Carbon Tax to Encounter Congressional Challenges

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Hoping to clear the air about a brand-new tax policy, Rep. John B. Larson (D- Conn.) is proposing a simpler carbon tax to counter President Obama’s intricate cap-and-trade policy.

Under his legislation introduced earlier this week in the U.S. House of Representatives, Larson plans on charging manufacturers a fee for every ton of carbon dioxide released into the atmosphere. Companies affected by it would pay a marginally higher fee each year until they brought their carbon dioxide emissions into compliance. Eventually, revenues generated from the tax get returned to the taxpayer through lower payroll taxes.

“The American people want us to level with them,” Larson told a New York Times reporter. “We create price certainty without any new bureaucracies or complicated auction schemes.”

Critics of the Obama administration’s approach identify the failure of the European Union’s cap-and-trade program to reduce emissions, and the fluctuating prices of carbon permits, as reasons why Americans should support a national carbon tax.

Even still, Congressional Democrats are unlikely to stand with their colleague because they fear the idea of an additional tax imposed upon American industry, at a time of heightened financial crisis, would not be politically feasible.

Former Vice President Al Gore, a Nobel Prize recipient, has strongly supported the idea of a national carbon tax through his environmental activism. But, under this current economic climate, he conceded to the New York Times that a carbon tax “appears to be beyond our reach for the foreseeable future.”

“[A] cap-and-trade system is also essential and actually offers a better prospect for a global agreement, in part because it is difficult to imagine a harmonized global [carbon] tax. Moreover, I have long recognized that our political system has special difficulty in considering a [carbon] tax even if it is revenue neutral,” Gore wrote in his e-mail to a Times reporter.

Gore also indicated an experimental cap-and-trade program, instituted by amendments to the Clean Air Act of 1990, successfully regulated the sulfur dioxide and nitrogen oxide which contributes to acid rain.

I applaud Congressman Larson for his support of a revenue-neutral carbon tax. This country need to raise the price of carbon based fuels in a straightforward and transparent way. We need to avoid the evasion and market manipulation that plague a cap and trade scheme and implement a revenue-neutral carbon tax. Moreover, a carbon-tax would directly raise the price of carbon-based energy, imposing the greatest cost on those firms and forms of energy that produce the most emissions, all while providing powerful incentives for the development of new, climate-friendly technologies.

If one increases the taxes paid by corporations and then “returns” this revenue to taxpayers through lower payroll taxes, I guess one might consider this to be revenue neutral. However, since corporations are not able to sustain themselves when operating in a negative cash flow, they will increase their price for customers. Thus, while the employees might get some benefit from deferring their income tax liability from payroll deduction until April 15 each year (unless they also lower income tax to reflect the lower payroll tax), customers will see increased cost.

Are you also willing to pay an additional carbon tax on the gasoline you burn in your motor vehicles? These produce a very significant percentage of Carbon emissions. To successfully lower gasoline demand, it appears that the cost needs to go above four dollars (today’s dollar… will need inflationary balancing over the years). I do not remember very many people praising the cost of gasoline when it exceeded four dollars last summer.