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In the April 8 issue of the Wall Street Journal George Schultz and Gary Becker advocated a massive new carbon tax. Their arguments are based on very poor economic reasoning and an extremely naïve view of politics and politicians.
Schultz and Becker argue for a "revenue-neutral" tax on all forms of energy that burn carbon. "Revenue neutrality" is Washington-speak for the notion that a change in tax policy should neither increase nor decrease total tax revenue collected by government. It is a pure fantasy, in other words. No central planners in world history have ever been so brilliant and so omniscient as to be able to restructure a major portion of the tax system in a country of more than 300 million people in a way that produces exactly the same revenue next year as this year. In reality, "revenue neutrality" is always just a smokescreen for "tax increase." Politicians will always "err" on the side of raising taxes despite all their diversionary lingo.
In advocating heavy new taxes on energy Schultz and Becker completely ignore the fact that there are already myriad taxes of all kinds, along with the implicit tax of regulation, on all aspects of energy production and distribution. There are excise taxes, corporation income taxes, payroll taxes, and the regulatory prohibitions on drilling for oil in the outer-continental shelf and in much of Alaska where there are known to be massive oil reserves. One can just as easily make the case that the energy industry is over-taxed as under-taxed, as Schultz and Becker do.
They do make one good recommendation — elimination of "subsidies" to energy producers, but they fail to mention even one example of such subsidies to illustrate their point. One would hope that they do not refer to tax deductions or "loopholes" as "subsidies." To do so is to assume that government owns all of our income and is "subsidizing" us whenever it does not tax all of it.
Schultz and Becker advocate the worst possible form of tax collection — hiding their new energy tax from the public by imposing it "at the level of production," which they call "administratively more efficient" than imposing the tax at the point of consumption. Hiding the tax in this way will fuel anti-capitalistic bias even more since the average citizen faced with a higher energy bill will naturally blame the greedy energy companies instead of the tax-hungry government. Worse yet, such a tax would be regressive, imposing a disproportionate burden on lower-income citizens.
It gets worse. Shultz and Becker also advocate an expansion of the welfare state by paying people on welfare even more than they are paid now for not working by distributing the proceeds of their carbon tax as part of the ludicrously mis-named "Earned Income Tax Credit." Government can play Santa Claus by sending out such checks to welfare recipients and calling the checks "your carbon dividend," say Schultz and Becker.
And it gets even worse. The rate of the new carbon tax should keep increasing forever, "approximately at the real interest rate," they say. They claim that this would be only fair by plundering future generations at a similar rate of plunder being imposed on the current generation (although they do not, of course, use the perfectly accurate word "plunder" in their article).
If there is revenue left over after subsidizing welfare parasites with "carbon dividends," Shultz and Becker believe that government should further politicize research and development with "sustained support for research and development in the energy area."
George Schultz and Gary Becker are old lions of the Chicago School of economics. It is mystifying how that school of thought ever became associated with "free market" economics.
Thomas J. DiLorenzo [send him mail] is professor of economics at Loyola College in Maryland and the author of The Real Lincoln; Lincoln Unmasked: What You're Not Supposed To Know about Dishonest Abe, How Capitalism Saved America, and Hamilton's Curse: How Jefferson's Archenemy Betrayed the American Revolution — And What It Means for America Today. His latest book is Organized Crime: The Unvarnished Truth About Government.