The Niskanen Center’s Jerry Taylor and I have had a running dispute on the alleged merits of a carbon tax, particularly as it relates to conservatives and libertarians. In a move that surprised even me, Taylor has recently thrown out one of the major planks in his argument. Specifically, in just about one month’s time, Taylor has gone from assuring conservatives that all serious carbon tax proposals are revenue neutral, to pivot and now assure them that even a non-revenue neutral carbon tax would be beneficial to the economy. Conservative readers who had been giving Taylor the benefit of the doubt up until now should be curious to see how many other of Taylor’s promises he repudiates in the near future.
Taylor: Read My Lips, No Net Taxes
In his study making the “conservative” case for a carbon tax—released on March 23—Taylor was quite emphatic that conservatives need not worry that such a measure would give more money to the government. In his summary blog post Taylor said, “The carbon tax bill I have in mind would…[u]se [carbon] tax proceeds to offset revenue losses from tax cuts so as to ensure revenue neutrality.” Then in the study itself Taylor went further, when trying to assuage conservative doubts about a tax grab:
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, bold added.]
At the time, I considered Taylor’s argument on this point to be the acme of naïvete, both because of the history of other “tax reforms” but also the explicit plans of so many groups to use carbon tax revenue for various purposes other than dollar-for-dollar offsetting tax cuts. (It was particularly ironic that Taylor himself, earlier in his own study, had pushed a carbon tax plan that was not revenue neutral, but indeed brought in at least $695 billion in net new revenue to the Treasury over its first two decades.)
It was frustrating to have to make such points to someone from the Niskanen Center—since Public Choice pioneer William Niskanen would know quite well the danger in trusting political officials with a “revenue neutral” tax deal—but such was life. Taylor was telling conservatives that they didn’t need to fear a carbon tax because the serious proposals were all revenue neutral, and who was I to challenge him?
Taylor: After Further Review…
The reader can thus imagine my surprise when a mere 36 days after releasing his study (containing the assurances quoted above), Jerry Taylor authored a new blog post in which he wrote:
I have argued elsewhere that the revenues produced by a carbon tax-for-regulation swap should be used to pay for tax cuts or returned to taxpayers via lump-sum rebates. This is the most attractive scenario if a carbon tax emerges as part of a larger effort to reform the tax code or as a stand-alone measure to supplant EPA greenhouse gas regulation.
But what if a tax-for-regulation swap were to come up in an attempt to address budget deficits and the looming fiscal imbalance? Many conservatives fear exactly that, which is why they are reluctant to promote a tax-for-regulation swap. But even were those fears realized, conservatives should take heart: using carbon tax revenues to reduce the deficit makes good economic sense. [Bold added.]
Now here’s what’s interesting: Taylor spends the rest of his blog post trying to show conservatives that they are being completely foolish and unreasonable if they think the U.S. government is not going to sharply raise taxes in the near future. Because of the mushrooming government debt, Taylor argues, and because (he claims) spending cuts are politically impossible, conservatives should face up to the fact that large tax hikes are inevitable. Given that (alleged) reality, Taylor continues, conservatives might as well embrace a tax on “pollution” (i.e. carbon dioxide emissions) rather than tax hikes on corporate income or wages.
Notice how far we’ve come, in just a month. Taylor has gone from assuring conservatives that “virtually every proposed carbon tax put on the political table includes offsetting tax cuts to ensure revenue neutrality” (which actually wasn’t true) to telling conservatives that massive tax hikes are inevitable, and that conservatives should be happy to include a carbon tax in the mix.
What is particularly troubling about Taylor’s sudden about-face is that nothing changed in the 36 days between his study and the new blog post. All of the trends he indicates about entitlement spending and debt-to-GDP were true when his study came out in March. Taylor presumably knew full well at that time—just as I said in my critique—that the political forces pushing for a carbon tax had no plans on devoting 100 percent of the revenue to offsetting tax cuts, certainly not offsetting corporate income tax cuts which are necessary even in his preferred computer models to make GDP grow.
Conclusion
One of the major sources of my disagreement with Jerry Taylor was his (original) assurance to conservatives that they could get a revenue-neutral swap if only they would support a carbon tax. Now Taylor has admitted that this is politically impossible: Massive new taxes are inevitable, Taylor claims, and conservatives might as well mitigate the blow by supporting a carbon tax.
What other plans of Taylor’s “conservative” case will be jettisoned as the months pass? For example, Taylor also touted a plan to scrap EPA regulations in exchange for a carbon tax. I pointed out that conservatives would never get such concessions from the very groups that installed the inefficient regulations in the first place. Will Taylor suddenly see the light in a few months, and tell conservatives that they should support a carbon tax in order to reduce the amount of new regulations being imposed on the energy sector?
