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posted: 1/31/2014 5:00 AM

A different kind of carbon tax

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  • Bob Inglis

    Bob Inglis

By Bob Inglis

It will take some convincing, but what if the environmental left could be persuaded to go along with an income tax-cutting, EPA-shrinking, China-in carbon tax? If persuasive, conservatives could head off President Obama's EPA-growing, command-and-control regulation of CO2 through the Clean Air Act -- an approach that will cost American jobs and increase global emissions.

If we're honest with ourselves, conservatives will admit that when confronted with grow-the-government plans of the left, we've often just said, "No! Don't! Stop!" We haven't proposed viable alternatives. And when the country has decided it's wanted something like health coverage or retirement security, it's accepted unsustainable over unoffered.

Climate change presents an exciting opportunity for conservatives to offer a very different kind of carbon tax. Conservatives could never be for a grow-the-government scheme like cap-and-trade, and we couldn't support plans offered by the left that use revenue from a carbon tax to mask the structural deficit and to delay necessary changes to entitlement programs.

Surely, though, we could support a plan that starts with a reduction of corporate, individual or payroll taxes. The revenue forgone by that tax cut could be made up, dollar-for-dollar, by a price on carbon dioxide. A carbon tax could be collected at the mine and on entry into pipelines.

Since there are so few coal and pipeline companies (under 2,000 total) the application of the tax would be administratively quite simple. A $25 per ton price on carbon dioxide would raise the price of gasoline by 21 cents per gallon and, on average, would add 1.2 cents per kilowatt hour to the price of electricity. (See Resources for the Future, December 2012.) That hit to the family budget could be offset by an income-tax cut.

It's important to note that this tax swap (off income; on carbon pollution) could be designed to protect low-income taxpayers. If payroll taxes were cut to offset the new carbon tax, low-income earners would be freed from the most regressive tax on the books. If Social Security recipients were given an equivalent rebate, the bottom 70 percent of Americans would enjoy an increase in their after-tax household income. Only the top 30 percent would see reductions in their after-tax household income (-0.1%, -0.1% and -0.2% for the 70th, 80th and 90th percentiles, respectively). The highest income earners would pay relatively more in carbon taxes if they're prone to flying around on private jets and heating pools and multiple McMansions.

So the very different carbon tax would start with an income-tax cut. It could also be EPA-shrinking. The price on carbon would cause less old-style burning of fossil fuels. The result would be fewer emissions of other pollutants currently regulated by the Clean Air Act. As a result, portions of the Clean Air Act regulations would be made redundant and ripe for repeal.

This very different carbon tax could also entice China to price carbon similarly. The key is to make our tax "border-adjustable" -- imposing the tax on imports and removing it from exports. If we were to lead in this way, it would be in China's interest to join us by imposing a similar tax on its own emissions. That way, their manufacturers would remit carbon taxes to Beijing during production rather than to Washington upon landing. Meanwhile, their politicians would be acting on Chinese citizen's felt need for cleaner air without disturbing China's existing comparative advantage in mass production. Their energy prices, like ours, would rise to their true cost, being no longer distorted by the significant subsidy of permissive dumping into the free trash dump in the sky.

Proposing this carbon tax would require a very different approach to climate change. We'd have to give up the hoax language that's excited our political base during the Great Recession and migrate at least to the real-but-we're-not-sure-why camp (if not all the way to the real-and-human-caused camp).

So why move? Because the country counts on conservatives to deliver solutions that actually work. Liberals offer sentiment; conservatives offer solutions. If we fail to come forward with solutions, we fail the country, and we fail the world. It's time to lead -- lest unstainable beat unoffered, again.

• Bob Inglis directs the Energy and Enterprise Initiative based at George Mason University. Inglis, a Republican, served as a congressman from South Carolina from 1993-1999 and from 2005-2011.

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