I've argued before that you can compare a perfect-world carbon tax to a perfect-world cap and trade proposal, or a realistic carbon tax to a realistic cap and trade proposal, but you can't compare a perfect-world carbon tax to a realistic cap and trade proposal. Today, Kevin Drum draws that argument out at length:
Cap-and-trade is a real-world program for reducing pollutants. We used it successfully with sulfur emissions in the 90s. Europe is already doing it with carbon. The northeastern states are doing it with RGGI. The Waxman-Markey bill is a real piece of legislation that's hundreds of pages long and festooned with a hundred different compromises that will (we hope) allow it to survive the legislative sausage grinder.
And all of these variations of cap-and-trade are complicated. When you read about them, you're immediately bombarded with jargon: auctions vs. allocations; caps, floors, offsets, and banking; upstream vs. downstream; how the exchange should be set up; how often permits should be sold; etc. etc. Those are all real-life questions, and in any real-life plan they have to be addressed. And they're confusing. And yes, they all provide potential toeholds for special interests to game the system — something we should fight like banshees to keep to a minimum.
Tax advocates have no such worries. They propose that we simply tax various fuels based on their carbon content, and voila! We're done. Simple and easy.
Ironically, though, the only reason they can get away with this is because of the very fact that a tax is a political nonstarter, which means there are no real-world taxes on the table. But if there were, they'd have all the same questions as a cap-and-trade plan, plus a whole bunch of new ones. Should it be levied upstream or downstream? Can it be tax sheltered offshore? Are you allowed to apply a tax-loss carryforward to your carbon tax levy? How do you harmonize the tax with other countries? Can I get a tax credit for reducing carbon emissions? How are the revenues going to be distributed? Should midwestern states that rely more on coal-fired plants get treated differently than, say, California? What would it take to make a carbon tax on foreign oil compatible with WTO rules?
Rhetorically, tax advocates can pretend that none of these questions exist. They're able to contrast the genuine messiness of a real-world cap-and-trade plan with a Platonic, whiteboard version of a tax plan.
But that's not how it would work. If cap-and-trade goes down, we're not going to get a tax instead. And if we do eventually get a tax instead, it's not going to be a clean and simple tax. It's going to be a thousand-page monster with every paragraph the subject of a slugfest between a dozen different special interests lobbying half a dozen different congressional committees. That's reality.
It will look, in other words, very much like our actual tax code. Which is not to say that there's no argument for a carbon tax. But you can't simply argue that a theoretical carbon tax is more elegant than existing cap and trade legislation. The difference there is not between an apple and an orange. It's the difference between something you dreamed last night and something you might actually do today.
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