I don’t like to get wonky, especially about taxes, because life is short and there are too many other worthwhile things to do, like play golf, listen to Phish, read the new Richard Powers book or watch “Dune.” But sometimes, in the course of human events, it becomes necessary to do things we don’t like, so here goes.
What is going on in Washington? I can’t get a fix on this political cliffhanger over the multi-trillion dollar social spending bill. It changes by the day and the Democrats seem to be flailing around by the hour on how to pay for it; it makes sausage-making look refined. I would like to think this is part of a deliberative, democratic process, but it just looks like spitballing from here.
Apparently, no one in Congress took my advice on this, which you can read here in case you missed it. They just kept plowing ahead, although by now it’s not even clear what they’re plowing. “We are just missing two things,” said Democratic Rep. Brendan Boyle. “What exactly is going to be in the bill and how are we going to pay for it? Other than that we are good to go.”
Let’s see. The substance of the “Build Back Better” bill had to be whittled down to meet some of Sen. Joe Manchin’s demands. The clean electricity program, for instance, suffered a blackout. Ditto free community college (although President Biden vowed to make it happen eventually so he’ll be able to share a bedroom with wife Jill). On the funding side, ideas were floated to increase personal income taxes, corporate taxes, and capital gains taxes. It all started to sound like the Beatles song, “Taxman” (“If you take a walk/I’ll tax your feet”).
Finally, Elizabeth Warren sensed it was time to make a move and put forward her so-called “billionaire tax,” a move to seize some of the unrealized investment gains of the 700 richest people in the world. Let me get this straight. I invest my money in a company, say Tesla, because I think it will be successful and it gives me a return in exchange for the use of my capital (which is the fundamental genius of our capital markets). But if the company is successful, the government will diminish my returns by clawing some of them back. So I quit investing and companies are starved of capital and the economy shrinks. And while I’m at it, maybe I’ll just move out of the country. No wonder Kyrsten Sinema quashed that idea. At least somebody in Congress still understands how the economy works.
So here’s some free advice, y’all. It’s time for a carbon tax.
The Biden Administration wants to decarbonize the economy while finding ways to pay for new social programs such as expanded Medicare and universal pre-K. A carbon tax would do both. It has a lot of advantages. As a tax on consumption, it’s relatively simple — there wouldn’t be a lot of loopholes to game the system. It can be made progressive by providing rebates to lower-income households. And it’s infinitely adjustable. If we start at a price of $25 a ton (which the Brookings Institution estimates could generate $1.4 trillion over 10 years) and it doesn’t hurt the economy, the price can be gradually ratcheted up. At $50/ton, a carbon tax would have a dramatic effect on reducing carbon emissions.
On the other hand, if a carbon tax results in price increases that take too much of a bite out of middle-class incomes, it can be dialed back. Price guard-rails could be built into carbon tax legislation that would make such adjustments mandatory.
This is a sensible approach to climate change and economic growth — the independent Tax Foundation estimates that a carbon tax would stimulate long-term economic growth while allowing current tax rates on personal income and corporate profits to remain in place. It’s so sensible, in fact, that it has a broad range of support, including the major oil companies and the American Petroleum Institute. I can state for a fact that Chevron has accepted a carbon tax (or some form of it) as a fait accompli; for years, the company has factored in a price for carbon in its long-range financial planning.
Imagine if we’d been a little tougher, a little bit more pragmatic and a little more politically courageous, approving a bipartisan bill to tax carbon and fund expanded social programs. Biden could come in hot to the COP26 in Glasgow next week, looking like Keanu Reeves in “John Wick” instead of the fog coming in on little cat feet (apologies to Robert Frost).
It may come to pass yet. There are probably half a dozen draft bills on a carbon tax sitting on desks in Congress, including one by Oregon Democrat Ron Wyden. Pragmatism may prevail after all, proving Winston Churchill right once again when he said: “Americans will always do the right thing — after exhausting all the alternatives.”