Tax consumption, not production

A hefty, internationally enforced carbon tax would counter an attempt by OPEC to squeeze supply.

By DAVID EICHLER
Oil pumping (photo credit: AP [file])
Oil pumping
(photo credit: AP [file])
Murmurs from Washington of a cap-and-auction for carbon burning rights worry many conservatives, who see the measure as a further chill on an already ailing economy, and who dispute the premise that carbon burning causes global warming. Has anyone considered that, independent of environmental considerations, an intelligently administered carbon tax - a tax on fossil fuels - might be good for the economy? A mere 8% decrease in demand during the second half of 2008 triggered a drop in oil prices of over $100 per barrel, lowering worldwide oil expenditures at an annual rate of about $3 trillion per year. Including coal and natural gas, the drop in prices saves the U.S. alone about $1 trillion per year, more than what is needed to feed, clothe and house the unemployed, far more than the mortgage shortfall, and comparable to the overall trade deficit and to the equally staggering operating costs of Wall Street. Could there be a better clotting mechanism for the bleeding US economy? Those in the US who were in such a hurry to pass a stimulus bill would have done well to recognize a basic principle of emergency medicine: hastily administering stimulants or fluids to restore the blood pressure of a hemorrhaging patient may increase the danger of blood loss, unless accompanied by appropriate countermeasures. And that is just the saving on fossil fuel. The savings on other commodities, such as agricultural commodities and metals, though harder to evaluate, are surely considerable. In fact, because basic commodities dropped in price more than savings, salaries and employment, the public's commodity-purchasing power increased during the last half of 2008. Those not in debt got richer, if only for now. The increase in unemployment is the logical result of labor costs not falling with (i.e. rising relative to) most other basic production expenses. As labor has suddenly become very expensive in terms of material (as opposed to monetary) wealth, unemployment remains the default mechanism to knock labor costs back into equilibrium with everything else. True, many US legislators (recently helped by large campaign contributions from big labor) may be trying to prop up the amounts spent on labor, but they are rowing against a stiff current. Did the New Deal cure the Great Depression? Now all this saving and prosperity for the 90%+ still employed will be short-lived unless the oil-consuming nations maintain as much discipline and cooperation as the oil-producing ones. A hefty, international carbon tax (as opposed to limited carbon allowances handed out) would establish a kind of consumer cartel, and would effectively counter an attempt by OPEC to squeeze supply until prices slide back up. Such a tax would make fossil fuel more expensive to the individual consumer, encouraging frugality, while reducing the wellhead price - the one the nation as a whole pays. So, on the average, it saves us all money. By making material commodities more expensive relative to labor, a shift from income tax to commodity consumption tax would shift public spending away from consumption and towards human labor, thereby encouraging employment. Fossil fuel, after all, runs machines that replace human labor. Already, auto repair, shoe repair, clothes mending, and the like are booming in step with reduced consumption. Public transportation and home weatherizing should soon follow when energy costs rise again. And rise they will, either via taxation or via the producers cutting supply enough to get back in control of the market. Which via do we prefer? Taxing consumption of natural resources, as opposed to the present system of taxing labor and profit, would not only be smarter economics, it would be fairer. The present system penalizes people and corporations for being productive, while not taxing non-renewable commodities robs from the public and forks wealth over to a small clique. It is perplexing if not amusing that both economic leftists and hard core conservatives, even while quarreling about the numbers, have put up with the very ideas of corporate and income tax for so long. Public resources belong to the public, and an individual's time and energy belong to the individual. This is the justification for collectively establishing the value of resources - in contrast to collectively establishing the right of the individual to work and produce any given product (a.k.a. hard core communism). Questions like how harmful greenhouse gases really are, which most seem to agree are too complex to answer with confidence, are secondary. The owners of the atmosphere, rivers etc. - the people - have a right to assume the worst if they so wish. Polluters should pay whatever the owners want to charge while the debates rage on. Why, then, is replacing some of the existing tax burden with a fossil fuel tax so taboo that it is hardly even discussed on television, even in the throes of a perceived economic cataclysm? Apart from the usual reasons - denial, numbness, mathematical illiteracy, powerful interest groups intimidating politicians and news media, etc. - there may be an additional factor at work: low self-esteem among the public. Americans have been taught from birth that a tax is something they pay, not receive, and that oil is something that oil companies sell to them. So they end up fearing both high oil prices and high taxes. The view that they own the fossil fuel in the public domain and that the revenue collected from a carbon tax belongs to them might make them keener on such a tax. Wouldn't the energy industry simply pass the cost of the tax back to the consumers? Yes, that is the idea. It is the consumers who need to economize on energy. And returning this tax revenue (say, in the form of income tax breaks or negative income tax) would, on the average, compensate them, each according to his energy efficiency. Nearly everyone wins when other tax burdens are shifted to carbon, except possibly the oil-producing states. Bizarre as win-win may seem to addicts of political controversy, it is the logical benefit derived from taxing the behavior we wish to minimize - e.g. waste - rather than things we wish to promote - hard-earned income and profits. (And a word to those who can't believe any government would ever agree to pass up income and sales tax: Alaska.) As for the citizens of oil-producing states, who would lose most of their income were a worldwide carbon tax to drive wellhead prices down below $30 per barrel, my heart would go out to them…really. We should make it up to them by bringing them all the freedom, democracy and intellectual openness we can.