Testifying in front of the Senate Finance Committee on tax and energy issues, Harvard’s Dr. Dale Jorgenson proposed a tax increase on fossil fuels equivalent to a 1.5 percent increase in federal revenues as a percent of GDP. Chairman Baucus asked if the increase is a “cousin” to a carbon tax and Dr. Jorgenson replied “a kissing cousin.” Defending the tax increase as a way to reduce consumption of carbon based fuels; Dr. Jorgenson claimed such a tax would be most effective if heavily weighted towards coal—this sounds like a carbon tax to us.
A carbon tax harms American industries and consumers at a time when businesses need access to cheap energy sources so they can grow our way out of the Great Recession. The Energy Information Agency estimated that coal, oil and natural gas represent 83 percent of US energy sources as of 2010.
The same study found that 76 percent of commercial and residential energy consumption and 41 percent of industrial consumption comes from natural gas while petroleum, as expected, represents 94 percent of transportation energy consumption. Additionally, 92 percent of coal produced in this country goes to electrical power generation—power plants designed to sell electricity to the public to heat and cool our homes. Raising taxes on oil, coal and natural gas drives up costs for everyone and prevents businesses from expanding.
Dr. Jorgenson claimed a carbon tax will raise revenues and reduce consumption of fossil fuels, but ignored the negative effects this has on economic growth. When the government taxes something we get less of it so hoping to increase revenues and reduce consumption of fossil fuels with a carbon tax seems like faulty logic to us. This is the same logic behind cigarette taxes designed to curb smoking and raise revenue—the government wants to tax your cake and eat it too.