The current plan for cap and trade will suffer a death of small ambition. At best, a CO2 cap and trade plan is a poorly veiled carbon tax. At worst, it is a an excuse for corporate welfare with subsidies for coal plants, funds funneled to “clean carbon” research, waivers, and legacy credits. Trying to pretend that cap and trade is not a tax is both dishonest and leaves it open to a quick political death. If environmentalists want real change, they need to honestly embrace the fact that cap and trade is a tax and plan to use it to rewrite our whole system of taxes.
Currently our tax code is horrible. It is too long, too complex, full of loopholes, and punishes good behavior. Taxing people for working may not be the worst way to raise revenue, but it is far from ideal. We should be taxing behavior we want individuals to stop, not activities we are try to encourage.
President Obama's budget plans to use the revenue generated by cap and trade to pay for his Making Work Pay tax credit. This is a step in the right direction, but not nearly big enough. The cap and trade or carbon tax should be directly connected to the payroll tax. Any money raised by cap and trade should result in a direct, across-the-board cut in payroll taxes. Cap and trade needs to be bigger and sold as allowing, say, a 30% cut for all payroll taxes.
If the fight over cap and trade is a debate about raising taxes, it is destined to fail. Trying to pretend that cap and trade is not a tax is not a winning strategy. Environmentalists need to preemptively seize the issue of taxes and subvert the conservative message. It is important that the cap and trade plan is revenue neutral. The plan must be framed as a plan to tax pollution instead of wages. People shouldn't choose to reduce their wages to reduce their tax burden, but they can easily choose to reduce their carbon footprint to avoid taxes
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