Some Democrats See Tax Overhaul as a Path to Taxing Carbon

Source: By LISA FRIEDMAN, New York Times • Posted: Monday, August 21, 2017

Senators Sheldon Whitehouse of Rhode Island, second from left, and Brian Schatz of Hawaii, third from left, hope to curry bipartisan support for a carbon tax as part of a larger deal on tax reform. Carolyn Kaster/Associated Press

With a sweeping overhaul of the tax code on the horizon, two Senate Democrats believe this is the moment to broach the third rail of climate change policy: a carbon tax.

The plan by the senators, Sheldon Whitehouse of Rhode Island and Brian Schatz of Hawaii, to level a $49 per metric ton fee on greenhouse gas emissions is widely acknowledged as a long shot. But the lawmakers, along with climate activists and a cadre of conservative supporters, insist the tax reform is a way to create bipartisan support. The senators propose to use a portion of the estimated $2.1 trillion they anticipate in carbon tax revenue over the first 10 years to reduce the top marginal corporate tax income rate, something the White House has called for.

They also hope to have an ally in President Trump’s economic adviser, Gary D. Cohn, who met in February with a prominent group of Republicans advocating a similar plan.

No Republican lawmaker has signed on to the Senate measure. Mr. Trump, who routinely proclaims his affection for coal, during the presidential campaign flatly rejected via Twitter a suggestion that he might put a price on carbon pollution. The senators steering the effort admit they haven’t even broached a carbon tax directly with members of the administration, and the White House has distanced itself from the policy.

Yet even the fiercest critics of a carbon tax say they can’t afford to dismiss the effort.

“What is that Taylor Swift song? We are never, ever, ever getting back together? This is never, ever, ever going to happen,” said Grover Norquist, the anti-tax lobbyist and founder of Americans for Tax Reform. But, he added, the possibility of a carbon tax routinely re-emerges. “This time there is money for promoting that this idea might happen someday,” he said.

Thomas J. Pyle, president of the Institute for Energy Research, which promotes fossil fuels, agreed. “It’s so much revenue that it’s always going to be on the table and it’s always a threat,” he said.

Amid concern that tax reform might be delayed because of the political turmoil caused by Mr. Trump’s statement at a news conference Tuesday that “both sides” were to blame for violence over the weekend at a white supremacist rally in Charlottesville, Va., top White House officials asserted the president’s words would not hamper the tax reform plan.

“We are going to hit the ground running, literally this month on tax reform,” Cohn told reporters in Trump Tower on Tuesday after the president left the podium. Asked if the president’s agenda is still on track, he said, “We are here to execute his agenda.”

The carbon tax movement’s biggest jolt came this year when a coalition of Republican elder statesmen, led by former Secretary of State James A. Baker III, made the case to the White House that a fee on the burning of fossil fuels coupled with a monthly dividend to American households would be good for the economy, as well as the planet. Those discussions are continuing, said Ted Halstead, founder of the Climate Leadership Council, a think tank dedicated to free market solutions to climate change, who has been working with the conservative leaders.

In the meantime, Senators Whitehouse and Schatz say, they have their eyes on the tax overhaul debate. The White House wants the corporate rate cut to 15 percentfrom its current 35 percent. Whether or not that is realistic, they say, getting even partway there will take bipartisan compromise.

The carbon tax bill they have proposed uses part of the revenue to reduce the marginal corporate income tax rate to 29 percent.

“There are only a handful of options in terms of generating revenue for broad-based tax reform, and they’re all very close to dead on arrival. This is the one proposal that could attract a significant number of Democrats,” Mr. Schatz said. He acknowledged, though, that using revenue to cut the corporate income tax rate could turn off some Democrats, too.


The legislation calls for the tax, which would increase annually by 2 percent, to be collected at its source — at coal mines, oil refineries or ports of entry. The rest of the revenue would come back to taxpayers in an annual inflation-adjusted $550 refundable tax credit, or $1,100 for married couples filing jointly. Money would also be devoted to veterans and to coal country for job training programs.

The idea of a carbon tax dates to the 1920s, when the British economist Arthur Pigou observed that some goods had social costs that society ended up paying for — like alcohol, or pollution. In the early 2000s economists and other supporters of taxing companies for the carbon they send into the atmosphere formed the Pigou Club in his honor.

Some conservative heavyweights, like Arthur Laffer, often called the father of supply-side economics, and Darren W. Woods, the chief executive of Exxon Mobil, have thrown their intellectual and political heft behind the idea. Economists argue that the revenue from a carbon tax could be used to reduce or eliminate income, payroll or other taxes. Some business leaders say it is preferable to onerous regulation or a cap-and-trade program.

Asked where a carbon tax stands in the administration’s deliberations, a White House spokeswoman, Kelly Love, said in a statement, “We don’t officially comment on legislation unless it’s something we are actively supporting or is about to be considered in Congress.”

Mr. Norquist and other opponents like Mr. Pyle say they welcome a debate on a carbon tax. They and others recalled that Democrats lost the House in the 1994 midterm elections in large part because President Bill Clinton proposed but failed to get passed a “B.T.U. tax” on fuels that would have raised energy costs.

A 2013 Congressional Budget Office analysis found that a carbon tax half as big as the one Mr. Whitehouse and Mr. Schatz propose would raise gasoline prices by 20 cents a gallon and electricity bills by 16 percent on average. Coal-heavy states would see even steeper price increases.

The idea that a national tax on carbon dioxide emissions could generate billions of dollars for ailing coal communities does not seem to have won over many lawmakers. Senate Democrats who recently wrote to Republican leaders laying out their conditions for bipartisan tax reform did not mention a carbon tax.

But supporters note that if the White House hopes to cut tax rates without raising the deficit, it will need to find new, taxable economic activity. So optimistic are Mr. Whitehouse and Mr. Schatz about winning bipartisan support that they unveiled their bill at the conservative American Enterprise Institute. (A representative was quick to note, though, that hosting the carbon tax debate was not an endorsement of the policy.)

Mr. Whitehouse insisted the Republican votes are there. They are just, for now, hiding, he said.

“There are Republicans willing to work with us, and not just a few,” he said. “They just need the prospect of safe passage through the political kill zone.”

Republican lawmakers, for their part, range from outright opposed to skeptical. Representative Mark Meadows, Republican of North Carolina, who leads the conservative House Freedom Caucus, said he did not support a carbon tax. Democrats have been pitching his office, however, and Mr. Meadows said one of his aides believed the idea has merit.

Senator Lisa Murkowski, Republican of Alaska, was circumspect about a carbon tax. Congress, she noted, is an unpredictable place.

“I haven’t heard anybody within the administration taking point on this, so my sense would be no. But things happen around here,” she said. Ms. Murkowski once considered the idea of a carbon tax but in 2015 voted to prohibit a federal fee on emissions.

After the Senate’s failure to pass health care legislation, pundits note that both Congress and Mr. Trump need a win.

“I won’t say it’s likely, but it’s more likely than it has been in some time,” said Eli Lehrer, president of the R Street Institute, a conservative think tank that supports a carbon tax. “And if the stars align perfectly, I could see a carbon tax happening.”