The North American Free Trade Agreement (NAFTA) has contributed to economic prosperity for Texans and all Americans, which is why any renegotiation should be toward freer trade.
I was quoted in this Houston Chronicle article.
I had the honor of presenting at the @SMUONeilCenter's event: “#Trump & the Texas Economy.” Watch my presentation (first presenter) along with others as we discuss #Texas, taxes, spending, #NAFTA, #tariffs, & #energy.
Find this full post with charts here.
Proponents of a U.S. carbon tax have been coming out of the woodworks for years, but even more recently, shouting about the need to reduce carbon dioxide emissions primarily from the use of fossil fuels to save the environment. But is it worth it? According to a recently published paper by the Texas Public Policy Foundation, the answer is no.
A carbon tax is often called a free-market approach to reducing the negative externalities, or social costs, of CO2 emissions while causing consumers little harm. In reality, a carbon tax would drastically increase the price of every good or service that requires the use of energy…so, all of them.
A free market is, by definition, a marketplace where consumers and suppliers mutually benefit through voluntarily exchange for goods or services. The proposed carbon tax is most definitely not a free market tax because a tax of any kind interferes in the market.
The Australian carbon tax, one of the most commonly cited examples of a “success,” caused the largest-ever quarterly increase in consumer energy prices. The initial cost was $23 per ton of CO2 equivalent emitted into the air and was increased to $24.15 per ton a year later. The program was so unpopular that the program was formerly ended in July 2014, just two years after it was implemented.
Estimates for the U.S. of a tax of $49 per ton of CO2 emissions indicate there could be an increase of $21 per barrel of oil and could increase the price of natural gas by $2.60/mcf, nearly doubling the current price. There’s no doubt about it: price increases that massive will cause consumer electricity prices and gasoline prices to spike, harming Americans, especially those least able to afford it, in the process.
Additionally, there’s little conclusive evidence to prove that carbon dioxide emissions cause environmental harm. Dr. John Christy, a leading atmospheric scientist, says that our current environmental models are too inaccurate to provide any reliable data. For example, Figure 1 shows 102 environmental model runs in 32 groups of global temperatures compared to the actual observed data.
All one has to do is take a cursory glance at this comparison to call the scientific community’s “consensus” into question, with the facts showing the estimated average increases were more than 2.5 higher than actual temperatures. In contrast, there is significant empirical data showing carbon dioxide emissions are associated with improved quality of life.
Figure 2 shows the massive increase in GDP per capita, population, and life expectancy that is associated with increased CO2 emissions.
Other research finds that there is a 95 percent correlation between increasing use of fossil fuels and rising economic growth over time. There is also an 83 percent correlation between rising CO2 emission levels and average life expectancy at birth.
In summary, the proposed “free-market” carbon tax is, by definition, not a free market solution. The tax would unduly burden American consumers with increased electricity and gas prices.
One of the most prominent examples of an implemented carbon tax was so unpopular that it was scrapped after just two years.
Finally, perhaps most importantly, there is little to no evidence that there is a need to reduce carbon emissions in this country. For all of these reasons, and many more, the proposed carbon tax should be whole-heartedly rejected.
As The Hill reported last week, two House Republicans have introduced a resolution condemning the idea of a carbon tax. Such a tax on carbon dioxide emissions, say Majority Whip Steve Scalise and West Virginia Rep. David McKinley, would “be detrimental to American families and businesses, and is not in the best interest of the United States.”
They’re right, but if anything, they’re understating the harm of a carbon tax. Because it’s a tax on energy production by fossil fuels that primarily fuel our livelihood, it’s a tax on virtually everything we do. It would mean people paying more for everything they do, eat, wear, and use. Reducing carbon dioxide to a taxable good means the subjection of nearly every facet of human existence to taxation.
The costs are real — and crippling.
What is a carbon tax? It’s often pitched as an economically painless “market” mechanism for addressing a compelling public problem — in this case, climate change. It’s based on the notion that free markets fail to account for broader social costs. For example, this thinking goes, the price paid for a piece of fruit at the grocery store does not account for the carbon dioxide emissions involved in its growth, harvest, preservation, or transport — and the damage those emissions might have on society by, say, making a future hurricane more intense.
That’s why carbon tax-supporter Sen. Bernie Sanders calls his legislation the “Climate Protection and Justice Act.”
But supporters of a carbon tax are wrong. Carbon isn’t a commodity. And it’s not a form of injustice. It’s a building-block of life. Without it, plants, animals, and humans alike would not exist. Moreover, carbon-based fossil fuels have supported unmatched economic prosperity since the Industrial Revolution.
We know what the effects of a carbon tax would be in America because we can already see them happening from such destructive policies in Europe where outrageously high prices of basic goods are forcing people to choose between food on the table and heating in the home. Even more damning and ironic is the last resort to burn wood for fuel in places like Germany.
That’s because in its desperation to make these policies look as if they’re working, the European Union counts firewood as “biomass,” and considers it carbon-neutral. It’s not — indoor burning releases more carbon dioxide than burning coal and is bringing back the respiratory ailments of previous centuries. Taxes meant to reduce carbon dioxide emissions are, paradoxically, encouraging even more of its releases at the household level – in homes desperate to stay warm.
Something else to understand about the real effects of a carbon tax is the tremendous aid it will give to those seeking to crush competition and gain an unfair advantage in our marketplace. Big corporations and big industries can bear the costs — of accounting, compliance, diminished sales — imposed by a carbon tax, which they then pass along to consumers. Their smaller competitors, hit harder by the costs of compliance, might not.
Think of the carbon tax, then, as an energy-specific counterpart to Dodd-Frank, or ObamaCare: only the huge and politically connected survive. And the small businesses and consumers lose.
But what about the benefits of a carbon tax? Just as it’s hard to overstate the harm of one, it’s difficult to understate — indeed, even to know — the benefits. That’s because the calculations of the “social cost” used to justify a carbon tax are so subjective in their attempt to quantify the value of human lives and livelihoods, in order to sum up how climate change might affect them. As economist and MIT Professor Robert Pindyck notes, these calculations “can be used to obtain almost any result one desires.”
Furthermore, these models fail to account for how reliable, affordable energy from traditional sources benefit people — by extending lives, fighting disease, reducing hunger, and alleviating poverty.
These benefits are, in fact, easily quantifiable. There is a historical correlation of over 95 percent between increasing use of fossil fuels and rising economic growth over time. As income rises, so does improvement in most indicators of human well-being including hunger, infant mortality, education, child labor, and economic freedom.
Calls for a carbon tax are based on flawed assumptions and bad math. Moreover, the proclaimed benefits of a carbon tax are not proven, yet the negative economic effects of such a carbon tax are clear.
Congress is right to take a stand against a carbon tax. More freedom and more opportunity to innovate are the keys to a cleaner environment. And American businesses are up to that challenge.
This commentary was originally featured in The Hill on May 3, 2018.
New economic reports suggest an increasingly thriving economy thanks to changes in regulatory and tax policy and the Bernie Sanders promise of the government providing a job, an education, and health care is just a fantasy that ultimately ends in misery, according to Texas Public Policy Foundation Chief Economist Dr. Vance Ginn.
Numbers released Thursday from the Labor Department show, that in the final week of April, just 211,000 Americans filed first-time unemployment claims. That’s the lowest number since 1969. The monthly average for April was 221,500 new claims, the lowest since 1973, when the U.S. workforce was half the size it is now.
Ginn says there are pretty simple reasons for the low numbers.
“A big part of it has to do with the regulatory reform. The rollbacks by the Trump administration last year gave some more consumer and business confidence out there, that are near record highs. Along with the Tax Cuts and Jobs Act that was passed in December, these things have (people) saying, ‘Let’s go ahead and invest. Let’s go ahead and hire more workers.
“People are spending more at the same time. That’s the way you really get more job creation and more economic growth over time,” said Ginn.
But the historically low unemployment claims don’t tell the whole story. Ginn says there is definitely room for improvement in the labor participation rate and the unemployment rate, known as U-6, that includes part-time workers and people who have given up looking for work.
“They are improving but there is still a ways to go. The unemployment rate – the reported number – is at 4.1 percent. But the U-6, which includes under-employed and discouraged workers, is still above eight percent. That’s above where we’re usually at at this time in an economic expansion. As of this month, this is the second-longest economic expansion in U.S. history,” said Ginn.
He’s also not satisfied from what he’s seeing from an economic indicator known as the employment to population ratio.
While the economy grows, the political left has a very different vision for America’s economic future. Sen. Bernie Sanders, I-Vermont, who narrowly lost the 2016 Democratic Party nomination to Hillary Clinton, is now pushing a plan to provide a government job to every American, along with taxpayer-funded health care and college tuition.
While conservatives recoil at such an agenda, a new Rasmussen poll shows 46 percent of Americans like the Sanders plan.
Ginn is not surprised.
“What it tells us is that people like to get things for free or what they perceive to be free. But it also tells me that 54 percent of people understand the opportunity cost and what direct cost this will have,” he said.
“So even with it being “free,” they still oppose it because they understand this is going to come with some sort of cost. Somebody’s got to pay for it and all the details aren’t out yet,” said Ginn.
He says a majority of Americans still realize this cannot be done.
“Making sure that the jobs pay $15 an hour or making sure that there’s health care benefits, maybe even having “free college,” all these things come with a huge cost,” said Ginn, who says that money would have to come from tax hikes on businesses and individuals.
“If you’re raising the cost of doing business, that means fewer jobs available in the private sector. So are we going to have more federal government jobs. How exactly will these people be employed?” asked Ginn, who also notes that many people may not like the jobs the federal government would assign them.
But conservatives like Ginn face an uphill climb. While firmly believing data and experience are on the side of limited government and free markets, Ginn says it’s a lot easier to promise “free” stuff than to articulate the beauty of markets.
“Often times that can be difficult. When you say you’re cutting taxes and then you show that the corporate income tax rate went from 35 percent to 21 percent, how is that not for the “rich?” (We know) businesses simply submit taxes. They don’t actually pay for them. People pay for them through the form of higher prices, lower wages, and fewer jobs available.
“Often times that’s a difficult message to sell but that’s the economic reality and I think we’ve got to stick to those core principles throughout each and every one of these policy initiatives,” said Ginn.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.