Don't Let "Party Elders" Fool You on Carbon Tax

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If the 2016 election proved anything, it’s that our nation’s best and brightest are far less capable of predicting and managing complex change than they like to tell themselves.

It’s a lesson that has been a long time coming. From a financial crisis that wrecked all the best models designed by the smartest minds on Wall Street to the collapse of a health care overhaul designed by the pointiest heads in Washington, events have long been conspiring to warn policymakers against their own hubris.

One would hope, then, that Washington might have made a collective New Year’s resolution against grand plans built on overconfident assumptions. Yet, some within the Republican establishment – the very people who proved least capable last year of responding to unpredictable events – seem inclined instead to double down on the worst instincts of those in power, conspiring in back rooms to impose yet another wrongheaded technocratic policy: a new carbon tax.

Conservatives have long opposed a carbon tax for the same reason we oppose tax increases generally: They grow government and throw a wet blanket on the economy. A carbon tax would maximize both negative effects. After an election year dominated by talk of the decline of American industry, it would strike a major blow to already weak manufacturing sector and would continue the Obama Administration’s eight-year-long assault on coal country – an assault President Trump commendably promised he would end.

Moreover, compared to the income tax with which Americans are most familiar, it would be barely visible and therefore be easy to raise. According to press reports, the carbon tax currently being contemplated would already raise $3 trillion in ten years, and its advocates insist that even this tax would be only a starting point. Say goodbye to fiscal restraint when this kind of cash comes pouring into Washington.

The tax’s proponents claim it will be revenue neutral, that the money generated would be returned directly to American taxpayers in the form of a rebate. Not only would this be next-to-impossible to implement as intended, it would almost certainly be subverted to other political considerations.

As David Kreutzer and Nicolas Loris of The Heritage Foundation point out, such grand plans ignore obvious political economy problems: “Just the sniff of a new revenue stream to the tune of hundreds of millions of dollars annually has the special interests in Washington running to Congress for more handouts. Before carbon tax legislation has even been introduced, ideas on how to use the revenue already include income transfers, paying for defense spending cuts, reducing the deficit, transferring money to developing countries to adapt to climate change and the list goes on. History shows that any time more money comes into the coffers of the federal government, there is a political interest to spend it one way or another.”

But set aside that concern and we’re left with a deeper problem with the carbon tax. It’s built on an elegant economic model, one that assumes that the negative costs to society of carbon emissions aren’t properly captured by consumer and producer preferences and the price system. Such a disparity between social cost and price paid can only be remedied by government, the theory goes.

But it has a flaw: What if you get the externalities wrong in determining and incorporating the social cost of carbon into the tax? With a problem as complex as climate change, one influenced by not just a multiplicity of complex environmental costs accumulating on non-linear trajectories (in contrast to the simplicity of the tax designed to approximate these costs) but also by the international politics of carbon control, it’s almost inconceivable that policymakers would get things quite right. And rarely mentioned is the other side of the coin, the potential positive externalities of carbon, some of which are manifested in hard-to-quantify ways – the health of the communities and ways of life that would be wiped out by a heavy carbon tax, for example.

“Simply put, the carbon tax is a shell game,” writes Oren Cass of the Manhattan Institute. “The insubstantial effect on emissions gets obscured by discussions of the fiscal benefits. The negative fiscal effects get offset by claims of environmental efficacy. The tax's simplicity and practicality are touted, even as new complexity is introduced to address each flaw. The same revenues are rhetorically spent to achieve multiple ends, even as the different promises made to each constituency would be rejected by the others.”

Conservatives, don’t let the Republican establishment fool you. Technocratic meddling is a game we lose the moment we start playing it.

Michael A. Needham is chief executive officer of Heritage Action for America.

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