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The Market Choice Act is a piece of legislation currently under consideration by Congress. It contains a provision that would implement a carbon tax as a so-called “solution” to cutting pollution, boosting green energy, raising revenue and reducing negative externalities.
But how effective would a carbon tax really be?
Let’s address some myths about the carbon tax and find out why its costs would outweigh the benefits.
Myth #1 – The carbon tax is a “market-driven,” sometimes called “price-driven,” policy.
Fact – Many proponents of the carbon tax refer to the policy as being “market-driven,” or “price-driven,” in selling its features as being market-friendly. But a carbon tax is not market-driven, principally because a tax is not a market feature – it is, rather, a feature of government. When government taxes something, it distorts the market and drives up prices for consumers.
A tax on carbon would be anything but market-driven. Rather, it would be the government incentivizing a desired behavior by artificially inflating the cost of energy—while collecting a large stream of new revenue at the same time.
Myth #2 – A carbon tax is a useful and effective tool for protecting the environment.
Fact – Even if we adopt a carbon tax, it will produce an extremely negligible effect on any projected temperature change. Given the complexity any significant natural variability of our climate system, even if you eliminated all carbon emission in the United States, it would still have a minimal impact on climate.
Put simply; a carbon tax would exact significant economic cost on all American, without improving the environment. Instead, we should focus on innovation and stewardship for a sustainable future in a dynamic environment that maximizes human health and flourishing.
Myth #3 – A carbon tax wouldn’t hurt the economy.
Fact – America maintains a competitive edge over many foreign industries requiring high energy inputs, principally because American energy is much cheaper. Raising the costs of that energy through a carbon tax would harm everyone, in a few ways:
Myth #4 – The carbon tax would be revenue neutral.
Fact – This would not be the case. Historically, many taxes were levied with the intent to displace the burdens of other taxes, thus being “revenue neutral.” In this case, supporters of the bill are touting the fact that the carbon tax would replace the existing federal gas tax—calling this a tax swap.
However, initial projections for the Market Choice Act show a net tax increase of $57-$106 billion a year, even after accounting for the elimination of the federal gas tax. Far from revenue neutral, this carbon tax would wind up being yet another tax burden shouldered by Americans.
Myth #5 – A carbon tax would reduce pollution.
Fact – The claim that a carbon tax would reduce pollution is a common one, the idea being that making the consumption of fossil fuels more expensive would necessarily reduce their usage.
On the contrary, a carbon tax may increase pollution. Already tariffs are causing American businesses to shift production overseas. With additional costs on American businesses, more will seek to produce in countries with even lighter environmental regulations.