The Waxman-Markley Climate Change Bill has been called many things, but it has yet to be called an industry subsidy. Yet, that is exactly what it is. When you are handed something of value and the cost to you is zero and others don't receive the same, you have benefited. When this "gift" is given to you by the government, funded by the taxpayers, it is known as a subsidy. The Waxman-Markley Bill would accomplish just that.
The bill is by no means complete and is already approaching fifteen hundred pages of jumbled legaleze and concessions, but if it passes as it stands, some corporate giants will benefit and receive subsidized credits. Seventy percent of the emission credits would be "given" away. Over forty percent of these free credits would be awarded to electric utilities. Plus, the cap and trade credit system would only apply to sources emitting over 25,000 tons a year, while smaller polluters would be subject to similar regulations but would not receive credits.
So, almost three quarters of these "credits", which have value, would be given away, especially if you are an electrical utility and produce lots of emissions. The beneficiaries will be free to use, "sell" or trade these credits. That is, what firms receive for "free" from the federal government, they are allowed to profit on as they wish, including transactions with investment firms, who can also participate in the trading. A corporation could also gain "offset" credits by investing in such important environmental projects like limiting livestock flatulence. I kid you not! So far, there is no specified credit for limiting congressional delegation gas, but court precedent may pave the way for that also. For those that have to pay for the credits, or are too small to receive credits but still subject to regulation, better lobbying next time! Business as usual, I spose!
Now, is it pollution or is it not? Is harm and/or injury caused as a result of emissions? Really, this is the only question that needs answered, and answered truthfully. For if the answer is yes, those that are harmed need to be compensated. Or, the harm should cease.
And, if the emissions are harmful, how will emission "credits" that for the most part are "given" away to the offenders, compensate those who are being harmed and injured? If all of the credits were eventually "auctioned" [the maximum auctioned credits is currently set at 70% by 2031], would that be just compensation and would the injured parties receive the compensation? Touting what compensation for harm and injury would "cost" the economy is completely irrelevant, if indeed harm and injury has and is being inflicted. This would be the utilitarian approach: allowing humans to be used as a means [suffering harm and injury] in order to achieve a "better" end result [a larger economy]. The utilitarian method is at home on the extreme left and right, but there is no place for it among freedom minded people.
A much more direct approach would be to eliminate the theft we call income tax and replace it with a true carbon tax. Eliminate the approximate one trillion dollars that is collected fairly randomly from the hard work and good ideas of the unfortunate citizens the tax code disadvantages, and tax the extraction of carbon from its source, the earth.
With some high school level math we can determine the carbon fee necessary to replace the trillion dollar income tax. Varying with each resource, the average weight of carbon per pound of the mined form of the resource is easily attainable. Dividing one trillion dollars by the aggregate weight of mined carbon per year will give us the rate of the fee. We could then collect the amount of money we are now collecting through the extortion of income tax instead from the extraction of carbon.
Imported carbon could be approached as you like. If we wish to "store" our own carbon until a future time when the world is more advanced in its resource depletion and our carbon is more valuable, we can practice "free" trade and allow carbon to come in untaxed. If we wish to get at our own sources now, we can apply an "import" carbon fee on any carbon product that enters from offshore in the same manner as we apply to our own.
The basis of the carbon fee is primarily the elimination of the income tax and secondarily the return of value of that which is "not produced". Remove tax from what we produce with our labor and collect value from a source that we cannot produce, the carbon resource. Since income tax would then be non-existent, much of the profit from mineral extraction will remain, it will simply change form. The resource company will now have no income taxes, but will return value from what they extract from the earth. They keep the return from their labor and enterprise of the extraction process and return some of the value from a resource that they had no part in creating.
Instead of the growth of government we will witness with the current cap and trade legislation, we would see government diminish. The IRS would shrink to a small fraction of its size and the incredibly impossible to enforce income tax would be replaced by a fee that could be monitored very easily. Income is easy to hide, small mountain size piles of ore and barrels of oil aren't. The environmental and pollution arms of the federal government could downsize considerably due to the market adjustment of energy pricing. And, compensation for pollution would be received by those affected by it, all of us, through the replacement of the confiscatory income tax.
The greenhouse issue could be addressed without being addressed. Instead of arguing over who or what caused what to happen and when and by how many degrees, we could take a big sustainable step by implementing a "real" cost into the marketplace. We could internalize what has been externalized for a couple of centuries. We might all breathe easier for it and we could continue to monitor temperatures with much less discord and strife.
This elimination of income tax would lift the lid off the economy. The trillion dollars a year now devoted to income tax would be reinvested and recycled into the economy producing tremendous growth or it could greatly lower our personal debt. The "new" carbon fee would bring a "cost" to the resource and a value to a commodity we haven't produced, not an easy task. We would have plenty of money to spend and we would spend it differently. Instead of instituting another subsidy, we could allow the market to do the work. Who knows, good things might happen!
©2009 Gene DeNardo, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Tuesday, July 14, 2009
Last modified: Tuesday, July 14, 2009
The views expressed in this article are those of Gene DeNardo only and do not represent the views of Nolan Chart, LLC or its affiliates. Gene DeNardo is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
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Reader Comments:
Posted By: Phil Manger
Date: 2009-07-14 09:41:10
I agree with you that a tax on what we haven't produced is a lot fairer and more economically efficient than the income tax. However, if you restrict this tax to carbon, you will discourage the exploration for energy without encouraging a search for technology that could make the uses of carbon-based energy sources "cleaner". A better approach is a single tax on ground rents, as advocated by Henry George. However, instead of setting it at 100 percent, as George urged, it should probably be set at around 80 percent so as to preserve a market for land.
I should point out that your proposal really doesn't provide compensation to people harmed by greenhouse gases, if, in fact, they do any harm (I don't believe they do). Letting the government tax something so that it can have more money to do whatever it is it wants to do isn't compensation.
Posted By: trd
Date: 2009-07-14 11:09:48
There is no such thing as a fair tax. However, the tax that Gene proposes is less evil than the other taxes. To be an improvement in order to eliminate the IRS it needs to be accompanied by DEEP, DEEP, DEEP spending costs. That's something our government is not willing to do.
On the other hand, isn't Alaska doing that already with the oil extraction leases? If I am not mistaken, the people of Alaska not only pay zero state income tax and zero state sales tax but they actually get money from the government's oil leases. So I guess they are already compensated for any damage, if any, that will occurr from the oil extraction. They are also compensated to be living in such a cold hell too!!!
Posted By: gene
Date: 2009-07-14 11:36:41
Hi Phil,
I agree on the land fee. 80% would also promote private land ownership rather than tenancy. I would be for the 80% land fee and some fee or royalty on the resource, small government with the surplus collection sent back to the citizens as a dividend. And you are right, the compensation is only the omittance of an unfair imcome tax, which is better than our current situation but not truly compensation.
Hi TRD,
Unfortunately you are correct on the government's unwillingness to cut spending. Yes, alaska has a citizens's dividend from resource royalties and actually if a fee like this could be localized rather than federalized, I think that would be more advantageous to keeping local government vital and federal government small. Having the feds have to ask the state's for money rather than the other way around is more in line with our constitution.
Posted By: Adrain Scott
Date: 2009-07-14 17:08:19
Curious timing. I have spent recent days researching the efficacy of Georgist policies such as this one. I am somewhat skeptical of a flat-out carbon tax, since as noted, revenues would dramatically shrink, prompting spending cuts Congress would not be willing to make.
The land value tax, or single-tax, Henry George described, helped propel California to become one of the nation's leaders of agriculture when his policies were adapted in irrigation districts at the start of the century. Other states, particularly Pennsylvania, already utilize two-tiered tax rates on land, and as trd mentioned, Alaska has this in place.
As to the compensation angle, eliminating sovereign immunity would reform torts to allow for proper restitution.
Posted By: gene
Date: 2009-07-15 07:35:47
Hi Adrian, good point on the decrease in revenue! I am also more in the single tax camp, but really, anything to trade in the income tax!
you might peruse this one for some other georgian-geolibertarian thoughts, Land: The Last Free Parcel
Posted By: Adrian
Date: 2009-07-16 22:07:28
California could really use one of the two, or both, of the aforementioned ecotaxes. I think if we're going to talk about reforming Prop 13- for businesses at last- we can look at that as a way to significantly improve it. We could use the extra revenue from such taxes to phase out rising local entitlements.
I'm not a policy wonk, and I don't have a think tank at my disposal, but I believe that it should be part of the discussion.
Posted By: Ben Kalafut
Date: 2009-07-17 10:53:37
The green tax shift should have instant appeal to libertarians and fellow-travelers.
Alas, years of trying to outdo each other in saying silly things about science to pretend there's not a problem has made the behavior habitual.
Glad to see your essay--I thumbs-upped it, would have done so twice over if I could!
Posted By: gene
Date: 2009-07-17 11:03:44
Hi Adrian, a land fee in California would also bring down some of the stratosheric land prices. they hurt everybody, individuals and business.
Hi Ben, thanks! it just doesn't make sense to tax what we produce [income] and then give away what no one does [resource].