Saturday, September 29, 2012

Carbon Tax: Won’t Reduce Deficit or Temperature

The Congressional Research Service (CRS) released a report that should be a cause for concern to all who believe in limited government. In it, CRS argues that a new tax on carbon could cut the deficit in half.
There is nothing special about a carbon tax in terms of raising revenue. CRS could have written that significantly increasing the income tax or payroll tax could cut the deficit in half. They could’ve written the same thing about instituting a new value-added tax as well.
But cutting the deficit isn’t as simple as increasing taxes. Higher taxes hurt the economy. CRS failed to mention the devastating impact that higher taxes would have on the economy. The extra revenue that would result from a carbon tax would certainly be lower than CRS estimates after considering the economic slowdown that would no doubt result.
About 85 percent of America’s energy needs are met by fossil fuels. A carbon tax would directly raise the cost of electricity, gasoline, diesel fuel, and home heating oil. This would disproportionately hurt lower-income families, who spend nearly a quarter of their budgets on energy.
But the economic pain for consumers doesn’t stop there. Businesses, faced with higher energy costs, would pass those costs on to consumers. Higher sticker prices for products lower consumer demand, and as a result, businesses must cut production and jobs.
Supposedly, the goal of a carbon tax is to reduce carbon emissions and do something about global warming, not to raise extra revenue. However, reduction in carbon dioxide emissions would yield negligible benefits in terms of temperature reduction.

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