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Ignore the ‘free market’ bells and whistles: A tax is a tax is a tax.
By Thomas Pyle
Published on March 23, 2017, in National Review Online

Conservatives have long been the voice for limited government, lower taxes, free markets, and individual liberty. But recently, a small but persistent group of Republicans are trying to persuade conservatives to abandon these principles and embrace a national energy tax.

The idea of taxing carbon isn’t new. Bill Clinton and Al Gore tried to pass a BTU tax in 1993. Its defeat helped usher in a Republican-controlled Congress for the first time in nearly 40 years. In 2009, Barack Obama proposed a cap-and-trade plan that was rejected by a Democratic-controlled Congress. The Democrats ended up losing the House in 2010. More recently, Hillary Clinton’s campaign policy team was reportedly considering a carbon tax.

What is new, however, is that some Republicans are attempting to pass off a carbon tax as a conservative policy. The most recent attempt is from the Climate Leadership Council, a group led by James Baker and George Shultz. The group recently met with the Trump administration to encourage the adoption of a $40-per-ton carbon tax.

My organization, the American Energy Alliance, joined with several conservative leaders in opposition to the Climate Leadership Council’s proposal. In response, Shultz and Ted Halstead, another member of the Council, took to these pages to try to convince conservatives that their proposal is a “free-market” approach to addressing climate change. There is nothing free-market about their massive new tax hike, no matter how they dress it up.

A carbon tax would punish users of natural gas, oil, and coal, which make up 80 percent of the energy we consume. This means that all American families would face higher electricity bills and gasoline prices. In fact, it’s estimated that the Council’s carbon tax would hike gasoline prices by 36 cents per gallon. While everybody will pay more, these hikes would have a disproportionate impact on poor and middle-class families, who spend a higher percentage of their income on energy. It also means Americans would pay more for goods and services across the board.

How does the Climate Leadership Council propose to alleviate this burden? Shultz and Halstead want to offset the tax by redistributing to the American people the $300 billion in anticipated revenue from the carbon tax.

This is not practical in the real world. The idea that Washington politicians would perpetually refund a massive new revenue stream is incredibly naïve, especially coming from a former Treasury secretary. The more likely scenario is that the government would eventually begin to spend the new revenue on federal programs, saddling Americans with yet another new tax while diminishing America’s competitiveness in the process. Sounds like big-government liberalism to me.

The Baker- and Shultz-led council need only look at real-world examples to see the flaws in their proposal. Last year, Washington State soundly defeated a carbon-tax ballot measure, partly because the proponents could never agree on how they wanted to divvy up the expected revenue. British Columbia has also run into problems with its “revenue-neutral” carbon tax. Officials there promised citizens that the tax would be used to reduce other taxes. However, a new study from the Fraser Institute shows that after just a few years, British Columbia’s carbon tax netted $377 million in new revenue.

Carbon taxes make energy more expensive. They also destroy jobs, particularly in the manufacturing sector, which President Trump has promised to revive. Shultz and Halstead shrug off this concern by pointing to a “border carbon adjustment” provision in their plan.

Under their plan, U.S. producers would have to pay a carbon tax if they sold their product to American consumers, but not if they sold it to countries without a carbon tax. Likewise, foreign producers would have to pay a carbon tax to sell to American consumers, but not if they sold to other countries. This is a raw deal for both American companies and consumers.

The readers of this publication know that tax hikes hurt business and raise prices for consumers. Shultz and Halstead try to argue that imposing this new tax on imports from China, for example, will somehow be good for American prosperity. However, slapping a new tax on imports just takes away options from American consumers and makes it harder for U.S. companies to export their products.

Finally, the Climate Leadership Council’s proposal would swap out Obama-era climate regulations for a carbon tax. However, President Trump has already vowed (and begun) to undo President Obama’s climate regulations. This raises the question of why they would include this provision in the first place — unless, of course, they had a Hillary Clinton administration in mind when they wrote the proposal.

Shultz and Halstead claim that failing to replace these regulations with a carbon tax would “leave open the door to greater government intervention should Democrats retake power in the future.” This is extremely misleading. Nobody can guarantee that a future administration or Congress won’t pursue some type of regulatory controls on carbon, nor could this plan prevent it from happening. The nearly identical carbon-tax plan considered by the Clinton campaign, for example, would have imposed a carbon tax while maintaining carbon regulations such as the Clean Power Plan. And several environmental groups have already criticized the Council’s proposal, insisting that we need both a carbon tax and regulations.

Simply calling something “conservative” or “free-market” doesn’t make it so. The Climate Leadership Council’s carbon tax is an affront to the principles that conservatives have championed for decades. Most important, a carbon tax would destroy American jobs, encourage more wasteful spending from Washington, and burden consumers with higher energy costs. You’d be hard pressed to find a more damaging policy for American families.

No matter how many bells and whistles Shultz and Halstead throw onto their proposal, it still ends up being a new and incredibly regressive tax on working-class Americans. Yet Secretary Baker was so bold as to suggest that it would have had Ronald Reagan’s blessing. I’d like to think that President Reagan, who once said “simple fairness dictates that government must not raise taxes on families struggling to pay their bills,” would probably feel otherwise.

— Thomas Pyle is the president of the American Energy Alliance and the Institute for Energy Research.