Dec 20, 2013

Keep the Carbon Tax on the Back Burner—or Off the Stove Entirely

Post by Freedom Partners

Last week, the Congressional Budget Office (CBO) released its annual review of a grab-bag of budget proposals. Last on the list—but the single largest source of potential new revenue—was a $25 tax per metric ton of carbon dioxide. The CBO claims this tax would produce over $1 trillion in deficit reductions over the next decade.

This is an exercise in wishful thinking. Tax revenue grows when the economy is strong and vibrant. A carbon tax, however, jeopardizes economic growth and imperils American jobs. It leads to less tax revenue in the long-run while putting American families in a bind—and it would do all of this without any visible impact on the environment.

The latest environmental research demonstrates that a carbon tax is a solution without a problem. According to the EPA, the last 30 years have seen declines in each major pollutants’ emission levels. The country’s air quality has also improved across the board.

An independent analysis of the UN’s Intergovernmental Panel on Climate Change Assessment Report even demonstrated that if all of America’s carbon dioxide emissions were eliminated, there would still be no measurable effect on world temperatures over the next century.

These facts have not deterred the carbon tax’s backers. That’s why it’s equally important to realize that this tax hurts low- and middle-income Americans the hardest.

Carbon-based energy is the backbone of American energy production. Carbon-producing energy sources—coal, natural gas, etc.—provide roughly 82% of America’s energy output. This number is so high because these materials produce the most affordable and reliable energy in the world. That’s why Americans rely on this energy to power their daily lives, from the living room lamp to the internet.

A carbon tax upends this entire system. It spikes the cost of almost every product and service by making the energy that powers our lives more expensive to produce. These costs then pass to consumers through increased energy costs for manufacturers, businesses, and utility bills.

No one is safe from a carbon tax’s crippling and rippling economic effects. One leading analysis estimates that a carbon tax reduces a family of four’s income by nearly $2,000 per year. Poor and middle class families—who pay a much larger percentage of their income on energy and are already struggling to recover from the last economic downturn—stand to lose the most from a carbon tax.

A carbon tax also reverses the country’s recent gains in manufacturing. After years of declines in American manufacturing jobs, affordable and reliable carbon-based energy production has helped spur a manufacturing boom. In fact, American manufacturing grew at twice the rate of the rest of the economy for the past five years. The primary contributor to this growth has been the increase in carbon-based energy production that has driven American energy costs to new lows.

A carbon tax only jeopardizes this growth. Our loss is also the rest of the world’s gain. A carbon tax benefits other countries—China and India chief among them—that don’t have the same environmental and regulatory standards as America. They can seize the economic opportunities that America is missing, while using more carbon-based energy than we ever could.

A carbon tax thus directly harms both the economy and the environment. It provides other countries a competitive economic advantage while handicapping our own ability to create jobs. And it does all of this in service to an environmental objective that a carbon tax can’t actually accomplish.

That’s not a recipe for American success. Instead, Congress should focus on policies that lead to a dynamic and vibrant economy. That, in turn, will encourage energy and environmental innovation—the only long-term solutions that will make the world a better place.