The net effect of using carbon tax revenue to reduce other taxes equally will be economic growth.
As the United States’ fiscal challenges deepen, the need to identify pro-growth solutions is a priority of policymakers. A carbon tax can raise revenue—which a regulation or a suite of regulations cannot do—and could be used to reduce other, more distortionary taxes, which hinder economic growth. The result is a more efficient tax system that, while raising the same amount of revenue, allows the economy to grow faster, making it easier for the federal government to meet its fiscal obligations.
The Economic Benefits of a Carbon Tax Policy
Reduce Harmful Taxes
Revenue from a carbon tax can be used to reduce other, more distortionary taxes that hinder economic growth. These include taxes on earnings and income, which affect Americans the most.
Eliminate Costly Regulations
Economists generally agree that taxes can be more efficient than regulations in reducing carbon pollution. In fact, existing federal regulations cost consumers money. A revenue-neutral carbon tax could increase gross domestic product per household annually while effectively protecting the environment.
A carbon tax creates an economy-wide incentive for people and companies to develop low-carbon technologies. Studies have shown that the incentives resulting from a low-carbon market drive faster development of advanced technologies than the current myriad of government subsidies and incentives. And a U.S. economy that incentivizes low-carbon technologies will encourage the development of technologies that can be deployed into the global marketplace.
A revenue-neutral carbon tax is a pro-growth solution to reducing carbon pollution, an approach we must adopt to ensure a healthy future for Americans and the economy. A carbon tax is more efficient and market-friendly than regulations.
Regulations are not as efficient as taxes at reducing carbon pollution
Environmental rules reduce economic growth, burden job creators and middle-class families, and stifle innovation. For decades, the U.S. government has sought to curb carbon pollution and mandate energy efficiency standards through a host of regulations and tax subsidies. Today, conservatives and economists alike recognize that taxes are more efficient than regulations. Using a carbon tax to reduce carbon pollution costs the economy less than achieving the same result through regulation.
The Regulatory State
EPA’s Regulatory Authority
In 2007, the U.S. Supreme Court held that the Environmental Protection Agency (EPA) has the authority to regulate carbon dioxide emissions. And since 2009, the EPA has proposed or finalized over 100 global warming regulations, encompassing more than 5,000 pages in the federal register. It is highly unlikely that this will all be reversed.
In 1975, the federal government enacted the Corporate Average Fuel Economy (CAFE) standards to improve the average fuel economy of cars, trucks, vans, and sport utility vehicles. The statute was not designed, nor is it well-suited, to reduce carbon pollution. As a result, CAFE requirements do reduce carbon pollution, but they do so at an unnecessarily high cost to consumers. Greater savings can be achieved elsewhere in the economy at a lower cost.
In an indirect effort to reduce carbon pollution, many federal agencies subsidize or punish certain products and technologies through regulations, tax credits, or loan guarantees. For example, the Department of Energy has issued a host of regulations on appliances, buildings, and other products, and the Department of Treasury oversees tax subsidies for electric vehicles and renewable energy.
A revenue-neutral carbon tax can achieve the same carbon pollution reductions as burdensome environmental regulations. The approach gives conservatives a pro-growth policy prescription to resist an expansion of the regulatory state.
Republicans need to respond to evolving public opinion and demographics on the issue of climate change while staying true to conservative principles
Historically, voters prioritize growing the economy, creating jobs, and policies that reduce economic burden on middle-class families. But climate change is emerging as one of Americans’ foremost concerns as the severity of storms increases and waterfront property values decrease. In fact, recent polling shows the majority of Republican voters are concerned about climate change and want the government to take action. And by a 2-1 margin, they are more likely to vote for a candidate who has a plan to address climate change.
The Future of the Republican Party
Millennials are a critical voter group that is essential to the future success of the Republican Party. Polls show that they are even more concerned than the average voter, nearly 70% believing that the federal government should take action on climate change immediately or within 10 years.
Shift in Voter Perspective
Nearly 8-in-10 Americans (78%) believe the world’s climate is undergoing a change that is causing more extreme weather patterns and sea level rise, up from 70% in December 2015. Most notably, nearly two-thirds of Republicans (64%) now believe in climate change, a 15% increase from just under half (49%) three years ago.
Winning Electoral Coalition
To win future elections, Republicans need to stay true to conservative principles and appeal to the support of a larger share of voters concerned about climate change. Republicans need to expand their base of support and find key issues to engage these new potential voters. Solutions to environmental concerns are a key area where the party could engage such voters while maintaining conservative principles.
As public opinion and demographics on the issue of climate change shift, Republican policymakers must identify responsible solutions while preserving the conservative values of the party.