A revenue neutral carbon tax is what you would call a "conservative" economic proposal:
Two Senate Democrats sponsored a bill Wednesday to institute an economy-wide tax on carbon dioxide emissions, revenue that would be returned through rebates and tax cuts.
Sens. Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii) pitched their proposal at an event hosted by the conservative American Enterprise Institute, saying that their bill aligns with conservative economic principles and Republicans should support it.ADVERTISEMENT
The tax would be charged at $45 per ton of carbon dioxide or equivalent greenhouse gases for coal, oil, natural gas and other hydrocarbons, collected at the place where it is produced or refined.
“The basic idea is simple: you levy a price on a thing you don’t want — carbon pollution — and you use the revenue to help with things you do want,” Whitehouse said.
“Whether you call them neighborhood effects or negative externalities, the effects of carbon pollution harm all of us.”
Whitehouse said that effects of climate change from carbon emissions amounts to a subsidy for fossil fuels, and a carbon tax would significantly cut that subsidy.
“Right now, for fossil fuel producers, that subsidy is immense, giving them artificial advantage over cleaner energy sources,” Whitehouse said. “A carbon fee can repair that failure by incorporating unpriced damage into the cost of fossil fuels. Then, the free market — not industry, not government — can drive the best energy mix for the country, with everyone competing on level ground.”
Schatz said the proposal in the bill is for “a highly efficient tax to make sure that those who emit carbon pollution pay the full cost. By pricing carbon more accurately, our bill would drive down emissions and correct a market defect that has stunted the development of renewable energy.”
They estimate their bill would bring in more $2 trillion over 10 years. All of the money would be returned in the form of a lower corporate tax rate, tax credits for workers and retirees and grants to states.
While some conservative organizations like the Energy and Enterprise Initiative and the American Action Forum have endorsed a carbon tax, it is not widely popular among Republicans.
Most GOP lawmakers disagree with Democrats about the link between greenhouse gases and climate change, and contend that a carbon tax would unnecessarily harm the economy and energy producers.
I would like to hear the argument about how a revenue neutral carbon tax would harm the (macro)economy. No doubt, it would harm nonrenewable energy producers. But, if you take those who drive a lot and use a lot of electricity and redistribute the revenue then the economy should be fine.
I can't resist. Here is a model of the macroeconomy:
Y = C + I + (G - T) + (X - M)
where Y is gross domestic product, C is consumption spending, I is investment spending, G is government spending, T is tax revenue, X is export spending and M is import spending.
If a carbon tax increases T and then the revenue is distributed to corporations, households and states, it is likely that consumer spending, investment spending and government spending will increase in equal amounts. If T = C + I + G then Y won't change.
Now, let's say "most GOP lawmakers" are worried that corporations, households and states will save that money (because folks in the U.S. love to save!). In that case, the supply of loanable funds will increase, interest rates will fall and investment spending will increase.
I'm no macroeconomist, so what am I missing?
Or, is resistance to a revenue-neutral carbon tax more about protecting the energy industry?