In the April 8 issue of the Wall Street Journal George Schultz and
Gary Becker advocated a massive new carbon tax. Their arguments are based on
very poor economic reasoning and an extremely na�ve view of politics and
politicians.
Schultz and Becker argue for a "revenue-neutral" tax on all
forms of energy that burn carbon. "Revenue neutrality" is
Washington-speak for the notion that a change in tax policy should neither
increase nor decrease total tax revenue collected by government. It is a pure
fantasy, in other words. No central planners in world history have ever been
so brilliant and so omniscient as to be able to restructure a major portion
of the tax system in a country of more than 300 million people in a way that
produces exactly the same revenue next year as this year. In reality,
"revenue neutrality" is always just a smokescreen for "tax
increase." Politicians will always "err" on the side of
raising taxes despite all their diversionary lingo.
In advocating heavy new taxes on energy Schultz and Becker completely
ignore the fact that there are already myriad taxes of all kinds, along with
the implicit tax of regulation, on all aspects of energy production and
distribution. There are excise taxes, corporation income taxes, payroll
taxes, and the regulatory prohibitions on drilling for oil in the
outer-continental shelf and in much of Alaska where there are known to be
massive oil reserves. One can just as easily make the case that the energy
industry is over-taxed as under-taxed, as Schultz and Becker do.
They do make one good recommendation - elimination of
"subsidies" to energy producers, but they fail to mention even one
example of such subsidies to illustrate their point. One would hope that they
do not refer to tax deductions or "loopholes" as
"subsidies." To do so is to assume that government owns all of our
income and is "subsidizing" us whenever it does not tax all of it.
Schultz and Becker advocate the worst possible form of tax collection -
hiding their new energy tax from the public by imposing it "at the level
of production," which they call "administratively more
efficient" than imposing the tax at the point of consumption. Hiding the
tax in this way will fuel anti-capitalistic bias even more since the average
citizen faced with a higher energy bill will naturally blame the greedy
energy companies instead of the tax-hungry government. Worse yet, such a tax
would be regressive, imposing a disproportionate burden on lower-income
citizens.
It gets worse. Shultz and Becker also advocate an expansion of the welfare
state by paying people on welfare even more than they are paid now for not
working by distributing the proceeds of their carbon tax as part of the
ludicrously mis-named "Earned Income Tax Credit." Government can
play Santa Claus by sending out such checks to welfare recipients and calling
the checks "your carbon dividend," say Schultz and Becker.
And it gets even worse. The rate of the new carbon tax should keep
increasing forever, "approximately at the real interest rate," they
say. They claim that this would be only fair by plundering future generations
at a similar rate of plunder being imposed on the current generation
(although they do not, of course, use the perfectly accurate word
"plunder" in their article).
If there is revenue left over after subsidizing welfare parasites with
"carbon dividends," Shultz and Becker believe that government
should further politicize research and development with "sustained
support for research and development in the energy area."
George Schultz and Gary Becker are old lions of the Chicago School of
economics. It is mystifying how that school of thought ever became associated
with "free market" economics.
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