Tax reform as path to carbon tax?
Two Dem senators have plan to lower fees on fossil fuel emissions
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 Sens. 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 Donald Trump’s economic adviser, Gary 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. 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 antitax 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.
“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 Baker, 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, Whitehouse and Schatz say, they have their eyes on the tax overhaul debate. The White House wants the corporate rate cut to 15 percent from 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,” 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.
Norquist and other opponents like Pyle say they welcome a debate on a carbon tax.
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 Whitehouse and 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.)
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.”