What Would a Carbon Deal Cost in Political Horse Trading?

March, 19, 2013
Jordan Gerow
Energy and Climate Law Advisor

Don’t expect it to gain much traction, but Senate Democrats put forward a politically interesting package this week when they proposed what some are calling a “choose-your-own-adventure” carbon tax. The plan really sets forth a series of options on how to implement a carbon tax, how much to charge, and where to put the money once they have it. It’s taken no time at all for folks to come out of the woodwork slamming the plan for the usual economic parade of horribles, but what’s interesting is that this plan, even if it fails, puts forward the kind of options that might reveal what the political cost to get a carbon deal would be.

One option in the plan that might catch some political headwinds from Republicans is to simply take the revenue generated by the tax and refund personal and corporate taxes across the board with it. If the plan can be pitched as net tax neutral, that would help undress the argument that carbon taxes would strangle the economy. It also opens the door to more targeted tax finagling: let’s say we agree to offset the price of a carbon tax with tax reductions elsewhere. Let’s just ask Republicans what their dream cuts are. Who (aside from the same energy companies being targeted by the carbon tax itself) can we slide a huge break to in order to grease the wheels here? Since wealthy folks spend a disproportionately small amount of their income on energy costs, we may even be able to benefit top earners by putting in place a carbon tax that hits them very lightly while sliding them a much larger tax break. Obviously, this would exacerbate the country’s well-documented wealth inequality problems, but for those of us who think that climate change presents a higher order of problem altogether – socially, economically, ecologically – it may be a worthwhile trade. Alternatively, how about a big cut in the corporate tax rate across all industries?  

On the progressive side of the ledger, the proposed law offers alternatives like putting money into energy assistance for the poor (perhaps the most sensible suggestion, since the poor pay the largest share of their income meeting their energy needs, and their lack of disposable income is one of the leading factors in suppressing demand, which has suppressed the economy at large with it), or investing in clean energy. These are probably pipe dream options if Republicans are going to be enticed by any kind of horse trade in the proposal. But what’s most interesting is that, at a time when Democrats are refusing any deficit reduction package that doesn’t include more tax revenue, they’ve put forward this bill that suggests they’d be willing to let Republicans pick who they want to slide big cuts to in exchange for a revenue neutral climate change bill. They might not do it, but creative folks on both sides of the aisle should be able to find some positive spin in what’s essentially an open-ended invitation to play with the tax code here. Since we’re so far from a deal on carbon today, an opening salvo that fosters discussion might be the best thing happening on the issue.