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April 7, 2015

Jerry Taylor Strikes Out (Again) On Carbon Tax

April 7, 2015
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Jerry Taylor, head of the new Niskanen Center, recently put forward a proposal showcasing the “conservative case” for a carbon tax, which I critiqued in a lengthy post here. Taylor then responded to my critique here. Looking at his latest reply, we see that conservatives have yet more evidence of my position all along: Conservatives have no business accepting a new federal carbon tax, and they especially should pay no heed to promises that a carbon tax swap deal will somehow be good for the economy.

Taylor’s $695 Billion Oversight

Busy readers may not be interested in two guys brawling on the Internet, so let me focus on just a few key points in my dispute with Taylor. The first and most important for any conservatives who are on the fence about a carbon tax, is how Taylor handles the issue of revenue neutrality.

To refresh our memories, in his original study, Taylor first discussed the alleged merits of a Brookings Institution proposal by Adele C. Morris to implement a new federal carbon tax that would, over a 20-year horizon, take in $2.7 trillion in new revenue, of which $405 billion would be used to compensate low-income households for higher energy prices, $1.6 trillion would be devoted to corporate tax rate reduction, and the remaining $695 billion would go to deficit reduction. (In addition, Morris claims that the new carbon tax would allow for a reduction of $120 billion worth of “clean energy spending.”) When touting the Morris plan, Taylor himself boasted that it would “provide a net deficit reduction of $815 billion” over its first 20 years.

That should have set off Taylor’s Spidey Sense that the Morris plan was not revenue neutral, yet somehow Taylor’s study got out the Niskanen Center’s front door with nobody catching the goof. Indeed, at the press release page pushing the new study, Taylor writes, “The carbon tax bill I have in mind would:” and then lists bullet points, one of which is, “Use tax proceeds to offset revenue losses from tax cuts so as to ensure revenue neutrality.”

Indeed, not only does Taylor (wrongly) claim that the Morris proposal is revenue neutral, but later on in his study he goes so far as to declare to conservatives:

Many conservatives resist carbon taxes because they believe that increases in federal revenues will increase the size of government. But virtually every proposed carbon tax put on the political table includes offsetting tax cuts to ensure revenue neutrality. Revenue neutral carbon taxes will not increase the size of the federal treasury. [Taylor p. 21]

Does everyone see how hilarious that is? After triple-checking the numbers to make sure Taylor’s slow pitch over the plate really was what it appeared to be, I wrote in my initial critique: “Contrary to Taylor, I can think of one proposed carbon tax that is not revenue neutral—namely, the proposal from Adele Morris that Taylor endorsed five pages earlier in his paper.” After that zinger, I then listed all of the examples of regional U.S. cap-and-trade programs where the new revenues were not used to offset pre-existing taxes, but instead had been used at least partially to fund “green” investments and—in the case of California—were borrowed to bail out the general fund.

So to review, Jerry Taylor told conservatives he was going to pitch them a revenue-neutral carbon tax plan; then he pitched them a plan that raises taxes $695 billion (at least) over 20 years, with even Taylor quoting from the study about how much it would reduce the deficit; and finally Taylor assured conservatives to stop worrying about net tax hikes, because “every proposed carbon tax put on the political table” was revenue-neutral by design.

Taylor Tries to Pull a Houdini

So how did Taylor respond to this major problem? After all, even on paper, the only possible way you can get a new carbon tax to “boost the economy” is if you devote the new revenues to tax breaks for capitalists—as the Niskanen Center’s own analysis indirectly reveals. So clearly if a plan like Adele Morris’ devotes (at least) $695 billion of new carbon tax revenue to deficit reduction, then it is not revenue neutral and it certainly won’t promote economic growth under any of the standard models. This undercuts Taylor’s whole case, and at the very least is a major goof. What did he do for damage control?

Simple: Taylor pretended he didn’t make a $695 billion blunder and instead distorted my own position, as if I had said something wrong. Here’s Taylor from his latest post:

[Murphy] notes that no serious carbon tax proposal yet forwarded is completely revenue neutral, which, Murphy claims, tells us all we need to know about political intent. First of all, he’s incorrect. But even were he correct, that doesn’t necessarily tell us anything about the support that might exist in Democratic ranks for a revenue neutral tax-for-regulation swap.

You’ll notice in the above excerpt that Taylor doesn’t use quotation marks when telling his readers what my claim (allegedly) was; it would be harder to deceive them if Taylor had actually quoted me. No, I never claimed that it would be impossible to find a revenue-neutral carbon tax proposal. Rather, I merely pointed out that Taylor had claimed all serious proposals were revenue neutral, even though he himself five pages earlier had just pushed one that wasn’t. (I made the point again in my conclusion that “readers should be quite skeptical of Taylor’s claims, when he assures his readers that all serious carbon tax proposals are revenue-neutral, even though he just proposed one that wasn’t.”)

Again, I realize some readers may tire of reading two narcissists trading jabs on the Internet, but I walked through this particular aspect of the dispute in great detail because it’s crucial: Jerry Taylor has been assuring conservatives to trust him, that he knows better than those ideological know-nothings who reject taxes on principle, and that Taylor can work with reasonable Democrats to come up with a win-win revenue-neutral proposal. But when you actually click on the hyperlink and read the proposal Taylor promoted, you see it contains a huge tax increase. Rather than owning up to this amazing goof, Taylor obfuscates once again. Conservatives simply should not trust anything this guy tells them about a carbon tax swap deal.

“Command and Control” Regulations Are Not About Climate Change

There is another crucial point in my exchange with Taylor that I want to reiterate. His entire case rests on the belief that the existing and proposed regulations on the energy sector—including Renewable Fuels Standards and the EPA crackdown on coal-fired power plants—are blunt instruments that the federal government has no choice but to use in its efforts to avert climate change damage, because obstinate conservatives won’t endorse the “market solution” of a carbon tax.

In other words, Taylor would have us believe that the reason these command-and-control regulations exist is that environmental Leftists and political officials just want to slow climate change, and these are the only tools at their disposal because dogmatic conservatives won’t put a carbon tax on the political table. Taylor keeps promising us that if the interventionists could get permission to use an “efficient” carbon tax, then they would be happy to sweep away the high-cost regulations that they were using in its place.

Yet this claim is nonsense, as Taylor’s own numbers demonstrated. Here is how Taylor discusses the EPA’s regulations on coal-fired plants in his study:

While the EPA does not provide aggregated cost estimates in their rulemaking, a study by the U.S. Chamber of Commerce puts the total regulatory price tag through 2030 at $478 billion, annual GDP losses over that period at $51 billion, and the cost of greenhouse gas emissions reductions under the EPA plan at $153-163 per ton. This is much higher than the agency’s estimate of the social cost of carbon emissions in 2030: $17 per ton using a 5 percent discount rate, $55 per ton using a 3 percent discount rate, and $85 per ton using a 2.5 percent discount rate. [Taylor, p. 4, footnotes removed.]

Now in context, Taylor thinks the above numbers help his case: See how crazy the existing regulations are? We can get rid of them all if you stubborn Republicans would just agree to a carbon tax!

But hold on a moment. According to Taylor’s own numbers, the EPA’s regulations on coal-fired plants are a cure worse than the disease. Even if you bought the Obama Administration’s estimates of the damages coming from carbon dioxide emissions, then it wouldn’t make sense to “solve” that problem by imposing restrictions on coal-fired plants that imposed at least twice as much marginal damage to the economy. (For the purists, I note that the EPA itself doesn’t just focus on climate change to justify its power plant rules, but includes the “co-benefits” of reducing emissions of particulate matter—thus making Taylor’s case even weaker.)

Thus we see that Taylor’s narrative is simply mistaken. It’s not the fault of conservatives that the federal government has imposed nonsensical energy restrictions, even on the interventionists’ own terms. Therefore it must not be the case—as Taylor keeps assuring us—that these command-and-control regulations were implemented as a high-cost way to deal with climate change. If you were running the EPA (for example) and really just wanted a way to help humanity deal with the threat of $55 per ton in climate change from carbon dioxide emissions, it would make no sense for you to impose regulations that cost $160 per ton in economic damages. Since that’s what EPA officials have in fact done—according to Taylor’s own numbers—then we have no reason to suppose they’ll be willing to scrap the regulations once a new carbon tax is in place. The existing and proposed regulations on the energy sector are not simply blunt instruments imposed by people who only want to mitigate climate change.

More generally, it is perverse that Jerry Taylor is pointing to the utter senselessness of existing U.S. energy policy as an argument to go along with another, brand new intervention in the energy sector. Instead, the perversity of existing regulations is a good reason to turn around, rather than give more concessions to the interventionists in hopes that they will be reasonable going forward.

Conclusion

Jerry Taylor is certainly correct when he argues that the existing U.S. tax code and regulatory framework are incredibly inefficient. But when we explore how this came to be, we realize why it would be a very unwise move to strike bargains with the very groups who put us in this mess. In any event, conservatives should be very cautious when listening to Taylor’s confident assurances about the safety of a carbon tax swap, when he can’t even get his own numbers right.

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