Is This the Tax to Pass the Grover Norquist Test?

Sept. 14 (Bloomberg) -- I’ll admit it. Sometimes, when this election gets too small or depressing, I fantasize about the fiscal cliff.

What, you don’t fantasize about the fiscal cliff?

I imagine that somewhere on Capitol Hill, Republican leaders are devising a plan to keep taxes from rising if President Barack Obama is re-elected. In order to raise taxes, Obama only needs to . . . do nothing. If Congress can’t produce a deal that the president is willing to sign, the Bush tax cuts will expire automatically on Jan. 1 along with Obama’s payroll-tax cuts. Taxes will rise by trillions of dollars over the next decade.

In my dream, Republican leaders huddle in a room trying to determine what they can offer Democrats to avoid that nightmare. At some late hour, either shortly before or shortly after the nation has plunged over the fiscal cliff, when both parties are exhausted from fruitless negotiations, Senate Minority Leader Mitch McConnell -- even if Republicans win the Senate, which I think they are likely to do, McConnell won’t become majority leader until the 113th Congress is sworn in -- makes a move. He takes his old colleague Joe Biden aside and proposes the following: Cut your revenue demand in half and, as part of a comprehensive tax reform, Republicans will agree to a $20-per-ton tax on carbon emissions.

Annoying Environmentalists

McConnell would have to convince Republicans that it’s better to stop tax increases than to continue annoying environmentalists and Al Gore. But, in theory at least, this shouldn’t be a terribly difficult policy argument for Republicans to endorse.

Let’s say you believe there is a 20 percent chance that global warming is anything other than a hoax. In that case, you are indifferent to carbon, with only a slight concern that the stuff might be catastrophic. But you are not indifferent to work and income, which everyone wants more of. So given a choice between taxing work and income on one hand, or taxing carbon on the other, the preference is clear: Tax carbon, especially as part of a deal to lower overall tax rates.

Some conservative groups and economists have already made this argument. Martin Feldstein, who was the top economist in Ronald Reagan’s administration, proposed a carbon tax in the Wall Street Journal back in 1992. When the American Enterprise Institute, a conservative think tank, had to submit a deficit-reduction plan as part of the Peter G. Peterson Foundation’s 2011 Fiscal Summit Solutions Initiative, the four scholars in charge of the project included a $26-per-ton carbon tax in order “to address environmental concerns in a more market‐friendly manner.” Gregory Mankiw, a Harvard economist who advises Mitt Romney’s campaign team, has written that there is “broad consensus” among wonks for a global carbon tax.

Bob Inglis, a South Carolina Republican who lost a 2010 primary challenge, is crisscrossing the country trying to build support for the idea. “From a conservative perspective,” he told me, “this is a fabulous opportunity to reduce taxes on something you want more of, which is income, and to put a tax on something you want less of, which is harmful emissions.”

Long-Term Threat

Would Democrats agree to such a deal? I think they would. Democrats want more federal revenue, but not with the same ferocity with which Republicans want lower taxes. And most Democratic policy wonks -- even those who don’t focus on energy issues -- believe that climate change is the nation’s greatest long-term threat, outstripping health-care costs or budget deficits.

A particular problem for Democrats would be the regressive nature of a carbon tax. The poor, who spend a larger share of income on home heating and gasoline, would be hit especially hard. The Brookings Institution’s Hamilton Project has proposed a carbon tax of $20-per-ton of carbon dioxide that would rebate 45 percent of revenue to low-income taxpayers. This makes the tax progressive while still generating sufficient revenue -- about $550 billion over 10 years -- to enable continuation of the income-tax cuts. And if Congress still needs spending reductions to replace forgone tax revenue, the American Enterprise Institute’s plan proposed one obvious set of cuts: the various tax credits and subsidies for both clean and dirty oil production.

So that’s the dream. I called Grover Norquist -- lord of the anti-tax pledge -- to run my fantasy scenario by the Republican Party’s chief anti-tax enforcer. “If one cut the income tax dollar for dollar and had a carbon tax in its place, it would not be a violation of the taxpayer protection pledge,” he said. “But you’re creating a new tax that will grow,” he continued. “A Republican Party which creates a new tax would not be long for the world.“

That’s why it is just a dream.

(Ezra Klein is a Bloomberg View columnist. The opinions expressed are his own.)

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