The president downplays it. Insiders insist it doesn’t stand a chance. Yet as negotiations between the Obama administration and Congress take form over a deal on taxes and budgets, the idea of a carbon tax is discussed with greater frequency.
Oddly enough, there’s no high-profile leader out there championing a carbon tax, yet it’s the subject of reports, conferences and a flurry of maneuvers by groups for and against it.
“We would never propose a carbon tax, and have no intention of proposing one,” White House Press Secretary Jay Carney said.
A day earlier, President Barack Obama was asked during a White House news conference about the prospects for a carbon tax to address climate change. The president outlined a number of steps his team had taken to lower carbon emissions, but said there was no consensus for a tax on carbon.
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“That I’m pretty certain of. And, look, we’re still trying to debate whether we can just make sure that middle-class families don’t get a tax hike. Let’s see if we can resolve that. That should be easy. This one is hard, but it’s important because one of the things that we don’t always factor in are the costs involved in these natural disasters,” Obama said.
It was music to the ears of oil refiners.
“I applaud the president for recognizing that now is not the time for a new, regressive carbon tax that will hamper the nation’s ability to get the economy back on track,” Charles Drevna, the president of the American Fuel & Petrochemical Manufacturers, said in a statement.
Even with no one formally proposing a carbon tax and the leader of the free world opposing it right now, the group Americans for Prosperity, which advocates limited government, issued a statement boasting that the entire Republican leadership of the House of Representatives had signed its pledge to “oppose any legislation relating to climate change that includes a net increase in government revenue.”
Also undaunted by the lack of any leader pitching a carbon tax, the environmental group Green For All issued a statement from CEO Phaedra Ellis-Lamkins that sounded as if a carbon tax were now inevitable.
“Yes, polluters will fight a carbon tax tooth and nail, just like tobacco companies raged against cigarette taxes. But far from costing jobs, a carbon tax will provide a net benefit to our economy,” she said.
In the simplest terms, a carbon tax is a levy on fossil fuels, such as coal, oil and natural gas. They emit carbon dioxide when they’re burned, which traps heat in the atmosphere and causes global warming. Such a tax is usually discussed in the context of climate change and global warming, but now it’s also viewed as a possible way to raise revenue in a race to avoid the so-called fiscal cliff.
Congress is trying to forge a deal, or at least a down payment on a deal, that would address expiring Bush-era income tax cuts, stave off deep reductions in government spending and raise the government’s borrowing threshold. While lawmakers are at it, potentially everything is in the tax mix, from a carbon tax to caps on popular income-tax deductions such as mortgage interest and charitable giving.
The idea of raising revenue from a carbon tax to protect the environment and to lower budget deficits and the national debt isn’t farfetched. It almost made it into a widely praised deficit-reduction proposal from the Bipartisan Policy Center, a research organization that’s home to former lawmakers and top staffers.
The center crafted its November 2010 blueprint called “Restoring America’s Future” to provide a path for lawmakers who want to get the nation’s fiscal house in order. The carbon tax was removed only at the end of the group’s internal discussions.
“We had a majority of votes in favor of a carbon tax. At the last moment, we couldn’t get the unanimity,” said Steve Bell, a former chief counsel to the Senate Budget Committee who’s now the economic policy director for the center.
The problem? The center’s road map also called for a temporary national sales tax, and members didn’t want to have two new taxes.
A carbon tax could raise $1 trillion over 10 years without touching income taxes, according to the nonpartisan Congressional Budget Office. That makes it an attractive source of new cash, and the reason Bell thinks it may still be on the table even if no one is saying so.
“It’s been alive. It’s like a cat: It’s had nine lives. It’s back again,” Bell said. “I would not be surprised to see a serious attempt to get that in.”
In a sign of the times, the center-right American Enterprise Institute and the center-left Brookings Institution held a joint daylong conference on a carbon tax, exploring everything from its fairness to how much revenue it could generate before it started reducing carbon dioxide emissions – and consequently reducing the tax revenue.
Economists at the American Enterprise Institute don’t dismiss the idea of a carbon tax outright, but they caution that its burdens would fall disproportionately on the poor. They concluded, using 2010 tax data, that the burden on the lowest 10 percent of income earners would be five times higher than the burden on the top 10 percent of earners when measured as a fraction of annual income.
Researchers on the political left and right have suggested that part of the revenue could be used to defray the costs of social welfare programs or to make up for lower corporate tax rates in a revamp of the tax code.
In fact, the CBO issued a working paper this month that looked narrowly at seven ways to defray the relative burden of a carbon tax on low-income households.
“Policies can be designed to achieve a mixture of outcomes,” the CBO said in a study that made it clear that a carbon tax might be in the mix of any broad effort to overhaul the tax system next year.