CLC’s plan reportedly calls for a carbon tax that starts at $40 per ton and escalates from there. The immediate impact would be an increase in gasoline prices of 36 cents per gallon. But don’t worry, say the gray eminences, who also include former George W. Bush Treasury Secretary Hank Paulson, because the proceeds—estimated at $300 billion per year—would be rebated back to taxpayers, with each family of four receiving about $2,000 a year.
Okay, hold it right there. In the first place, Washington’s big spenders and deficit hawks—often the same people—have no interest in new taxes that don’t “enhance” revenues. Anyone who believes Congress could enact a $300 billion tax hike and not spend any of it on pet projects and other “unmet needs” is delusional.
Even if the tax were revenue neutral, however, it would still be bad for the economy. Forget for a moment that it’s called a “carbon” tax. Suppose the government raises any tax, for whatever reason, and then redistributes the proceeds equally to the population at large. How could that possibly make the economy more efficient or productive? If random redistribution of $300 billion from millions of Peters to millions of Pauls is sound economic policy, why not just have the government confiscate all income and then return it in equal shares to all taxpayers?
These senior distinguished economists seem to have forgotten Econ 101. The smaller the base on which a tax of given size is levied, the more economically damaging the tax is. A $300 billion annual tax spread across all income earners, all employees, or retail shoppers would barely affect economic growth rates and employment. But a tax on fossil fuels that starts out at $300 billion and escalates from there would have devastating impacts on investment, employment, and production in the industries that supply more than 80 percent of all U.S. energy. The ripple effects on related industries would also be severe, and the economy as a whole would suffer.
Baker told CNN:
We have a Republican administration now—a Republican administration that could show leadership on this issue and present to the blue collar workers who were so important to Trump’s victory—something that does not increase, build government, that is conservative, that is free market—let the market determine—and there is some support out there for that now and from some quarters that normally didn't support this kind of thing.
A carbon tax is not a free market policy. It is market-rigging. No matter how cheap and efficient fossil fuels become, a carbon tax can always be raised high enough to make fossil fuel investments unprofitable. Indeed, that’s the point of an “escalating” carbon tax. Baker thinks it’s somehow smart for Trump to do openly what Obama said in a careless moment of candor—advocate a policy that ultimately aims to “bankrupt” those who invest in fossil fuels.
According to CNN, the CLC plan “calls for the repeal of the Obama administration’s Clean Power Plan and a host of other Environmental Protection Agency regulations aimed at reducing carbon emissions.” Do these guys keep up with the news? The Clean Power Plan is already dead, and other Obama climate policies will be overturned either administratively or through the Congressional Review Act.
The question I have for James Baker is whether he learned anything from the implosion of the George H. W. Bush presidency. As a presidential candidate in 1988, Bush was trailing in the polls until he issued his famous “read my lips: no new taxes” pledge. Then in 1990, as advised by budget director Dick Darman, Bush repudiated the pledge, and agreed to raise taxes in a budget deal with House Ways and Means Committee chairman Dan Rostenkowski (D-IL). The economy tanked, and Bush lost the 1992 election despite his high approval rating in 1991 for prosecuting a quick and successful war to liberate Kuwait from Saddam Hussein.
Now Baker wants Trump, who campaigned as a tax cutter who would revive U.S. energy production, to advocate new taxes on fossil fuels. He's urging Trump to break two campaign pledges!
The big political picture that the elder statesmen don’t get is that if Trump had followed their advice as a candidate, he might not have won. As I wrote in a previous post:
The EPA’s regulatory overreach might still loom large had the Republican establishment in Washington, D.C. taken the [Niskanen] Center’s advice and endorsed a carbon tax. The clear distinction between a party that is pro-tax and anti-energy and a party that is pro-energy and anti-tax is a product differentiator of immense political value for the GOP. Carbon tax advocacy would have frittered away that asset. Worse, including carbon taxes in the platform would have divided the GOP on an issue of longstanding national controversy and demoralized the party’s activist base.