Wednesday, April 24, 2013

The Uses and Misuses of a Carbon Tax

Thomas Friedman writes in the New York Times about how a carbon tax could be used to help balance the Federal budget. Part of what attracts him is the idea that the revenues from a carbon tax could be used, partly, to reduce income tax rates and thereby gain Republican support. But I suspect Friedman is wrong about both the politics and the tax policy of this issue.

He's wrong about the politics because the Republican base, enraged and inspired by various institutes and organizations controlled by the Kochs and their running dogs, will never accept a carbon tax. The Tea Party believes that global warming is a liberal conspiracy, intended to cripple the American economy and thus somehow usher in Shariah Law, and the Tea Party will never accept any Republican motion in this direction. The ideological rigidity that makes it impossible for the Republicans to contemplate a tax increase of any size will double down to prevent a carbon tax from being passed. A carbon tax is not the ticket to a grand unified budget bargain for the exact same reason that we have a budget impasse in the first place: fanatical Republican intransigence.

But even if the Republicans were willing to accept a carbon tax along the lines that Friedman describes, we shouldn't make that deal, for a couple of reasons.

First, outside of global warming, probably the biggest problem that our society and economy face is the extreme concentration of income. That concentration has one major cause: the reduction in marginal tax rates for the wealthy. Left to its own devices, a market economy will end up concentrating income in the hands of a tiny minority. That's what a free market economy does. Back in the frontier days, the free market worked okay because what the "frontier" meant in economic terms was basically free resources for working people. But once the frontier gets used up and industry replaces agriculture as the dominant part of the economy, a free market economy starts diverting the wealth of the economy towards a smaller and smaller part of the population. In order to prevent that you have to redistribute income and that's what our high marginal tax rates used to do, and those high marginal tax rates lead to the rise of the American middle class and the Golden Age of post-war prosperity.

A carbon tax, on the other hand, is a regressive tax that hits the pockets of the middle class and poor harder than it does the wealthy. Friedman is proposing that we impose this regressive tax and use some of the revenue to reduce income tax rates even further. That idea is almost custom built to make our lop-sided new class structure even worse. This is a bad idea.

Not that a carbon tax is a bad idea. A carbon tax is a very good idea because it encourages everyone in the economy to look for ways to avoid using carbon, and that's exactly what we need to do. But don't use that money to reduce tax rates for billionaires. A much, much better use for the money from a carbon tax would be to provide tax credits for clean energy research and installation. Global warming is a very serious problem on the edge of becoming disastrous or even apocalyptic. We need to both impose a carbon tax to discourage fossil fuel use, and also take active steps to promote and encourage clean energy. We don't need to find new, creative ways of taxing the middle class and poor in order to give more breaks to the rich.

If we don't use the carbon tax as a new subsidy for the rich, then we have nothing to offer Republicans for their cooperation, but that's okay. As I outlined above, the Republicans aren't going to sign on to this in any case. And that's the deeper problem with Friedman's analysis: he can't accept that we are not going to fix global warming or any of America's other problems without first defeating the Republican party and the conservative movement. Educated, rational people who care about this country have to stop trying to pretend that there is a bi-partisan solution to our problems; there isn't. We need a partisan solution, because the Republican Party has made itself the party of ignorance, bigotry and fanaticism, and the Democrats have, by default, become the party of science, responsibility and rationality. We need to remove the Republican Party from power until such time as they become desperate enough to throw off the tyranny of Fox News, and the Kochs, and the Tea Party.

That is not a conclusion that is easy to accept, because the conservative movement is very powerful, and what I am suggesting is that in order to make progress on any of America's problems we first have to defeat this powerful opponent and remove them from control of any branch of the Federal government, along with most of the state governments. But that's the truth of it. Our first step is partisan warfare, and well intentioned commentators like Friedman need to recognize this truth.

No comments: