Sunday, May 03, 2009

Why Conservatives Should Support a Carbon or Gasoline Tax

While the carbon tax is often thought of as a liberal idea, it makes sense for conservatives as well. Instead of explaining why, I will let them do so.

Arthur B. Laffer & Bob Inglis state why they could support a carbon tax:

Fiscal conservatives would gladly trade a carbon tax for a reduction in payroll or income taxes, but we can’t go along with an overall tax increase.

The good news is that both Democrats and Republicans could support a carbon tax offset by a payroll or income tax cut. Former Vice President Al Gore has argued for eliminating all payroll taxes and replacing them with “pollution taxes.” He said in a speech at New York University’s law school two years ago: “It would be, in other words, a revenue-neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.”
Greg Mankiw, Bush's Chairman of the Council of Economic Advisers calls this The Create-Jobs, Save-The-Environment, Reduce-Traffic-Congestion, Budget-Neutral Tax Shift.

Charles Krauthammer further explains the benefit of a gasoline tax:
A tax that suppresses U.S. gas consumption can have a major effect on reducing world oil prices. And the benefits of low world oil prices are obvious: They put tremendous pressure on OPEC, as evidenced by its disarray during the current collapse; they deal serious economic damage to energy-exporting geopolitical adversaries such as Russia, Venezuela, and Iran; and they reduce the enormous U.S. imbalance of oil trade which last year alone diverted a quarter of $1 trillion abroad. Furthermore, a reduction in U.S. demand alters the balance of power between producer and consumer, making us less dependent on oil exporters. It begins weaning us off foreign oil, and, if combined with nuclear power and renewed U.S. oil and gas drilling, puts us on the road to energy independence.

High gas prices, whether achieved by market forces or by government imposition, encourage fuel economy. In the short term, they simply reduce the amount of driving. In the longer term, they lead to the increased (voluntary) shift to more fuel-efficient cars. They render redundant and unnecessary the absurd CAFE standards--the ever-changing Corporate Average Fuel Economy regulations that mandate the fuel efficiency of various car and truck fleets--which introduce terrible distortions into the market. As the consumer market adjusts itself to more fuel-efficient autos, the green car culture of the future that environmentalists are attempting to impose by decree begins to shape itself unmandated.

Oil prices are in a historic free fall from a peak of $147 a barrel to $39 today. In July, U.S. gasoline was selling for $4.11 a gallon. It now sells for $1.65. With $4 gas still fresh in our memories, the psychological impact of a tax that boosts the pump price to near $3 would be far less than at any point in decades. Indeed, an immediate $1 tax would still leave the price more than one-third below its July peak.

A $1 increase in the federal gasoline tax--together with an immediate $14 a week reduction of the FICA tax. Indeed, that reduction in payroll tax should go into effect the preceding week, so that the upside of the swap (the cash from the payroll tax rebate) is in hand even before the downside (the tax) kicks in.
As long as this tax is paired with an income tax cut, there is no reason conservatives shouldn't support it. Even if you don't believe that humans or CO2 have an impact on global warming this is still a good thing for the economy as it shifts from taxing labor to taxing natural resources, many of which are imported. Making labor cheaper will increase the rate of employment.

This tax shift makes sense to liberals. This tax shift makes sense to conservatives. But still this tax shift has little hope of passing.


CTF said...

I could not agree more that a revenue-neutral carbon tax could and should be supported by members on both sides of the aisle; most leading scientists, economists and opinion leaders are lining up in support, pols cannot be far behind. But I don't necessarily agree that it has little hope of passage...cap and trade seems to be taking on water at an incredible clip and the Ways and Means committee is working on a carbon tax as the alternative...

Fat Knowledge said...


I hope you are right.

most leading scientists, economists and opinion leaders are lining up in support, pols cannot be far behind.Maybe, but if the opinion polls don't support it, then I am not sure the pols will.

I do agree that there is a decent chance of a Cap and Trade passing, but I am afraid that it will be a watered down one with lots of free permits given away. I am not too impressed with what has happened in Europe with their system. Doesn't seem like there have been much cuts made in emissions and prices for carbon have been all over the place, making it hard for businesses to plan for the future. And if there really are costs of carbon associated with it to make it similar to a tax, I think that the Republicans will be able to fight against it just as if it was a tax.

I would still prefer the carbon tax over C&T as it makes it easier for businesses to plan. But, a well implemented C&T could get very close to what I would like seen done.

I hope you are right, but I wouldn't be surprised at all if a bad C&T bill gets passed that sounds good but doesn't get the job done.

Fat Knowledge said...

Looks like it might pass in China before the US.

CTF said...

Again, I agree with you--the more giveaways that are given to buy the support of moderate and Rust Belt Democrats, the less effective the bill as a whole. Here's to hoping that a carbon tax continues to gain momentum...

Audacious Epigone said...

I imagine opposition is based more on residency than along political lines, or at least will be in the future (although that proxies to some extent along political lines in itself). Great idea if you live in DC, because other people will pay more for it than you will. Terrible idea if you live in western Montana.

Fat Knowledge said...


Interesting point. Basically if you use lots of fossil fuels or gasoline then you would end up paying more taxes and be against it, while if you don't you are for it.

While that makes sense, it seems like the opposition I have heard is more along the lines of a simplistic "tax is bad". And the gasoline tax hits some psychological nerve with people as they purchase gasoline a couple times a week and see exactly how much they are paying. I don't think many people really think about it rationally about how much they would lose on one hand and gain on the other, but maybe I am underestimating people.

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