Senator Whitehouse’s Duplicitous Carbon Tax Amendment

Last weekend the Senate rejected an amendment to the FY 2014 budget that would have enacted a carbon tax. For those interested in affordable energy and job creation, this was a good thing. Still, it’s worth walking through the actual wording of Senator Whitehouse’s amendment to see just how duplicitous it was. Even if someone knew nothing of the climate policy debate, the rhetorical sleight of hand in Whitehouse’s proposal should raise alarm bells.

A Tax By Any Other Name Would Hurt the Economy Just as Badly

An LA Times story on the vote shows just how slippery Whitehouse’s description is: “Sen. Sheldon Whitehouse, a liberal Rhode Island Democrat, offered an amendment to the proposed fiscal 2014 budget resolution calling for ‘establishment of a fee on carbon pollution.’”

This is the same euphemism that Senators Boxer and Sanders used. Let’s be clear: A “fee on carbon pollution” means that the federal government is going to tax Americans for using energy in its most economical forms. If the IRS started calling it a “fee on worker exertion,” it would still be a payroll tax.

There are many economists and other analysts who think that a carbon tax makes sense. If so, legislators should openly state what they want to do. They want to tax carbon emissions? Fine, let them explain their intentions to the voters and see what happens. But to frame it as “a fee on carbon pollution” is loading the deck.

When Everything Is Allowed, Nothing Is Forbidden

Yet the “fee” euphemism is hardly the worst of it. The LA Times story continues:

The amendment didn’t suggest who’d pay the fee or how large it would be; it required only that the fee not increase the deficit and that all the revenue raised be “returned to the American people in the form of federal deficit reduction, reduced federal tax rates, cost savings or other direct benefits.”

That’s such a wide set of options, it left room for the Senate to consider all of the carbon-tax proposals that have been floated. Some would use the revenue to narrow the federal budget gap; others would lower corporate and personal tax rates. Still others, such as the one favored by the Citizens Climate Lobby, would divvy up the money among consumers and businesses in the form of rebates, effectively shifting dollars from the most intensive carbon emitters to the least.

The article here understates the emptiness of these “constraints.” Not only did Whitehouse’s amendment allow “all of the carbon-tax proposals that have been floated”; it would be difficult to imagine a carbon tax proposal that would not qualify. No matter what the government did with carbon tax receipts, they could always classify it in one of the permissible categories.

Consider: (1) If the government doesn’t spend any new money or change other taxes, then the carbon tax revenues would be used for deficit reduction. Check.

(2) The government could use the money to reduce other taxes. Check.

(3) The government could spend the money. So long as the money were construed as offering “direct benefits” to Americans, this option too is allowed. Check.

Indeed, unless someone proposed using carbon tax revenues to drown adorable kittens, it is hard to come up with anything even in principle that Whitehouse’s amendment would prevent. And yet, he obviously put in that language to make it appear as if he were protecting the American public from getting hit with a massive new tax hike for no good reason.

He did not even deign to offer guidance on how much the tax would be, apparently leaving that up to someone else.  Would it be a tiny fee or a huge fee?  The Senator offers no clue. It is probably a good thing the Senator is not in the House of Representatives, where under the Constitution, all revenue bills must begin.

Conclusion

The various proposals for a new carbon tax will bring in potentially trillions of dollars in new revenue in the coming decades. As I spell out in this study, it is incredibly naïve to think that this measure would be used to promote economic efficiency, even if one endorses the standard “negative externality” argument about carbon emissions.

If there remains any doubt on this point—if anybody thinks policymakers are actually going to craft a policy that uses new carbon revenues in order to shrink the rest of the government and deliver net benefits to Americans—then go re-read Senator Whitehouse’s duplicitous amendment. It may have been defeated this time around, but the proponents of a carbon tax keep coming back for more.