Sexiest Tax Award goes to…
Part 2 in a series
By Katie Kieffer
Is cap-and-trade the best solution for the economic crisis and preserving our planet? Image credit: http://tinyurl.com/yl87gon
If you were a politician and you wanted to ensure your political future, you’d need to be careful when you proposed increases in taxes during a recession. But, in order to pay for new or growing government programs, you typically need to raise taxes. So, as a smart politician, you’d only support tax hikes that would secure you votes and a pat on the back, not a pink slip from your constituents on Election Day.
Cap-and-trade is the sexiest new tax proposal in the Senate. Our country is in a recession, but we are also in the middle of a massive green movement. Today, more than ever before, individual Americans and American corporations are trying to do everything they can to either be or appear to be green. For some, being “green” is about doing the right thing. For many others, it’s about doing the right thing, marketing and being fiscally responsible by saving energy costs. For politicians, however, their interest in supporting green taxes cannot be separated from self-preservation and attracting votes.
Cap-and-trade is just the kind of tax to get behind if you’re a politician since it’s trendy to be green in America now. As The Wall Street Journal puts it, ‘Politicians love cap and trade because they can claim to be taxing “polluters,” not workers.’ I think caring for the earth is always the right thing to do. I think it’s wrong for politicians to use the term “green” to push bigger, unnecessary government on their constituents.
What is cap-and-trade? Simply stated, the government sets a “cap” on the total amount of CO2 emissions that can be released by companies in the U.S. and then distributes “rights” or “allowances” based on this cap or limit. The government would allow companies to “trade” their carbon rights with each other. For instance, a high emitter like a coal plant would need to purchase allowances that would give them the “right” to emit CO2. The coal plant could “trade” with a company that doesn’t emit as much CO2 by purchasing their credits or allowances from them. Over time, the “cap” would become stricter – since the EPA would have the authority to increase caps every five years – and companies would need to find ways to reduce overall CO2 emissions – it’s sink or swim.
Cap-and-trade, would increase your cost of living if you are in the bottom 80 percent of the population and put money in your pocket if you’re in the top 20 percent. This is because, it is not an innovative solution to environmental concerns. Rather, it is a sexier way for politicians to describe a regressive tax during a recession that increases energy prices and doesn’t do much for the planet, as Robert Murphy, economist with the Institute of Energy and Research told Fox News in this video:
A Heritage Foundation study of the climate bill before the Senate, Waxman-Markey, that includes the cap-and-trade proposal, found that: “Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill’s restrictions kick in, that number rises to $6,800 for a family of four by 2035.”
You might be thinking: Even though cap-and-trade is effectively a huge tax and will increase my cost of living significantly, it’s a worthy investment because it will protect and preserve the earth. This is a valid concern, so I will consider it. In order for cap-and-trade to be determined effective, several things must be true:
First, man-made CO2 emissions must be proven to have a significant, measured and harmful contribution to global warming. This is still an unproven theory, and science is now coming forward with evidence that man-made CO2 emissions may even be beneficial to the environment, as I blogged here.
There is still plenty of research and investigation that needs to be done on carbon emissions before politicians can justify spending billions of dollars trying to lesson the small percentage of emissions attributable to humans when there are other proven and pressing environmental issues that need immediate attention.
Second, since CO2 emissions still need to be proven to be a significant, measured and harmful contribution to global warming and we are in the middle of a massive economic recession, it is imperative that any new tax be a long-term boon to our economy. Cap-and-trade will be a long-term financial burden on our economy, significantly killing job growth.
Any time you push money around through taxation, versus create money through innovation, it is a short-term solution, not a long-term solution. The only way to bring money into this country so that we can afford the new technology that is necessary to create clean energy, and hire entrepreneurs who have discovered less environmentally destructive ways of doing business is by creating an income stream. The government is not creating an income stream by taxing the entrepreneurs who it relies on to innovate and come up with thoughtful solutions.
Entrepreneurs create jobs and new ideas, not politicians. Young entrepreneur, Matt Harrison, author of The American Evolution and founder of the Prometheus Institute, contends that cap and trade will be especially harmful to young people who are trying to build up their careers or start their own business. Ironically, it could also put a damper on green or sustainable entrepreneurs – the industry that the government is supposedly trying to grow and innovate with the Waxman-Markey climate bill.
Harrison tells PR-inside.com: “As TIME Magazine points out, climate change may be the defining issue of my millennial generation, but that doesn’t mean we need our elders to solve it. We are the most entrepreneurial generation in history. We’ll solve it ourselves, and it will be much easier without a needless $6,000 tax dragging us down.”
Harrison pinpoints three primary reasons why cap-and-trade fails young people and its own objectives:
1.) The costs will cripple the economic growth needed to create a clean energy future.
2.) The bureaucratic nightmare created by the bill will drain the resources of existing businesses and be a barrier of entry for new entrepreneurs.
3.) The calculations on climate change are bound to be incorrect but if the earth only warms by one percent in the next 100 years what’s the point in spending $200 billion right now?
Next, I will continue this conversation, specifically addressing more of the economic and environmental impact of cap-and-trade.
Note: Click here to read Part 1 in this series.
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6 Responses to “Sexiest Tax Award goes to…”
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@aguy First off the Austrian School isn’t taught anywhere because the fed is the gate keeper of economics and they don’t want to support a school of thought that wants them out of power (whether it’s right or wrong). As for it being fringe, well so was the though that the world was round, and that the earth revolved around the sun. At some point fringe ideas become mainstream when they gain evidence that continually proves them right over other theories. That’s the main thing to remember is that all economic theory can be rated on how well their models explain the past and predict the future.
I read the article by Tyler Cowen and feel that his presentation doesn’t even make sense. Bananas on collapsing roofs? What does this have to do with the problem at hand? He also misses the basic tenet of the Austrian Cycle: time preferences. (see link below).
As for your second link, at least his article is well written and makes points with supporting opinions. However, I disagree with the “ease” at which people can predict and account for the government in their planning.
I’ll just link a response which works equally well for both arguments.
http://www.mises.org/story/2673
Suffice it to say that not everyone subscribes to the idea that the government should be so heavily involved in trying to regulate something that is scientifically unclear at this point. Let’s all remember when CFCs were banned for destroying the ozone, (how’s that hole doing now? oh, naturally contracting?) and replaced something that is an even worse green house gas. http://www.msnbc.msn.com/id/14452816/ How about regulating light bulbs to be florescent: yeah less power consumption, more mercury in our land fills… hmm… Maybe the government’s environmental policies don’t always work out so hot for the environment. What they DO however is frequently make Congressional Reps or their friends/contributors lots of money.
Let’s look at Al Gore, savior of the environment, first carbon billionaire:
http://tinyurl.com/ye56mum
@aguy – So you’re arguing against this on an economic basis. How about on a scientific basis first? Where is the proof that global warming is scientific fact? Like Wayne said, in the 70’s all the hype was “Omg, Ice Age!”.
@Katie – Maybe you’ll get to this, but make sure to mention that all the health care reform isn’t going to really kick in until 2013 last I heard. Hmmm, President Obama’s going to be done trying to get elected by then isn’t he? Isn’t it surprising that it starts the year after the 2012 elections, what a coincidence…Or maybe not, maybe he doesn’t want to face the music when people are outraged by what this does to the economy? Oh, and remember, (this is the most important) we’re going to be paying the new TAXES for the health care reform from now until then, but don’t worry, they’re going to save that money for when 2013 comes around just like they did with Social Security….oh wait…. Won’t PresidentObama’s budgets look nice with all these taxes from a program that hasn’t even started yet. Now THAT’S a tax that any politician has to love!
Seriously, the Austrian School? They don’t teach that at any economics program on the right or left — it’s only pushed by Ron Paulites and others on the fringe.
I mean, its discredited by everyone. Here’s a take-down by noted economist Tyler Cowen (he’s no Paul Krugman) and here’s one by a big a libertarian economist as well. I mean, my econ textbook may be wrong (my real econ textbook was written by Greg Mankew, of Bush II fame), but probably not. It’s more likely the Austrian School is laughable by anyone who takes economics seriously, on the right or on the left.
@Katie: great work, I’m going to add your RSS to my reader to keep up with you.
@augy A one letter proof against the “scientific consensus” you mention. http://blog.mises.org/archives/010939.asp
I suggest you read some more on the whole “climate change” movement and why it changed from “global warming” particularly look at your recent history in the early 70’s the scientific consensus was we were entering an ice age.
The fact of the matter is that NO model shows this as a crisis that must be handled now. A 4 degree increase in temperatures in 800 years is NOT A CRISIS. You do a disservice to the word to call it that. The fact is the earth has been warming since before the industrial revolution, the first point where any sane person could argue humans had an impact on global climate. Even baring all that, the fact still remains that volcanoes put out more CO2 in one year then all of humanity combined!
Your Econ 101 class was probably wrong too, read up on some true market theory (google “Austrian Business Cycle” and/or read anything at mises.org) and forget the Keynsian interventionist rubbish they taught you, then maybe people’s faith in the market will make sense to you.
Here is a great resource from the U.S. Chamber of Commerce for young professionals who want to take action and let their congressmen and congresswoman know about flawed climate change bills that could harm the business community and our economy:
http://capwiz.com/chamber/issues/alert/?alertid=13915566
Thank you, Katie, for all your work into this. I find it most interesting to read.
Well, that was predictable….
I understand your reluctance to admit that we need a market-wide mechanism to put the costs to public health back into the carbon market. That makes sense; it goes against your political ideals. However, it makes more sense to approach this as “how do we put economic externalties back into the market?” and not “how can somehow avoid not using government to solve a problem?” By approaching the problem in good faith, we get workable policy solutions. By looking at what the scientific consensus is, we can get policy solutions. Attacking policy solutions of all ideologies (cap and trade being the GOP/moderate idea, and carbon taxing being the liberal idea), then we’re only left with a blind faith in the ambiguous idea of “innovation.”
And where would this innovation come from? People with ideas who take advantage of un-met or yet-uncreated demand. Is demand for technological innovation going to suddenly appear when people create “green” solutions to world-wide greenhouse gas emissions? No. Policy makers and special interests have a vested interest not to do anything that upsets the present political and economic order.
That is why the nature of this problem is so different from other policy issues: it will take impairing business and one’s own political popularity to do what is right. On top of that, there is no constituency time-traveling from the future to elect politicians — so they have no present interest in fixing preventable problems now. So, the consequences are huge, the political motivation is basically non-existent, and the solutions need to be world-wide and massive. It’s pretty scary stuff.
Conservative parties elsewhere in the world are doing a great job of regulating carbon using market mechanisms, rather than setting limits as 1970s liberals would do. UK Tory David Cameron is awesome on this and based his campaign on it. The American GOP, however, ignores the classic Econ 101 problem of negative externalities to merely hope for technological innovation. When such “demand” for innovation materializes however, it will come much too late and at a high cost to public health, without addressing the world-wide problem. It would likely only treat the symptoms for “consumers” dealing with their new environment.
At that point the damage to our economy would have been massive (more wild fires, less fresh water, more oceans, more deserts in the SW, more hurricanes, etc) … Buying some solar panels or a hybrid car is only somewhat helpful; we need world-wide coordination and drastic measures immediately.