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Here's why President Trump should say no to the carbon tax


Qilai Shen | Bloomberg Getty Images

There's nothing like a new administration in the White House to encourage proponents of discredited and failed plans to try, try again. That's what happened Wednesday when a group of former Republican cabinet members and their corporate brass friends got a 45-minute meeting with top Trump administration officials, including Vice President Mike Pence, to pitch... wait for it... a carbon tax.

That's right, the old idea that keeps pretending it's new again. Carbon tax plans, where companies have to pay levies based on each metric ton of emissions they produce, have been popular with many big businesses and environmentalists alike for almost 20 years. They're often depicted as a "free market friendly" or economically wise path to combat climate change. But there's one problem: The free market, the economy, and most importantly, the voters really don't like the idea at all.

Let's start with the free market, because it took a stab at creating a marketplace for a carbon tax-based economy under the Obama administration with the infamous "cap and trade" plan.

The idea there was that companies large and small would be taxed for carbon emissions, but would be able to hedge against those taxes by buying lower cost carbon offset credits and trading them on an open market when they didn't need them. Enthusiasm about this supposedly brilliant plan led to the opening of the Chicago Climate Exchange backed by big name investors, including Al Gore. But the exchange collapsed and completely closed down by late 2010. That was because even with huge Democratic majorities in the House and Senate, the Obama team couldn't even get its cap and trade bill passed. And, as it is so often the case with environmentally-based businesses and markets, the carbon credit plan held no appeal to the free marketplace without that kind of big assist from Uncle Sam.

Now to the economy, where it's been shown time and again that carbon taxes are the last thing anyone hoping for a better and more equitable economy should want. As with all taxes on suppliers, the companies simply pass the costs on to their consumers. In this case, that includes the middle class and poorer consumers who need heat, electricity, and gasoline. Actually, that fact is not even disputed by liberals and even the staunchest environmentalists. But they argue the costs to the poorer energy bill payers could be offset by corresponding payroll tax cuts and subsidies paid for by the carbon taxes. Brilliant! Except it's not. Lower payroll taxes won't do much to help those who are unemployed or underemployed, and subsidy payments are so often racked by abuse and fraud that they rarely help even the majority of those they were intended to aid. We just don't have enough of a good government track record on this kind of thing to believe a massive new tax credit plan will really work.

And most critically for this administration, voters really have never warmed up to anti-warming carbon taxes. The most recent example of this came from uber-green and blue Washington state, where a ballot measure in favor of a carbon tax failed miserably and only carried one county in November. Voters of all incomes have long known not to trust the government's promises of tax cuts later to offset higher costs and other tax hikes now.

None of this discouraged a group called the "Climate Leadership Council" (CLC) led by former Secretary of State James Baker, former Treasury Secretary Hank Paulson, other prominent Republicans, and some big business types like former Walmart Chairman Rob Walton. They were out there hawking their plan on Wednesday to Vice President Pence, Counselor to the President Kellyanne Conway, top economic advisor Gary Cohn, and Chief of Staff Reince Preibus and came out saying they were optimistic about their chances to win over the administration.

But what is this group really after? Some of the members of this group are true believers in climate change alarm, but it appears that most of them are really just advocates for a government that is bigger and more economically intrusive. You can tell that by their Rube Goldberg-like plans for higher energy bills to be offset by checks sent out by the Social Security Administration, (like that agency isn't dealing with enough already?). And the presence of big time private investors connected with the CLC throws up more than few red flags for crony capitalism. Indeed, why is it that, while representatives or scientists connected to fossil fuel companies always have their potential conflicts of interest publicized, not as much seems to be made of the enormous personal profits at stake for pro-green advocates who also happen to be investors like Gore or hedge-fund manager Tom Steyer? And with someone like James Baker (who has publicly stated he has serious doubts about human culpability in climate change) as the public face of the CLC in this endeavor, it's hard to believe that improving the environment via new tax schemes is really their number one goal.

A similar set of red flags went up for truly conservative and pro-liberty advocates last week when it was revealed that major U.S. exporters like Boeing, Pfizer, and Oracle were lining up in favor of the proposed GOP/Trump administration border tax on imports. It doesn't get much more crony capitalist than that, and this support for another new tax is cut from the same cloth.

Based on President Trump's statements about climate change and carbon taxes during his campaign, it would certainly seem that getting him to flip flop on this idea is a long shot. But with his border tax plan and corporate tax rate cut proposal irons still on the fire, it is possible a carbon tax idea could come into play as some sort of a trade-off with congressional Democrats. That's probably the CLC's best bet to make this happen.

But with conservatives and Wall Street starting to get impatient about the pace and details of the Trump tax cuts, news of yet another unpopular new tax idea isn't going over well right now. By extreme contrast, the markets cheered loudly Thursday when President Trump promised he'd have a major tax cut announcement in "a few weeks." Throw in the crony capitalist downside of this carbon tax idea and the White House has every reason to make sure the CLC and others advocating for it don't go any further than Wednesday's meeting. If the idea of a carbon tax couldn't win over a Democratic president and a majority Democratic Congress eight years ago, it shouldn't now... even if it is a group of Republicans pushing it.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

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