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.