Can Tax and Dividend Work Politically in the US?

blizzardThe Citizens’ Climate Lobby is trying to construct bipartisan support in favor of addressing the CO2 problem with a revenue neutral tax, following on Jim Hansen’s suggestion. I am pessimistic about the political prospects for a straightforward tax and dividend plan in America.

Poor people in urban areas can ride buses or even trains to get where they are going. Their heat bills are relatively small because they share walls with their neighbors. They may have a hard time getting food and other necessities, but they already live a relatively low-intensity lifestyle, or could do so fairly easily.

Poor people in rural areas live in drafty shacks miles from the services they depend on and the jobs they hold. Cheap energy is crucial for them – they use more than their share and their dividend will not net out to much if anything.

The problem with tax and dividend in the US is that it amounts to a direct transfer of wealth from the rural population to the urban poor, thereby fanning the flames of the hoity and paranoia that is already tearing the country apart.

The fact that it is ideologically pure market capitalism will not cause it to appeal to rank and file republicans. The fact that tax and dividend appeals to the economists and theorists of the right doesn’t matter. They don’t own the levers of power, and they don’t have many votes.

And all of this actually does raise equity issues. The rural American lifestyle may be unsustainable, but those with limited resources strung out (in more senses than one) along the highways and byways have no practicable options that they can actually see and understand. Making life easier in cities at their expense is just not going to be popular.

Since the RepubIican party puts unity ahead of honesty, their preferred option is denial. But even absent denial, I do not believe they can sell this solution to their base.

Comments:

  1. You are unduly pessimistic about the effect of a carbon tax on rural populations, I think. The dividend could easily be structured to favour low-income people and there could also be targeted grants to rural homeowners. For example, BC gives $200 per year to homeowners who live outside the densely populated areas in SW BC and the province has a "low income climate action tax credit". See Table 1 on page 66 here: http://www.bcbudget.gov.bc.ca/2012/bfp/2012_Budget_Fiscal_Plan.pdf

    BC's personal income tax reductions also target the lower tax bands. There are also corporate tax deductions, with low small-business tax rates. A carbon tax/dividend could easily be part of a major package of tax reform, something that ought to appeal to conservatives.

    Also, country dwellers are capable of cutting their fuel use, through car-pooling, fewer trips and using more efficient vehicles. Using single-occupant pick-up trucks to run frequent errands into town is a cultural choice, not a necessity.

    Since they often have access to land, rural folk can also exploit alternative energy like wind, solar and wood better than urbanites can.

    I don't doubt that a carbon tax/dividend will be a hard political sell to US rural populations, though. But then again, so is Obamacare.

  2. Michael, a tax and dividend scheme doesn't have to be "straightfoward", it can be written to address your concerns. How about using a portion of the revenue to make low-income folks, whether rural or urban, more energy efficient and/or self-sufficient? Cultural choice need not be confronted head on, either. More home insulation? Cash for clunkers, not just cars but furnaces, clothes dryers, etc.? Bigger incentives for small-scale solar and/or wind?

    The real problem is that anything that threatens fossil-fuel profits is a hard political sell. Tax-and-dividend, straightforward or otherwise, will always be outbid by the money available for disinformation and outright vote-buying. That's what makes me pessimistic.

  3. Well, that doesn't count as "straightforward". And I am with the right on this point - anything means-tested tends to be divisive.

    But yes, the BC experience would be important if one could get Americans to notice it.

    Remember, though, how Americans draw weather maps. There's no weather north of the 49th parallel. It's the end of the world.

  4. Indeed, many Americans don't have a lot of awareness about Canada (I once heard of a Californian looking at a friend's British Columbia licence plate and remarking "Wow, you drove here all the way from South America!").

    It's not complicated. BC's additional administration costs for the carbon tax are very small, because fuels were mostly already taxed and because the rebates are handled through the pre-existing income tax system. The rebates are only means tested in the way that a progressive income tax is means tested.

    We don't have to give up on carbon pricing just because some people live in the countryside.

  5. You think that's bad, try driving around with New Mexico ID. There are lots of stories. And I've heard of someone getting in trouble trying to demonstrate US residency with Washington DC District of Columbia ID.

    I once tried to cash a traveler's check in Miami. They asked for ID. I gave them a Quebec driver's license, all I was carrying at the time. (Back then, passports weren't needed for Canadians visiting the US.) Of course, it was entirely in French. The teller puzzled over it for a while, looked at me, and asked "Is this ID from out of state?" Honest.

  6. Tobis writes,

    We need the price of fossil fuels to rise.

    It could conceivably be *helpful* for the price of fossil fuels to rise. But only if those to whom the increased costs are increased revenues are not the very people who serve the public by deciding how difficult it shall be to replace fossil fuels.

    In Hansen's fee-and-dividend scheme, the dividend serves the utterly vital purpose of eliminating that conflict of interest -- but only insofar as the added fee would otherwise exacerbate it.

    Dividend-first would eliminate the conflict that already exists.

    Poor rural people who live in drafty shacks, tens of miles from the services they depend on and the jobs they hold, would be strongly attracted by this, I think; and not just because of the global goodness of that conflict elimination but because they'd gain personally.

    Doesn't it seem to you that dividend-first would do so much good that it's smart to make it dividend-only? If once we can see our way clear to a campaign promise to add an effective antidote to the poisoned chalice, why would we ever revert to a platform of poisoning it some more, and *then* adding antidote?

  7. Such a difficult problem. I've been thinking about your post all day MT.

    I really don't know enough about exactly how everyone would be affected by a carbon tax. The otherwise lower cost of living in rural areas might make the disbursement/dividends worth more.

    One big problem is that the opposition has both populist and economics factions: measures that would help soften the blow to most citizens will be decried as market distortions by free enterprise types. Similarly, the kind of very simple carbon price that works well in economics textbooks would be devastating to a small number of people, and in today's media/political climate the small number who are harmed are always louder than those who are helped.

    Honestly a think the above is a bigger problem than "the Koch brothers et al." (See: Tom Steyer's ROI in 2014). You have people who feel (rightly or wrongly) that the government isn't helping them, allied with this cynical free enterprise ideology. Of course conservatives have to say no to everything! Anything that helps one group of them is anathema to the other faction and vice versa.

    Another issue here -and I think very pertinent to MT's argument- is that using economic (market) tools to change behavior starts to break down at the level where people are too poor to make economically rational decisions. This of course starts getting into a much bigger issue (guaranteed basic income?) that I don't have time or energy for today.

    A few thoughts I had.

    Different tax levels for different fuels. High tax on jet fuel. Smaller tax on gasoline. Negligible tax on diesel, propane, natural gas, etc. Not sure of the best way to handle electricity -most people can cut their electricity use, but people do also heat with it (myself included). Everyone needs a certain amount of electricity. The idea here is how to make a progressive carbon tax that's still better than nothing? I think there's some sense to it. Put a higher tax on things that citizens have more control over. Also, if I understand correctly, air travel emissions have a greater effect (per g/C) than other C emissions.

    Disbursement goes to military payroll and benefits (but not equipment). Rural communities provide a disproportionate share of our military. A stealth jobs program for rural areas. Also a way to support non-agricultural rural citizens.

    Disbursement to teachers/school districts. Maybe in some combination with the above?

    A cynical thought I had was giving the money back to the states as "block grants" with essentially no strings attached, based on the number of senators+representatives they have in D.C. The really sad thing is such a massive preemptive concession to conservatives would go completely unappreciated (see: ACA).

    As you can see I'm out to set fire to my last shreds of liberal credibility and make a sausage 51% of people will grudgingly accept. Another approach would be to win strong liberal majorities in both chambers of congress... but I'm not going to hold my breath.

    Curious to hear anyone else' thoughts of course.

  8. I was in DC during a CCL conference and checked them out. Been following them ever since. Here's a recent quote from Mark Reynolds, their Executive Director:

    "Our strategy is to touch the hearts and minds of the people who represent us, no matter who they are, and convince them to do the right thing. Is this the easy way to achieve our goal? No, it’s the only way."

    I would think going to the people that elect the politicians would be another and likely better way considering we're, like, a democracy and all.

    The success of their current strategy depends on pretty much all Republican congressman and more than a few Democrats committing political suicide.

    Advocating for a "Revenue Neutral Carbon Tax" or "tax and dividend" (or whatever you call it) is ambitious, but expecting politicians to stop being politicians is a quixotic quest in my honest opinion.

    Hope you make your voice heard in Phase II. Give me a holler if you are going to be at AGU14.

    Best,

    MQ


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