Laffer Throws a New Curve – Bob Inglis Explains
February 27, 2012
At last month’s Town Hall meeting on Climate at the University of Michigan, ( a goldmine of thought and inspiration) – I had the pleasure of meeting and interviewing conservative republican and former congressman Bob Inglis. Inglis is one of a quiet but growing group of conservatives frustrated with the anti-science stonewalling of their party on the issue of climate change, and is working for solutions that he believes will not only be palatable to conservatives, but effective as well.
As a longtime champion of conservative causes, renowned economist Arthur B. Laffer says he’s officially neutral in the debate over climate change. But he sees a fundamentally backward system in the United States that imposes taxes on things people want more of: income and jobs. At the same time, the U.S. allows something we want less of — carbon dioxide pollution — to be emitted without penalty.
Laffer says that situation should be reversed. Instead of tax increases that are “veiled as ‘cap and trade’ schemes,” Congress should offset a simple carbon tax with a reduction in income or payroll taxes.
Laffer and (now former) Rep. Bob Inglis wrote about the plan in the New York Times, as long ago as 2008.
We need to impose a tax on the thing we want less of (carbon dioxide) and reduce taxes on the things we want more of (income and jobs). A carbon tax would attach the national security and environmental costs to carbon-based fuels like oil, causing the market to recognize the price of these negative externalities.
Nuclear power plants would then compete with coal-fired plants. Wind and solar power would have a shot against natural gas. Trains would compete with trucks. We would clean the air, create wealth and jobs through a new technology boom and drastically improve our national security.
The United States can’t solve climate change alone. The Kyoto climate treaty was rightly rejected by the Senate because China and India weren’t subject to its provisions. If China and India join the United States in attaching a price to carbon, their goods should come into this country without a carbon adjustment. But if they do not, every item they place on our shelves should be subject to the same carbon tax that we would place on our domestically produced goods, again offset by a revenue-neutral tax cut.
If World Trade Organization rules entitle members to an unwarranted exemption from such a carbon tax, then we should change them. Outliers should not be allowed to frustrate the decision-making of the countries that are trying to prevent the security and environmental train wrecks of this century.
The market-driven innovation that brought us the Internet and the personal computer could quickly bring us new, cleaner fuels. A carbon tax that was fully offset (with payroll or income taxes cut by a dollar amount equal to the revenues generated by the new tax) would be as bold as the threat that we face.
Conservatives do not have to agree that humans are causing climate change to recognize a sensible energy solution. All we need to assume is that burning less fossil fuels would be a good thing. Based on the current scientific consensus and the potential environmental benefits, it’s prudent to do what we can to reduce global carbon emissions. When you add the national security concerns, reducing our reliance on fossil fuels becomes a no-brainer.
Could this be the foundation for an emerging compromise on climate, carbon and taxes?
Last week, a bi-partisan group of present and former congressmen - Republicans Sherwood Boehlert and Wayne Gilchrest, and Democrats Ed Markey and Henry Waxman - made similar proposal in the Washington Post.
The debate over how to reduce our nation’s debt has been presented as a dilemma between cutting spending on programs Americans cherish or raising taxes on American job creators. But there is a better way: We could slash our debt by making power plants and oil refineries pay for the carbon emissions that endanger our health and environment. This policy would strengthen our economy, lessen our dependence on foreign oil, keep our skies clean — and raise a lot of revenue.
The best approach would be to use a market mechanism such as the sale of carbon allowances or a fee on carbon pollution to lower emissions and increase revenue. Using these policies, the United States could raise $200 billion or more over 10 years and trillions of dollars by 2050 while cutting carbon emissions by 17 percent by 2020 and 80 percent by 2050, providing transition assistance to affected industries, and supporting investments in clean-energy technologies.
Such a policy would have enormous benefits beyond its fiscal contributions. As the National Research Council of the National Academy of Sciences concluded last year, “The risks associated with doing business as usual are a much greater concern than the risks associated with engaging in strong response efforts.” Inaction on climate means more intense and frequent heat waves, more droughts, more flooding and more loss of coastline. Delaying action just until the end of the decade will quadruple costs to the global economy, according to the International Energy Agency.
A north american example of the carbon tax in action exists in British Columbia.
Four years in – the program is a qualified success.
Initially, more controversy surrounded the tax proposal in British Columbia, but it subsided after the sky did not fall on the economy and, according to some polls, support for the measure grew.
Environics Research Group Ltd. documented an almost 10-percentage-point rise in support among British Columbians for the carbon tax between when the tax was about to be implemented in 2008 and when it had been in place for a year in 2009, for example. Last month, researchers at three universities reported (pdf) that an even stronger majority, or 56 percent of Canadians, supported a carbon tax costing $50 a month.
“Initially, some people heard the ‘t’ word and went into a tizzy,” said Robert Gifford, a professor at the University of Victoria and an expert in environmental psychology. “Then the end of the world didn’t happen, and people just accepted the tax.”
British Columbia opposition party follows the polls
The growing acceptance included the opposition political party in British Columbia, which campaigned against the tax in 2009 but now has some members coming out in support. New Democratic Party leadership hopeful John Horgan said in February that his party misread the public mood on the issue, and called for a tax expansion, rather than a decrease.
Long before Jeb Bush began to express the misgivings of mainstream Republicans about the increasing craziness of the GOP base, Bob Inglis was urging folks to turn off Glenn Beck and embrace pragmatism and empirical fact.
When he returned to the House in 2005, Inglis, though still a conservative, was more focused on policy solutions than ideological battle…
Instead, he remarks, his party turned toward demagoguery. Inglis lists the examples: falsely claiming Obama’s health care overhaul included “death panels,” raising questions about Obama’s birthplace, calling the president a socialist, and maintaining that the Community Reinvestment Act was a major factor of the financial meltdown. “CRA,” Inglis says, “has been around for decades. How could it suddenly create this problem? You see how that has other things worked into it?” Racism? “Yes,” Inglis says.
As an example of both the GOP pandering to right-wing voters and conservative talk show hosts undercutting sensible policymaking, Inglis points to climate change. Fossil fuels, he notes, get a free ride because they’re “negative externalities”—that is, pollution and the effects of climate change—”are not recognized” in the market. Sitting in front of a wall-sized poster touting clean technology centers in South Carolina, Inglis says that conservatives “should be the ones screaming. This is a conservative concept: accountability. This is biblical law: you cannot do on your property what harms your neighbor’s property.” Which is why he supports placing a price on carbon—and forcing polluters to cover it.
Asked why conservatives and Republicans have demonized the issue of climate change and clean energy, Inglis replies, “I wish I knew; then maybe I wouldn’t have lost my election.” He points out that some conservatives believe that any issue affecting the Earth is “the province of God and will not be affected by human activity. If you talk about the challenge of sustainability of the Earth’s systems, it’s an affront to that theological view.”
Inglis voted against the cap-and-trade climate legislation, believing it would create a new tax, lead to a “hopelessly complicated” trading scheme for carbon, and harm American manufacturing by handing China and India a competitive edge on energy costs. Instead, he proposed a revenue-neutral tax swap: Payroll taxes would be reduced, and the amount of that reduction would be applied as a tax on carbon dioxide emissions—mainly hitting coal plants and natural gas facilities. (This tax would be removed from exported goods and imposed on imported products—thus neutralizing any competitive advantage for China, India, and other manufacturing nations.)
Here was a conservative market-based plan. Did it receive any interest from House GOP leaders? Inglis shakes his head: “It’s the t-word.” Tax. He adds, “It’s so contrary to the rhetoric we’ve got out there, to what Beck, Limbaugh, and others are saying.”
For Inglis, this is the crux of the dilemma: Republican members of Congress know “deep down” that they need to deliver conservative solutions like his tax swap. Yet, he adds, “We’re being driven as herd by these hot microphones—which are like flame throwers—that are causing people to run with fear and panic, and Republican members of Congress are afraid of being run over by that stampeding crowd.” Inglis says that it’s hard for Republicans in Congress to “summon the courage” to say no to Beck, Limbaugh, and the tea party wing. “When we start just delivering rhetoric and more misinformation…we’re failing the conservative movement,” he says. “We’re failing the country.” Yet, he notes, Boehner and House minority whip Eric Cantor have one primary strategic calculation: Play to the tea party crowd. “It’s a dangerous strategy,” he contends, “to build conservatism on information and policies that are not credible.”
Inglis is a casualty of the tea party-ization of the Republican Party. Given the decisive vote against him in June, it’s clear he was wiped out by a political wave that he could do little to thwart. “Emotionally, I should be all right with this,” he says. And when he thinks about what lies ahead for his party and GOP House leaders, he can’t help but chuckle. With Boehner and others chasing after the tea party, he says, “that’s going to be the dog that catches the car.“