ANALYSIS: Congress balks at raising energy prices
In February, a group Bloomberg Politics described as “old guard Republicans” visited the White House promoting a federal carbon tax—more accurately a carbon dioxide tax applied to the odorless, colorless gas that makes up about 0.04 percent of Earth’s atmosphere, not the black stuff you scrape away when you clean your barbecue grill.
White House reaction was scant, or at least scantily reported. But congressional reaction was swift, adverse, and exceptionally direct for elected officials commenting on legislative ideas. The Washington Times reported that both House Speaker Paul Ryan and the tax-writing Ways and Means Committee “confirmed separately [in mid-February]that any form of the [carbon tax]notion has zero chance of even being considered in this Congress.”
At about the same time, a note to Ryan’s office from this writer received a response asserting determination to overhaul and simplify the federal tax code “for the first time in 30 years” but saying nothing about a carbon tax.
The Times reported that a Ryan staffer “said he could rule out any plans for a carbon tax.”
Reagan-era White House Chief of Staff and later Secretary of State James Baker, who led the carbon tax delegation, laid partisan claim to the idea, saying “a conservative, free-market approach is a very Republican way of approaching the [CO2 emissions] problem.”
Whether the “free market” characterization fits is contestable, given that no market will exist unless it’s decreed by a federal law that would also set the prices. And Bloomberg reported that “Baker himself conceded he remains ‘somewhat of a skeptic about the extent to which man is responsible for climate change,’ but the ‘risks are too great to ignore.’”
Baker’s rationale is that the new tax could effectively substitute for federal regulations that seek to reduce CO2 emissions. He also maintained that the proceeds of the tax would be distributed back to taxpayers.
The Bloomberg report, however, pointed to tax reform efforts presumably in the legislative hopper for later this year and referred to by Ryan, and warned of a virtual guarantee that “lawmakers could seize on a carbon tax as a potent source of revenue to offset rate reductions during a future congressional debate on overhauling the tax code.”
History, some of it made close to home, sheds additional light on the Bloomberg statement.
Fool Me Twice…
The strategy of creating a new tax to replace an existing one is not unfamiliar.
In 1842, six years before Wisconsin statehood, territorial Governor James Duane Doty told legislators the property tax, authorized under the Northwest Ordinance of 1787, was “considered unequal, illegal, and highly oppressive.” As Legislative Reference Bureau Analyst Jack Stark wrote in “A History of the Property Tax and Property Tax Relief in Wisconsin,” [Wisconsin Blue Book, 1991] Doty’s remark “sounds contemporary because the property tax has continued to be a troublesome problem.”
Two things make Stark’s words of 26 years ago pointedly relevant to today’s carbon tax discussion: Wisconsin’s income tax, enacted in 1908 to replace property tax revenue, and the state sales tax, enacted in 1961 for the same purpose. Including the one that was to be replaced, they add up to three taxes.
As Bloomberg noted, the proposal “involves a $40 tax on every metric ton of carbon dioxide released by burning fossil fuels, with the price climbing over time.” Administered as Baker suggested, with proceeds converted into direct payouts to individual taxpayers, it would create its own constituency among those receiving the most money, and a compelling incentive to fail in its stated purpose: Successfully reducing emissions would reduce the revenue available for popular taxpayer rebates.
And as critics noted, it would be a deliberate move to make energy more expensive.
The Glide Path
Two key concepts are “carbon intensity” and “energy intensity,” respectively, the amount of CO2 emitted per Btu of energy produced, and the quantity of Btu’s expended per unit of economic production. The federal government’s Energy Information Administration says both are trending slowly downward.
Thus, the theoretical goal of a carbon tax is gradually being realized without a carbon tax. Given the apparent mood in Congress, we have at least a little while to see if that continues.