that the group would not support any proposal that uses increased revenue to fund greater federal spending. EEI is “adamant,” Bozmoski said, that “Every dollar be returned to the taxpayers.”
That position may be difficult to square with the left’s carbon tax proponents, who frequently cite additional green energy spending as the chief object of that additional revenue.
A sticking point “from an industry perspective,” says David Crane, CEO of taxpayer-backed NRG Energy, is “making sure a significant portion of the revenue raised goes directly into clean energy infrastructure funding.”
Tyson Slocum, director of Public Citizen’s Energy Program, was even more forceful in his assessment:
A primary point of pricing carbon is actually generating the federal revenues needed for sustainable energy deployment and development… A mistake would be using carbon pricing revenues not for assisting with this needed transformation, but rather as a fallacious political plug to make up the financial losses associated with slashing corporate income taxes, estate taxes or other ill-advised tax policy misadventures.
With conservative and liberal carbon tax proponents arguing for different uses of the tax’s revenue, it’s not clear that Congress can muster sufficient support for such a proposal. “No different from Thanksgiving dinner, all of these groups will want a piece of the pie,” said Heritage energy policy expert Jack Spencer.
What’s more, Spencer noted, the potential for directing carbon tax revenues toward various pet causes and groups “would open the flood gates to lobbyists, encouraging more special interests to fight to shield their industries from the harmful effects of the carbon tax.”
While lobbyists are filling up on pie, Americans will be left to face one of the most regressive energy taxes, which will harm the poorest among us most, all while achieving minimal environmental benefits. As most in Washington already know, once the new revenue from a carbon tax begins pouring in the temptation to use the funds to justify additional spending will follow.