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Leonhardt on the High Cost of Low Taxes

By Matthew Yglesias  

"Leonhardt on the High Cost of Low Taxes"

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(cc photo by Olgierd Pstrykotwórca)

(cc photo by Olgierd Pstrykotwórca)

David Leonhardt has a great column applying a theme I like to call the high cost of low taxes to climate and energy policy. He observes that political opposition to carbon pricing is, under guise of moderation, pushing the political system to less efficient, less market-based ideas:

Unfortunately, the great economic strength of market systems like cap and trade also happens to be their political weakness. They set prices and allow people to react. In the process, market systems acknowledge that reducing pollution may actually cost a little bit of money.

Politicians don’t like to admit this, because voters don’t like it. Accepting higher costs is especially hard when the economy is weak. So Congressional Democrats have been repackaging their energy bills to make them look less and less market-oriented. Senator John McCain, who supported a permit system for carbon as the Republican presidential nominee, no longer does. Senator Lindsey Graham, the South Carolina Republican, has reversed his position as well.

What does Mr. Graham now favor? A series of command-and-control regulations. He has introduced a bill with Senator Richard Lugar, an Indiana Republican, that would mandate specific standards for cars, trucks, homes and offices. It would also give the energy secretary the power to award loans to companies he thought could do a good job of setting up programs to retrofit buildings. State officials would do the same for factories. The bill, in short, puts more faith in government than the market.

As Leonhardt goes on to explain, these ideas can do some good. And an ideal world would still retain a role for a certain amount of command-oriented regulation, especially on the efficiency side. But overall what you’re seeing here is that creating a political culture in which “tax” is a four-letter word doesn’t eliminate the demand for government to try to achieve certain goals, including curbing negative externalities. It certainly doesn’t kill off “big government.” What it does is cut out efficient solutions to public problems, push the impact of government policy off the balance sheet, and generally obscure what’s going on.

It’s true that “politicians don’t like to admit this, because voters don’t like it” but it’s also true that conservative politicians and conservative political elites in the media and think tank sectors have expended enormous amounts of energy over the past 45 years on stigmatizing taxes. And they’ve been hugely successful, to the point where for the past 15 years leading Democrats have largely embraced the idea that nobody should ever be asked to pay taxes for anything. And it’s become a huge problem in our political culture that makes it very difficult for economically literate policies to be adopted.

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