For at least 85 years Americans have seen recurring outbursts of a Grand Idea. Let’s call it “tax and distribute.”
This is different from the more common “tax and spend.” That kind of plan raises money by laying a tax on some targeted group or activity, and spends the proceeds on activities that accrue to society generally (public infrastructure, disaster relief, wars) or support a disadvantaged class (the unemployed, welfare, food stamps).
Tax and distribute describes a plan that imposes a considerable new tax, and then returns all of the proceeds to every adult or family, regardless of their incomes or other qualifications.
A good starting point is 1933. An Illinois physician named Francis Townsend, contemplating the misery and hopelessness of the Depression, devised the “Townsend Plan.” It proposed to levy a national tax of 2 percent on “transactions.” The revenues would then be paid out at the rate of $200 a month to every citizen aged 60 and over.
Ten million citizens signed supportive petitions to Congress, circulated by Townsend Clubs. Congress grudgingly afforded Townsend the opportunity sell his plan at a hearing on what ultimately became the Social Security Act. Alas, Townsend’s projected tax revenues came nowhere near making possible the promised monthly payments.
Meanwhile, a more potent advocate appeared — Sen. Huey Long of Louisiana. His “Share the Wealth” plan proposed to progressively tax away all of the incomes of the rich that exceeded $50 million a year, later dropping to $8 million.
Long’s plan was a hybrid. Some of the proceeds would go to pensions and monthly support checks to everyone making less than one-third of the average income. The remainder would be devoted to public works. An assassin’s bullet in 1935 finished off “Share the Wealth.”
In the 1960s a billionaire (in modern dollars) Florida entrepreneur named John Perry Jr. conceived a similar scheme. His National Dividend Plan (NDP) started with a five-year freeze on federal spending, until a surplus appeared. It would then end the taxation of corporate dividends, and cap the corporate income tax rate at 46 percent.
Then, with the federal budget in surplus, the government would distribute all of the corporate income tax proceeds, plus the proceeds of excise and tariff revenues, per capita among all registered voters. A two-thirds vote in both houses of Congress would be required to raise tax rates to maintain the National Dividend payments.
Perry published a book on his plan in 1964, and devoted more than $10 million to promoting the idea over 30 years. Phil Crane and John Connally were supporters, and national radio commentator Ronald Reagan devoted three scripts to it in 1975.
Despite its promise of balanced federal budgets, the NDP didn’t catch on. That was probably because collecting taxes from corporations to distribute to the voters looked too much like a scheme to assure their support for policies that would produce unlimited corporate profits.
More recently, in 2007 an environmental group called the Citizens Climate Lobby began to promote another tax-and-distribute plan, labeled the “Fee and Dividend Plan.” This one proposed to impose the “fee” (i.e., “tax”) on carbon-dioxide emissions, that the backers believed essential to put an end to the threat of “climate change.”
The government would distribute the proceeds to every household, which would then have a tangible incentive to demand ever higher suppression of greenhouse gas emissions, until the climate stops changing. The backers projected nearly $400 monthly checks to each household by 2035. Global warming guru James Hansen joined in support.
The latest and most notable support for “tax and distribute” appeared in a Feb. 7 news conference led by two elder statesmen in Republican administrations, James A. Baker and George P. Shultz. Their plan, like all the others, begins with a large revenue-producing tax — in this case, a tax on carbon-dioxide emissions that would “put America in the driver’s seat of global climate policy.”
Then the government would distribute all of the net revenue as a “carbon dividend” among all American families. This, they say, would amount to $2,000 for a family of four at a $40 per ton tax rate, increasing with the per ton rate over time.
The remaining two features of the Baker-Shultz proposal are border adjustment for carbon content, requiring tax rebates on exports and “fees” (formerly known as “tariffs”) on imports from “countries without comparable carbon pricing policies,” and at some future time the elimination of unnecessary regulations.
This combination, say the two authors, “would strengthen the economy, help working-class Americans and promote national security, all while reducing regulations and shrinking the size of government.” This truly requires a willing suspension of disbelief.
In short, the Baker-Shultz proposal would institute a powerful new tax on the American economy, and distribute the proceeds to the delighted households who think they’re coming out ahead, and which would vote accordingly (for Republicans, no less).
“Tax and distribute” has always counted on the distributees providing enthusiastic support for the tax, and presumes that the negative economic effects of the tax either will not occur, or will not be traceable to the tax.
With due respect for the many public services of Messrs. Baker and Shultz, their carbon tax and dividend plan deserves to take its place among its forebears on the ash heap of history.
• John McClaughry is a former senior policy adviser in the Reagan White House and a former president of the Ethan Allen Institute.
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