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What is Supply Side Environmentalism?

Supply Side Environmentalism begins with the observation that the most pressing eco-energy questions we face today -- how to increase our supply of clean energy, how to decrease atmospheric carbon, how to diversify our energy supplies -- these are all supply side questions.  As such, they are all amenable to supply side solutions.

Supply side economics suggests that if you want more of something, tax it less.  So if we want more clean energy, clean vehicles, clean machines, just tax these less.  The more those tax rates fall, the more these become irresistible investments, provided the underlying business model is sound.  The capital flows from private investment will dwarf what government spending alone can do.

But not all tax cuts are equal.  Supply side economics recommends in particular cutting marginal tax rates that investors face if we need more of a good thing.  Corporate income tax, bond interest income tax, dividend and capital gains taxes: these are the main supply side taxes where prudent cuts will safely boost supply and prosperity.   While a sales tax cut is also a safe policy tool to use, other demand side stimuli (such as tax credits and state investments) blur into subsidies and price supports.  That is demand side environmentalism, and it is not a wise tool to use.  In general, subsidies will reward failure, and create industries dependent on continuing subsidy for survival, while supply side tax cuts will reward success, and will only benefit viable businesses that can stand alone.

But the good news is, supply side tax cuts for clean energy is all we need to do.  We don't need demand side subsidies. We don't need to raise taxes on carbon and dirty energy, because that would hurt the economy, and we can accomplish the same tax differential with a tax cut on clean energy – which will boost the whole economy.  We don't need burdensome regulations like the new CAFE standards, which already drove Caterpilar out of the diesel truck engine business in 2008.  We don't need complicated big government schemes like Cap-and-Trade.  We don't need to spend trillions fixing this problem.  Quite the opposite. We can make money fixing it.

Which brings us to more good news: You don't need to believe in global warming to embrace this solution.  Who cares if the climate crisis is real or not?  This is the only effective proposal on the table that boosts prosperity regardless of whether global warming exists.  Supply side tax cuts will boost the whole economy, even when applied to part of the economy.  Furthermore, the economic and national security dangers posed by dependence on oil are enough reason to look for a prudent diversification strategy.  So this is a good idea even without the climate crisis.

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