I am against instituting a carbon tax, but my reasons are rather different from the conventional ones.  I see three major problems with any proposed carbon tax:

• It irrationally discriminates against some forms of energy and subsidizes others.
• It ignores the considerable benefits of atmospheric carbon dioxide in promoting the growth of plants, advancing agriculture, and lowering the cost of food for a growing world population. 
• Focusing on a carbon tax emphasizes the idea that Carbon Dioxide is a pollutant -- a claim that is rapidly becoming scientifically unacceptable.

Assuming we can maintain a revenue-neutral tax stream, I favor an energy tax (BTU tax) over a carbon tax, and will explain why.

Consumption taxes

A carbon tax is of course a consumption tax that raises the price of all manufactured goods and their transportation.  Its burden falls most heavily on households in lower income brackets, which spend a larger fraction of their income on essential goods and services.  Yet many economists favor a consumption tax as a more effective way of financing government operations and promoting economic growth than other forms of taxation, like taxes on income or capital. 

Many politicians have favored a consumption tax from time to time.  A good example was presidential candidate Herman Cain, who proposed a consumption tax when he ran for the Republican nomination in 2012.  Economists who favor such a tax often insist that it must be revenue-neutral, by reducing some other taxes so as to keep total revenue constant.  This means it is not superimposed on other taxes -- although in the current political environment there’s no guarantee this will happen.

But let’s first discuss the drawbacks of alternatives, such as a VAT (Value-Added Tax) or a Federal sales tax.  As is the case for all consumption taxes, these are all regressive; some adjustments will have to be made to protect low-income households.  Aside from that, we should compare the four methods in the matter of efficiency and the cost involved in running such a tax.

A VAT is the most invasive of all of these taxes, involves large amounts of bookkeeping, inspections, control, and other costs.  European experience with VAT has shown that it must be at least 15% of the value of goods to make any sense.

A Federal sales tax has some of the same problems as a VAT.  In addition, one can visualize a large amount of cheating going on -- especially if the tax is 10% or greater and provides incentives for such behavior.  And there are always the problems of defining exemptions for certain goods and for particular classes of users.

Collecting the Energy Tax

An energy tax is the simplest because it can be applied at a small number of choke points: at oil refineries and at electric power stations.  In other words, instead of being collected at millions of points like a VAT or a sales tax, collections take place at only several hundred points and can be just as effective.  We already have a Federal tax on gasoline -- so it will be only a matter of increasing its amount; a federal tax on electricity does not appear to present much of an administrative problem. 

The major advantage of an energy tax over a tax on emitted carbon dioxide is that it does not discriminate against coal, our cheapest and most plentiful fuel for electric power.  Nor does it provide an implicit subsidy for hydro, nuclear, solar, and wind.  Once it is recognized that CO2 is not a pollutant (in the sense of having adverse effects on climate), it can be seen that an energy tax is much preferable to a CO2 tax.

Note:  We’ve had suggestions of an energy tax before; it was often known as a BTU tax.  It must be realized that there will be some forms of energy that will avoid being taxed under the proposed collection scheme.  It then becomes necessary to see if it is worthwhile to capture such a form of energy or whether to ignore it because it’s so small.

Neutrality of Tax Revenues

Returning to the main theme of revenue-neutrality, I’m sure that tax experts can figure out which tax to reduce to compensate for an energy tax.  Many would favor lowering the corporate income tax, as Herman Cain suggested in 2012.  (In a properly operating competitive market, corporate profits are really an indicator of increased efficiency of operation.) 

There are a number of advantages to such a proposal.  It will make US corporations more competitive on the international market and avoid the problem of “leakage” of corporate headquarters to countries with lower tax rates.  In the final analysis, a corporate income tax is somewhat perverse; since a corporation is not a person, it does not consume goods.  It may transform them, but it does not consume them as a person would.  Instead, corporations should be encouraged to distribute their profits to their shareholders, who are now suffering from double taxation: first, when corporate profits are taxed, and later, when dividends are taxed as part of a shareholders’ personal income. 

Motor-fuel tax and Environmental concerns

A quick word about the advantages of (what amounts to) an increase in the Federal tax on motor fuels; the last such increase was imposed during the Reagan Administration.  The various States would remain free to collect whatever their voters approve.  But with fuel efficiency of vehicles rising, revenues derived from current State and Federal taxes are woefully inadequate to maintain highways and repair bridges.  Also, a significant portion of federal and state gasoline taxes have been diverted to other uses such as local rail transit; according to a study by NCPA, only 60% of the federal fuel tax revenue goes to highways, bridges, etc. Raising the cost of driving will also reduce traffic accidents, air and noise pollution, as well as traffic congestion -- although road and bridge tolls may be the best way to fight congestion.

Last but not least, environmental activists have always campaigned for an increased tax on gasoline --considering cars and trucks as enemies of an equitable global climate.  Although evidence for any significant influence of CO2 on climate is rapidly evaporating, a tax on fuels (and reduced use of motor vehicles) is bound to gain the support of the Greens and the media -- and of a sizable fraction of the public.

Gradually also, it has become clear that increased levels of CO2 are not only not harmful, but positively benefit the growth of plants worldwide – contributing to global agricultural prosperity.  The publication of NIPCC’s (Non-governmental International Panel on Climate Change) Climate Change Reconsidered, by the Heartland Institute in 2014, of a massive compendium of relevant biological research, underlines these beneficial effects.

So to sum up, a carbon tax NO; an energy tax, MAYBE.  A lowering of taxes overall, YES.

S. Fred Singer is professor emeritus at the University of Virginia and director of the Science & Environmental Policy Project.  His specialty is atmospheric and space physics.  An expert in remote sensing and satellites, he served as the founding director of the US Weather Satellite Service and, more recently, as vice chair of the US National Advisory Committee on Oceans & Atmosphere.  He is a Senior Fellow of the Heartland Institute and the Independent Institute.  He co-authored NY Times best-seller Unstoppable Global Warming: Every 1500 years.  In 2007, he founded and has chaired the NIPCC (Nongovernmental International Panel on Climate Change), which has released several scientific reports [See www.NIPCCreport.org].  For recent writings see http://www.americanthinker.com/s_fred_singer/ and also Google Scholar.