The Politics of the Carbon Tax (June 10)

Mike & Co.,

This afternoon, the House adopted a resolution 237-163 asserting that “a carbon tax would be detrimental to American families and businesses, and is not in the best interest of the United States.”

This kind of preemptive strike is unusual — there isn’t any serious carbon tax proposal before Congress right now, and neither party’s nominee has endorsed the idea.  Why did the House vote on this resolution at all and what does this mean for tax policy in Congress when the dust settles and 2017 comes into view?

TGIF — what a week!  Good weekends, all…

Best,

Dana

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Why the Vote?

This afternoon’s vote is a follow-on to the RNC’s anti-carbon tax resolution, which was passed at its January 2016 meeting, and to Sen. Blunt’s anti-carbon tax amendment that popped up during vote-o-rama last year and failed along a 58-42 vote count.  This resolution also reflects unease with President Obama’s $10 per barrel oil fee, which is essentially a carbon tax itself.

Today’s action on the Hill lays bare once again the internal conflict in the GOP. Pitted against each other are members with close ties to industry and those who deem the party line on climate change unsatisfactory.  Conservative think tanks have been responsible for some of the latter group’s turn around, with scholars at groups like AEI exploring the idea.

This is a vulnerable time for energy firms, who are still feeling the pinch of exceptionally low commodities prices.  Exxon, especially, is facing a combination of 13-year-low oil prices and a growing campaign to punish the energy giant for climate misdeeds.  The company has begun to voice support for a carbon tax as part of is PR strategy, but skeptical critics have ben unmoved by those actions.

Tax Policy Implications

Another motivation for today’s vote is the changing politics of this issue – conservatives are concerned that a post-election push for carbon tax legislation might leave their industry supporters high and dry with the horse out of the barn. Because of this, today’s vote was designed to force members to pick a side, making it more difficult to change their minds later.

Historically, a carbon tax has been considered the most effective method of limiting the use of carbon by economists, even conservative economists.  According to the CRS, a $20 per ton carbon fee would raise $1.2 trillion over ten years, which could then be used for tax breaks, paying down the national debt, reducing the deficit, or anything else.

Such a revenue source may prove sorely tempting for policy makers, especially those who want to pursue tax reform.  If a carbon tax were to be made the cornerstone of a tax-policy “grand bargain” then Republicans could do well for themselves.  As an example a 2015 bill by Sens. Whitehouse and Schatz that would use revenue from such a tax to offset the corporate tax rate.  Sen. Schumer has said that a tax deal with the carbon tax included would be “possible, but hard.”

2017

A number of observers claim that 2017 could see carbon tax legislation being proposed by Republicans in the House and the Senate, reflecting the increased attention the idea has been receiving.  If the Democrats take Congress this November that wouldn’t even be necessary – especially if climate hawk members take on key committee assignments.

For all the talk of a 2017 push for tax reform, it seems poorly timed for Republicans to take any tax policy ideas off the table.

At a Carole King performance in Georgetown last night, Sen. Whitehouse said that the vote held today betrays GOP hypocrisy on the issue of climate change. “Every single Republican who’s looked at climate change for a solution has come up with a revenue-neutral carbon fee,”?adding that this resolution proves the GOP is beholden to the oil lobby.  Beyond rebukes like that the Senate seems more supportive of a carbon tax in general, with even Jim Inhofe saying that he’d see “what the trade-off is” for a carbon tax policy before choosing his position.

A House resolution is not binding, it’s only meant to express the general opinion of the membership and as such today’s vote is more notable for its odd timing than its usefulness as precedent.  Like closing the carried interest loophole, enacting a carbon tax is, in the long run, likely inevitable.  The politics surrounding such a policy are too good to pass up – it’s effective, efficient, and equitable as a way to limit carbon usage.

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