There’s No Such Thing as a “Neutral” Carbon Tax

by Fred L Smith on February 25, 2015

in Blog

CO2 tax: bad policy, bad politics (just as ex-Rep. Inglis)

CO2 tax: bad policy, bad politics (just ask ex-Rep. Inglis)

Those favoring larger government are finding it harder to finance them by raising taxes. Proponents have sought to reduce opposition by claiming that they’re not really raising taxes at all—their taxes will be “neutral.” Sure, we’ll take $50 billion or so in taxes from the economy, but we’ll then put it back again in the form of tax reductions or rebates. From a macro-economic perspective, they argue, there will be no impact at all! Why bother, you might ask?

The prime candidate advanced by those seeking to better plan our economy is the carbon tax. We’ll tax carbon and use the revenues to offset its impact. People will use less energy but retain the same income. We’ll change prices without changing income—a highly targeted incentive package! To tax energy users is feasible, although complicated. For example, would our statist central planner simply tax all energy materials? But farmers have traditionally escaped gas and diesel taxes for on-farm use. Will this exemption be repealed?

In many regions, people use natural gas, oil, and electricity (which in turn uses coal, natural gas, and some hydro and nuclear). The prices of some of these energy types is market driven, while others are regulated. The income impact on specific consumers is not easily ascertained nor is the appropriate rebate. The result is that the micro-impact of energy taxes is never neutral. Individuals in areas dependent on coal or oil will lose; individuals in areas where climate or policy has shifted to solar or other renewable energy will gain relatively. And this critique fails to note another problem: the tendency of politicians to use new tax revenues to gain support for the measure.  Since different groups have different priorities, the result is often to “spend” the new tax revenues many times over. Rebates, being complicated and having no strong political champion, are likely to receive low priority.

For more on the folly of a carbon tax, see these excellent posts by my colleague Marlo Lewis:

Gogs February 26, 2015 at 1:03 am

How can you consider a “neutral” tax without including the administration cost?
Take an army of public servants, consider the cost of the office and wages, including long-service leave and superannuation: the mind boggles!

arationofreason February 27, 2015 at 8:17 pm

UNIPCC summary for policy makers AR-5 Technical Summary Report pp. 39; the *measured* average rate of earth heating averaged over the last 39 years is 0.42 watts/m^2. Less than 1/10 of the heating that they show and continually promote in their 1.5 to 6 deg. C temperature models. Don’t these people and the EPA even read their own technical technical summaries?
Tell me again why the EPA is regulating the coal fired power plants.

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