Should the Biden Administration Embrace a Carbon Tax?

The Biden Administration is under pressure to embrace a carbon tax, and according to his aides, the President is open to the idea.

As ALEC Executive Vice President of Policy and Chief Economist Jonathan Williams and Texas Public Policy Foundation Chief Economist Vance Ginn explained in their 2018 op-ed in Real Clear Energy:

“An argument for a carbon tax is that it can theoretically correct what some economists call ‘market failures’ or ‘negative externalities’ that impose social costs that are generally not factored into market prices — such as pollution.”

But don’t believe the hype, they said:

“By taxing an economic input like energy production, government essentially taxes everything that we do, wear, eat, and use. History shows that this is all very destructive: Carbon taxes in Australia and British Columbia reduced standards of living, with Australia eventually repealing its carbon tax within just two years.

While proponents of the dividend approach, or even a revenue-neutral tax swap, claim this is a market-based, conservative plan, the truth is a carbon tax is based on highly questionable assumptions, leaving it as mainly a policy tool for social engineering with huge economic costs.”

In order to address these policy concerns, last week, U.S. House Republican Whip Steve Scalise of Louisiana and Congressman David McKinley of West Virginia re-introduced their resolution condemning a carbon tax. Rep. Scalise also penned an op-ed in the Washington Examiner with Americans for Tax Reform President Grover Norquist, explaining their position:

“We need to restore common sense to Washington and put an end to the liberal tax, regulate, and spend agenda that is harming our middle class and our nation’s economy.”

As outlined in the ALEC model Resolution in Opposition to a Carbon Tax, the application of a carbon tax would drive up transportation costs, substantially increase the price of electricity, use the tax code to manipulate consumer decisions, and place U.S. exporters and manufacturers at a competitive disadvantage.

Additionally, one of the key components of the ALEC Principles of Taxation is economic neutrality:

“The purpose of the tax system is to raise needed revenue for core functions of government, not control the lives of citizens or micromanage the economy. The tax system should exert minimal impact on the spending and decisions of individuals and businesses. An effective tax system should be broad-based, utilize a low overall tax rate with few loopholes, and avoid multiple layers of taxation through tax pyramiding.”

A carbon tax runs counter to this principle, and relying on the government to implement a new tax never ends well. For these reasons, the ALEC resolution concludes that efforts to establish a carbon tax should be opposed at both the state and federal level.

In Depth: Energy

It is difficult – and perhaps even impossible – to overstate the relationship between readily available access to safe, affordable and reliable energy and individual prosperity and economic wellbeing. This is because energy is an input to virtually everything we produce, consume and enjoy in society. Think for a minute…

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