"A rose is a rose is a rose." So wrote Gertrude Stein in her 1922 poem "Sweet Emily". By this she in a more elegant way said, "it is what it is". Sometimes, though they may be undesirable or unpleasant, things just are what they are.
But sometimes they aren't. In fact, sometimes you might say that "a rose isn't a rose isn't a rose". Every once in a while, things just aren't what you think they are.
The best example I can think of is a proposed carbon tax that really isn't a tax.
Economists of virtually every stripe – from diehard conservative to wildly progressive - have said that the best way to deal with the problem of greenhouse gases is to impose taxes on carbon. As an example, each gallon of gas you would buy when you fill up your car would have an additional fee placed on it. The idea is that the additional fee (a tax by any other name) would make the product more expensive, encouraging people to switch to other power sources. In general, such taxes cause people to change behavior. You probably recall that from Economics 101.
The problem, of course, is that someone has to pay the tax, and nobody likes to pay taxes. Least of all, Republicans. As such, the idea of imposing new taxes – especially new taxes to deal with climate change, which many Republicans like to believe is a hoax – is a complete non-starter. That's made carbon tax legislation "dead on arrival".
Until now. The funny thing is that the carbon tax proposal cited above is endorsed by a number of prominent Republicans – not just Republican economists, also Republican politicians. On the face of it, this seems highly unusual, particularly because even though the word "tax" is only three letters, it is the equivalent to the most vulgar four letter word many, maybe most, Republicans can contemplate. The fact that a number of prominent Republican economists and politicians can heartily endorse the idea of a carbon tax may suggest that there is something palpably different about this particular version of that three letter vulgarity. In fact, there is. You see, the carbon tax contemplated by these economists isn't really a tax, it's a gigantic transfer payment.
A transfer payment is money transferred from one set of taxpayers to another. Amongst the best examples of transfer payments are Social Security, Medicare and Medicaid. Taxes are collected from one group of people, then payments of various sorts go to the recipients of these various social welfare programs.
They may be referred to as transfer payments, ultimately, they are still taxes, and they have the effect of making certain groups a little bit poorer and making another group a little richer. One can spend years and years of paying Social Security taxes without seeing a nickel of benefit.
The carbon tax being proposed here, however, is fundamentally different. That's because all of the money collected is then distributed equally to every American citizen. Absolutely no current governmental tax regimes come even close to this.
The tax becomes a "carbon dividend".How much money would be involved? A lot. In one initial proposal, the carbon tax would be $ 38.00/ton of carbon dioxide generated. It would be collected when the fuel is sold, meaning at the gas pump, or on electric utility bills. Initial estimates are that a $ 38.00/ton of carbon will increase the cost of petroleum at the gas pump by 38 cents/gallon. The Energy Information Administration of the US Department of Energy says that the USA is emitting about 5 million kilotons of CO2 each year by the burning of fossil fuels. That's about 15.5 tons/person/year in the country.
Of course, some greenhouse gas is emitted from other sources, and those wouldn't likely be covered by this carbon tax. Assuming a price of $ 38/ton of CO2 emitted, users of fuel would collectively pay a tax of $ 190 billion USD in a year. To put that in perspective, the US government currently collects about $ 3.5 trillion in taxes each year, so this would be equivalent to about a 4.8% tax increase.
It would be a tax increase of about 4.8% overall IF the government collected it and then spent it, the thing so many Republicans fear.
However, before you start howling at the tax increase, understand that the $ 190 billion would then be equally divided amongst every person in the USA, and a check would be sent out. Using these numbers, the average person would receive a check for $ 594! For the typical family of four persons, that would be $ 2,386, almost the same as the average tax refund from the IRS, which is reported to be $ 2,782/tax filer.
Here's the thing that makes this particularly enticing. Obviously, not everyone consumes the same amount of fuel each year. In fact, wealthier people to consume a good deal more. That's because they are more likely to travel; have bigger houses that require more heating and cooling; and drive cars to consume more gasoline. Other things being equal, that means wealthier people will pay more of this tax, but they will receive no more money than the poorest of the poor. Conversely, the latter will receive the same checks as the wealthy, but they will clearly not be spending as much money on fuel. The very definition of a progressive tax. Some claim that the "carbon tax plus carbon dividend" proposal is regressive. It would be regressive if the government kept the money and spent it on some program. However, because it would distribute the dividend equally to everyone, a regressive tax actually turns into a progressive one! In contrast, lotteries and sin taxes, tend to be regressive. That's because poorer people tend to buy more lottery tickets, and smoke more cigarettes, than wealthier people. The nice thing about lotteries and cigarette taxes is that you don't have to spend a nickel to benefit. One can easily go through life never buying a lottery ticket or a pack of cigarettes, but enjoy all the benefits of the taxes collected.
The proposed carbon tax flips this formulation on its head. One can do everything possible to minimize expenditures on fuel, yet still expect a nice check from the US Treasury. Which is precisely the objective. Economists long ago demonstrated that as the price of a good goes up, it will be consumed less if there are substitute products. There clearly are substitute products available, so the carbon tax should have the intended effect of reducing consumption of carbon.
That's especially true when you consider the second part of the plan. That would be to increase the carbon tax each year. Some proposals call for a $ 2.00 increase/year/ton emitted. That means burning carbon will get increasingly expensive. It will also mean, absent a reduction in demand, the average person will receive a bigger check each year. Not only that, but the more the carbon tax increases, the more progressive it becomes.
Hopefully, the average person won't get a bigger check each year because the amount of carbon goes down – the real goal of the plan. Sooner or later, as the carbon makes the cost of carbon-based fuels more expensive, consumers will select lower cost alternatives.
The plan could even be used to create an additional benefit, one not previously contemplated by its authors. Let me now turn to that. The recent government shutdown brought lots of attention to a terrible problem facing the average American family – an inability to save for a rainy day. Every day during the recent 35 day government shutdown, lots of attention was paid to families and individuals in increasingly desperate situations. The loss of a regular paycheck left them close to destitute.
Financial planners for years have been saying that the average person should have six months of savings for emergency situations. An unfortunately large percentage of Americans don't have anywhere near that. I'm confident if we polled the average person, he or she would readily acknowledge the importance of having emergency savings. They'd also acknowledge that they should quit smoking and exercise. Unfortunately, these things can be very difficult to do. In fact, it may be more difficult for the average American to save emergency funds than to quit smoking or exercise on a regular basis.
What could be done? Why not turn the carbon tax redistribution plan described above into an automatic savings plan? When the checks are distributed to the average family or individual, the money could be put into a savings account. If and when the person/family experiences an emergency, they could draw the money out.
Imagine such a plan had been in place for just one year when the latest Federal shutdown occurred. The typical family of four would have had about $ 2,300 of savings in an emergency account. That could have made life a lot easier for many of those people. Imagine if that money could build up over time in an interest bearing account? Ordinary Americans could build up significant savings.
Why would anyone want to stick their carbon dividend check into a savings account if they could just cash the check? They might do it if it had features similar to a Roth IRA, where earnings could accumulate tax free.
This could potentially create a fairly significant source of savings. Not only that, it provides something for both sides of the aisle. It provides an excellent way to address the problem of greenhouse gases without really increasing government spending. It also provides a way to create both emergency savings, as well as a way to accumulate savings not subject to taxes.
An obvious question to ask is, would it negatively affect payments into IRA's, 401k's, and 403b plans? The think that's unlikely because the money in latter programs cannot be accessed easily, or without penalty, if someone is less than retirement age.
The proposed carbon tax would certainly not be a panacea. It could, however, help reduce demand for greenhouse gases more effectively than any other method. That's the reason practitioners of the "dismal science" like it so much. The nice thing about this proposal is that the money collected from the tax would be distributed back to everyone. In effect, it isn't a tax.
Not only that, as outlined above, it could provide a neat and convenient way to solve a huge problem facing ordinary Americans: the lack of emergency savings.
At least in some cases, a rose is not a rose is not a rose. Yet it could still be as sweet as Gertrude Stein's "Sweet Emily", wherein a rose is a rose is a rose.
