The Public Choice Problems with Carbon Taxes
By David Henderson
Adrian College political science professor James Hanley, responding to this editorial in the Washington Post, wrote the following on Facebook and gave me permission to use it as a post.
Here’s James. (What’s in the box is what James is quoting from the Washington Post editorial.)
Advocating a carbon tax of $75, the author writes:
Electricity prices would rise 70 percent on average — though only 53 percent in the United States — and gasoline prices 5 percent to 15 percent in most places.
But that’s the picture before one considers what the money raised by a carbon tax could do. If governments recycled the revenue back to low-income and vulnerable people, and cut economically inefficient taxes — such as income taxes — a $50-per-ton carbon tax would feel to the economy more like $20 per ton. The plan would help low-income households and place a higher burden on the upper-income bracket. There could also be money for essential research and development to aid the energy transition.
Stop right there. This “simple” direct plan for controlling CO2 emissions just got really complex. IF government recycles the money back to low income people, and IF the government cuts economically inefficient taxes, THEN the plan won’t run into insurmountable political opposition or hurt the poor so badly no person could in good conscience support it.
This is like saying you’re going to cut your travel time by driving faster, and all that’s necessary is that there be no traffic, no police, and no bad weather. Just as you cannot control those things, the advocates of a carbon tax – not only outside of government but inside it – cannot control the decisions about how to distribute that money and what other tax adjustments to make.
Their theory of government is not how the thing works. Government does not rationally make all the proper adjustments that will make something work. Government is not a conscious entity that has an incentive to do any such thing, but a conglomeration of individuals with various interests in varying offices responding to the demands of various individuals. And the tug of war between all those varying interests pulls pieces off of policies here, slices there, and so on. And that additional policy on which your primary policy’s success (political or technical) is predicated has its own wholly separate legislative path to tread.
Could a carbon tax reduce CO2? Absolutely. Can it so simply be made politically palatable and unharmful to the poor? Not remotely.
Now this is David. I agree that a carbon tax would reduce the amount of CO2 relative to what it would have been. As regular readers of this blog know, that doesn’t mean I favor such a tax. And that’s for reasons other than public choice reasons. But James Hanley does one of the nicest jobs I’ve seen of succinctly pointing out the public choice problems with a carbon tax.