We support a modest carbon tax that would be coupled with entitlement reform and eliminating subsidies for alternative energy. Robert Bryce at NRO tries to harsh our Patriot buzz when he identifies three major problems with a carbon tax:
- It is regressive
- It will be lobbied heavily
- International stuff:
- Tariffs on imported carbon
- Free riders
We think that our proposal has taken care of the regressive issue. By eliminating the gas tax it substitutes one regressive tax for another. The exact rate for the carbon tax might be less than the current gas tax so there is little impact on lower income folks. In addition by eliminating subsidies and requirements for alternative energy the net impact on heating bills will be small and in an uncertain direction. Of course, an important part is to keep the carbon tax modest.
Robert is exactly right that any tax will be heavily lobbied. The danger that worries us most is an onerous carbon tax. We need to expect something from our Congress Critters on both sides of the aisle. We agree with Robert that this is a big ask but they really need to earn their pay.
We don’t care about the free rider issue. This is about US policy that would move in the right direction on climate change. As Robert points out it is hard to get the world to agree. We care about US policy. At first glance tariffs on imported carbon make sense but we are open other views. We are highly unimpressed with the argument that the arithmetic is too hard. We think that the US government can find somebody to do the arithmetic if imported carbon is to be taxed. If we can figure out state taxes for people like Tom Brady, who played in nine different states (ten if preseason matters for taxes) this year, we can do carbon. But Robert has broached the real question: can we get it passed? We are pessimistic but we also remember that the Patriots were trounced in their only two Super Bowls in the last century but have won six this century. We are not expecting Congress to become the Patriots of the current century but we can hope for improvement.
Both Jonah Goldberg and Jim Geraghty’s Jolt are on the Green New Deal this week. At first glance it seems like a real waste of talent (leave the low hanging fruit for MWG!) to deal with an obscure and silly document from the Green Party of all places.
Sidebar: As Jim says, you should read it. See the cite above. It is much worse than you could imagine. End Sidebar.
But as MWG recently warned, folks are going to try to ignore the important issue of entitlement reform and replace it with climate change. Jonah and Jim are on the case because of a new press favorites has supported it.
We suppose there is some chance that the Congress could pass something as foolish as the Green New Deal but the more likely problem is that the pressure put on by the crazies will cause Congress to feel that it must do something. We see a situation similar to 2005 that led to the Energy Policy Act of 2005 and to the ethanol mandate. Although W and the GOP held both houses (well, they added four in the Senate) of the Congress in 2004, there was pressure to do something about what was then called global warming but we now call climate change. Evidence of the pressure is Al Gore winning the Nobel Peace Prize in 2007. We did not make that up.
We are of two minds about the 2005 Act. As a binary choice we would vote against it. The ethanol mandate interferes with markets. As we would have predicted, it has caused problems for both gas and corn. But it wasn’t a binary choice. There was lots of pressure to do something about climate. Our view is the the 2005 Act took the wind out of the extremist’s sails. Without the 2005 act it is possible that something really nasty would have passed Congress. In 2018, the situation is even more troubling as the Democrats control the House.
Therefore, it is good that Jim and Jonah are out in front giving the Green New Deal the opprobrium it deserves. It is just as important that Kevin is on the entitlement beat again and again. MWG tries to help. We think the events of 2005 are likely to recur and Congress will feel great pressure to do something. Unfortunately, we have The Donald rather than W. Conservatives may have some difficult decisions about what is the least worst option. Our best chance is to make it clear what a really, really bad idea the Green New Deal is and the importance of dealing with debt and entitlements. Thanks to Jim, Jonah, and Kevin for a good start.
Jim Geraghty’ Jolt reminds us that government workers are in a difficult situation during the shutdown. We agree with him when he says:
You’re seeing some conservatives argue that the American government is functioning fine during the shutdown, demonstrating that the “nonessential” workers are genuinely unneeded and that this proves that there’s no real need to bring the shutdown to an end.
This is a pretty poorly informed reaction. Some of the most important duties of the federal government are continuing to function because hundreds of thousands of federal employees are working without pay and hoping that they get paid for their labor once the shutdown ends.
Kevin Williamson reminds us that there are much bigger problems out there. As he puts it he shutdown is a blip and the debt crisis is an atomic bomb. Kevin notes that government jobs are more highly paid than their private sector counterparts. Kevin is right but there are two problems with his comment. He doesn’t cite his source but is likely that a substantial part of that difference is post-employment income that can’t be used to buy peanut butter. The fact that we have our Medicare supplement paid for until we are 115 is great now but didn’t make it any easier when we were an assistant professor making five figures. The second part is connected to our low salary early in our career. Most of us, and certainly almost all government workers, have life cycle earnings that start low and increase over time. The new employees now have the same problems we had 40 years ago. Conservatives need to have some sympathy for federal workers. We need The Donald and Nancy to work out their problem and get on to the serious stuff.
The serious stuff, as Kevin tells us, is the combination of government debt and entitlements that he refers to as the debt crisis. If you are worried about climate change then you should be terrified about the debt crisis. The math for climate change is very complicated, the evidence is mixed (we will agree it tends to support it), and the sign of the net outcome is uncertain. That is, there are positive outcomes from climate change like longer growing seasons as well as negative outcomes. It is also likely but not certain that any solution to climate change will become cheaper later. It is certain that solutions to the debt crisis get more expensive every hour. Kevin puts the fiscal crisis like so:
Which is to say: If the federal government does not do something to reform its long-term finances, then a fiscal crisis of some sort is inevitable. No one knows exactly what it will look like, and no one knows what the consequences will be when a country responsible for about a quarter of the human race’s total economic output becomes insolvent. Hard to say, really, how that will shake out. Safe to say it will be ugly.
There are three main parts to the problem: government debt, Social Security, and Medicare/Medicaid. Social security we can solve this evening. The other two are very difficult problems. We need means testing for Social Security. If we are going to solve it this evening we need to start phasing in means testing now. The challenge is devising the means testing system. Something from your individual tax return like Gross Income or Taxable Income seems like an obvious choice but individuals can have assets or income that are not taxed. Let’s suppose that Warren Buffett is not paid a salary. How can we see that one of the world’s richest men does not get a social security check? it might take slightly longer than this evening but we can get it done this year. Let’s deal with the shutdown and start on the serious problems and take care of the easy one first.
Yesterday we continued our support for a carbon tax to replace the current federal gas tax. Our back of the envelope estimate was that a carbon tax of about $20 per ton would be equivalent to the current federal gas tax of $0.184. Of course, because the left would love to have a carbon tax we agreed with Holman W. Jenkins, jr. that the right is in a good position to negotiate. The responsible spending should include other tax cuts.
Here is how the negotiations start. Transportation emits about 28 percent of US carbon and motor vehicles are about 83 percent of that so a revenue neutral replacement of the gas tax would be a carbon tax of roughly $5 per ton. The negotiation space is what can we get for the additional carbon tax of about $15 that would gas prices unchanged. Our confidence in the GOP in negotiating for the right is limited but this is one they should be able to get a reasonable deal. It won’t be perfect and some folks will be worried about introducing a new tax but we think it is worth the risk. That is how we see politics working. You rarely get something for nothing. Here we could get much for some mild uneasiness.
One of our favorites, both for her name and her writing, is Mary Anastasia O’Grady. She writes about the Americas for the WSJ. Often it is South and Central America but recently she took the Trudeau Administration in Canada to task:
Canadian Prime Minister Justin Trudeau’s Liberal government announced last month it will reduce a carbon tax on industry that is set to go into effect next year.
We support an carbon tax in the US. Has this change our thinking? No. We still support a carbon tax that replaces the gas tax at an equivalent rate. Canada has a higher gas tax than the US. The average Canadian tax is C$0.958 or $0.73. The average in the US is $.04944. Justin has proposed a new carbon tax without, it appears, eliminating the gas tax as we would:
The initial carbon-tax proposal, which takes effect next year, promised to levy companies on 30% of their emissions at 10 Canadian dollars (US$7.66) a metric ton, rising to C$50 a metric ton in 2022. [It appears that the final tax is on all carbon emissions.]
So the tax goes from C$3 (C$10 * 30%) to C$50. That is a big percentage increase over four years but does it matter? It takes a little over 110 gallons of gas to create a metric ton of carbon. To make the computations simple, let’s call it 100 gallons and then the cost per gallon is C$.03 and C$0.50 and, the federal government will be awash in cash when the tax is fully implemented. Governments awash in cash need to find activities to spend it.
The problems are that Justin and friends are increasing taxes and regulations at the same time The Donald is generally, yes tariffs are a problem, making the US more attractive to investment. Fifty bucks a ton is a pretty big tax.
We still support eliminating the federal gas tax ($0.184) and replacing it with an equivalent carbon tax. That would be about 110 * $0.184 or about $20 a ton. It would leave the price of gas unchanged while making incentives right. Yes, we know that in Australia a carbon tax of AUD 23 caused a firestorm and was repealed. We still think the trade-off makes sense.
It would also be revenue positive. Will the US federal government find a way to use it responsibly? We think it is possible.
Holman W. Jenkins, Jr. writes Fuel-milage Rules Are No Help To The Climate at the WSJ. As always, read the whole thing. It ties together two of our pet topics: regulations and taxes. We recently gave our lukewarm support for The Donald revising his predecessor’s Corporate Average Fuel Economy rules (CAFE). We preferred eliminating them entirely but recognized that The Donald would make them less negative. Holman also recognizes the negative political impact on our ability to make climate improvements:
But don’t the fuel-economy rules at least have symbolic value by showing the U.S. leading on global warming? If, in return for zero climate benefit, American consumers and auto makers shoulder hundreds of billions of dollars in inefficiency-producing, consumer-dissatisfying costs, how does this encourage the body politic to be more receptive to further climate policies? It doesn’t.
We have supported replacing the current gas tax with a carbon tax because it is much broader it would raise revenues and get incentives right. Holman is taking a New York Times Magazine screed to task while he recognizes that the carbon tax is a useful tool for climate change that could appeal to both sides of the aisle:
If the Times is looking for a folly, this is it. The green movement’s resort to hysterical exaggeration and vilifying skeptics buried any hope of enacting the one policy that is nearly universally endorsed by economists, that could be a model of cost-effective self-help to other countries, that could be enacted in a revenue-neutral way that would actually have been pro-growth.
A carbon tax remains a red cape to many conservatives [not us] but, in fact, would represent a relatively innocuous adjustment to the tax code. It could solve political problems for conservatives (who want a tax code friendlier to work, savings and investment) as well as for liberals (who want action on climate change).
Well said. We are not sure on the number of conservatives against a carbon tax. Some are loudly against but we are unsure on numbers. Some of the green movement is equally loud about a large carbon tax. We are with Holman and have the exact solution: eliminate the gas tax and replace it with an equivalent carbon tax. Everybody should be happy for a moment. Then they need to decide what to do with the revenue-positive impact of taxing more transactions at an equal rate. Tax relief, infrastructure, and entitlements all need work. Our first step (after eliminating the gas tax) would be to tie eliminating CAFE to passing the carbon tax.
Politics is about deciding when to compromise. Holman has pointed out a great opportunity of both sides. Why not take advantage of it?
David French at NRO alerted us to this article by Roy Scranton, a professor at Notre Dame, in the NYT. Roy’s title is Raising My Child In A Doomed World. Really, we are not making this up. David does a nice job calming folks down and reminding us that suicide is not the proper reaction to climate change. You should read all both David, to see a reasonable response, and Roy to see what at least some of the climate folks seem to believe.
In case you don’t we will give you a taste. Roy has just had a daughter and he is worried about climate change although his book mentioned in his introduction, we haven’t read it, is essays on war and climate change. The section we found most interesting was this:
To stop emitting waste carbon completely within the next five or 10 years, we would need to radically reorient almost all human economic and social production, a task that’s scarcely imaginable, much less feasible. It would demand centralized control of key economic sectors [why just limit yourself to key sectors], enormous state investment in carbon capture and sequestration and global coordination on a scale never before seen,
Again, you should really read the whole thing to see that the above quote is not unusual. Roy appears to believe that the only possible solution is 1984. Roy is worried that he has doomed his daughter to live on a dystopian planet and his plan is to ensure that she does.
We hope that Roy’s daughter will never endure the government he suggests.