Republicans need to make a fundamental decision about their party’s identity. Do they want to be known as the party that has a coherent, thoughtful view on the most effective role government can play in economic activity?
Or do they prefer to stand on the deep moral principal that no one, but especially not rich people, should pay taxes of any kind? This principle further relies on the scientific assumption that if all taxes are reduced enough, God somehow will shower revenue like manna from heaven to fund continued spending on defense, Social Security and other programs that Republicans favor.
Nowhere had this fundamental choice been demonstrated more fully than in the yelping and baying that arose from anti-tax wackos on the party’s right wing when President-elect George W. Bush nominated Alcoa Chair Paul O’Neill as Treasury Secretary.
While O’Neill’s mix of government and business experience found cautious favor on Wall Street and overseas, the fact that he had voiced support in the past for higher taxes on oil and other energy sources really tripped some conservatives’ triggers.
One conservative spokesperson described O’Neill’s past views as “the kind of thing some businessmen say when they want to suck up to politicians.” A Republican house member described them as “incredibly stupid.”
Relax, guys, and read your economics books a little more carefully! Taxes such as O’Neill endorsed some years ago have been the preferred conservative measure for combating pollution or other externalities for nearly a hundred years.
Higher taxes on oil and coal are not some liberal plot for bigger government. Rather, they are a method of thinking that conservatives devised to reduce pollution and excessive reliance on volatile imports in a way that costs the economy less than the command and control regulations that have dominated U.S. environmental policy for nearly four decades
In the United States, “conservatives” and Republicans have generally been more willing to leave resource allocation to market forces and have generally been skeptical of government regulation of business as a way to ameliorate market failures.
“Liberals” and Democrats have generally been more leery about market outcomes and more willing to have government spell out how firms must conduct their business. The argument is about the relative balance of market and political forces and the kind and degree of government regulation.
Only a few people, Libertarians and anarchists, believe that markets always work perfectly and that most government is bad. Similarly, only a few people, socialists and radical environmentalists, believe that markets always fail and that most government is good.
Most Americans occupy the middle ground. Most recognize that markets fail at times and that pollution is a common example of such failure.
The question is, what do we do when markets fail? The traditional approach was to tell households and businesses what they could or could not do. You may not burn leaves, you much install electrostatic precipitators, your cars must have catalytic converters, your toilet must not use more than 1.6 gallons per flush even if you have to flush three times to move the same material that an older toilet did with one larger flush.
It was conservatives, not liberals, who came up with the idea of using taxes, rather than detailed command and control regulations, to reduce pollution. Taking the ideas of English economist Arthur Pigou (1877-1959), they argued that a society could achieve greater reduction of pollution at a lower cost to society in goods and services by taxing pollution and letting households and businesses decide how to best save money by minimizing pollution.
“Don’t tell power companies exactly what machinery they have to add to their plants,” these conservatives argued, “simply tax them in proportion to the pollutants they emit and let them find the cheapest way to minimize their costs. If it means installing scrubbers, so be it. If it means buying coal from Wyoming instead of southern Indiana, that is fine.”
“If we have air pollution from vehicles and the freeways are clogged, don’t require everyone to have their car’s emissions tested every year and lay out big subsidies for mass transit. Place a tax on motor fuels to provide a financial incentive for people to buy more efficient cars, drive less and use transit more.”
The devil, as always, is in the details. Devising Pigouvian taxes requires careful thought. But in general, this is one area in which the conservatives have won the intellectual battle among economists of all political persuasions and in the major environmental groups.
It is thus an irony in the highest degree that while true conservatives have won a policy argument of great importance to U.S. society, the knee-jerk anti-tax element in the Republican Party is happy to howl that accomplishment into cowed silence just because it uses the taboo word “tax.”
If the Republican Party wants to force bright, capable people like Paul O’Neill to crawl on their bellies and abjectly renounce any thought of well-structured taxes as a fairer and more efficient alternative to current policies, they certainly can do so.
But if they do so, they doom the U.S. economy to more pollution, greater waste of resources and slower growth in output and jobs than if they were willing to consider the true conservative position.
© 2000 Edward Lotterman
Chanarambie Consulting, Inc.