Carbon Tax is Bad for Businesses and Consumers


August 14, 2012

As our nation’s economic recovery stands on faulty footing, the last thing Washington should propose are policies that would negatively impact businesses and consumers and in so doing harm the economy.  Members of Congress should neither bend their ears nor waste their time considering such dead-end policies.  Unfortunately, there’s no shortage of potential job-killing regulations or taxes that if implemented would hurt Americans and businesses.  Encouraging innovation and creating a hospitable environment for industries to pursue new investments is exactly the engine that’s needed to lead our economic recovery. 

Any policies that may detract from this objective should be considered dead-on-arrival.  Among the worst policy proposals out there are cap-and-trade and/or a tax on carbon.  In June 2009, the Democratic-controlled House of Representatives successfully passed a bill that sought to place an arbitrary cap on carbon dioxide emissions.  Fortunately proponents of the misguided policy ultimately failed to secure the necessary number of votes in the Senate to secure its passage. Since the 2010 elections, cap-and-trade, better known and more appropriately called cap-and-tax, proposals have been shunned from political discourse. This temporary victory is just that temporary; bad policies don’t disappear.

Enter the carbon tax. It’s begun rearing its ugly head again, and some conservatives are the ones starting the conversation.  At the time the House was debating cap-and-trade, even members who call themselves conservatives, like Rep. Jeff Flake (R-Ariz.), applauded this idea and proposed taxing carbon.  While a carbon tax is different from a cap-and-trade system in terms of its implementation – a carbon tax would impose an additional fee or tax on industries and businesses that emit carbon dioxide – the damning effects are identical to those of the cap-and-tax scheme.  At the time Flake introduced the bill, he remarked “The first axiom of economics is if you want less of something, you tax it,”

It’s not necessary to be a policy wonk to know that adding a tax to any stage of production or to a product or service increases costs for both businesses and consumers.  Take the scenario a step further to see what damage the carbon tax would cause.  Imagine an additional charge on top of not just one thing, but nearly everything you do – from turning on your air conditioning to powering your car.  These actions and others are all essential and make it possible to carry out tasks each day.  It just so happens that carbon-emitting fuels are what creates this energy.  As a result of the additional tax, businesses, producers and entire industries will suffer from increased costs and indirectly consumers will too.

Some have tried, poorly at that, to contend a carbon tax is a good idea because it could be implemented in a way to ensure it is revenue neutral.  The assertion is that enactment of a carbon tax would be coupled with a decrease in tax rates or taxes elsewhere. In theory the revenue neutral argument is intended to make the concept of a carbon tax more palatable for some.  The problem is that theory rarely holds up in practice.  There are two major problems with the revenue neutral claim.  First, the carbon tax sits near the top of the most damaging, job-killing taxes out there.  It creates significant uncertainty for businesses and could increase operating costs to such a level that it could force entire industries out of existence taking many, many jobs with it. There’s no question that this potential evil is far worse than any of the taxes currently on the books.

Additionally when the government succeeds in gaining a new source of revenue, it does not mean that government’s appetite for more money is satiated.  Time and time again we see that despite the promises –  like that the increased revenue will go to things like reducing payroll taxes – the additional tax collected never makes it to the area the government says it will go.  Need proof?  Just look at how California Governor Jerry Brown’s wants to use the additional revenues to balance the state’s budget.  When money sits there, the government finds a place to use it.

Taxes harmfully impact businesses and consumers.  A carbon tax would do these things and increase energy costs.  The last thing Americans need is to be forced into is purchasing more expensive forms of energy because of a new tax.