A Tax to Grind: Proposed Carbon Tax

A tax to grind
Rep. John Larson pushes a carbon tax bill in the House
by Kate Sheppard
18 Mar 2009

http://gristmill.grist.org/print/2009/3/12/145810/450?show_comments=no
http://gristmill.grist.org/story/2009/3/12/145810/450

Rep. John Larson (D-Conn.) knows "tax" is a dirty word in Washington. He'll tell you as much. But that doesn't mean he's backing down from his assertion that a tax on carbon would be the most effective way to curb planet-warming emissions.

One could say he's reclaiming the word tax and owning it. "The worst thing [opponents] say is it's not politically feasible because the Republicans are calling it a tax. Well, that's what they call cap-and-trade too!" Larson said in an interview with Grist. "Republicans are going to call it a tax no matter what. That's their motto."

Last week, Larson introduced a carbon tax bill in the House, following up on a similar bill he proposed in 2007. The new bill has been referred to the Ways and Means Committee, on which Larson sits.

The legislation would impose a tax of $15 per metric ton of carbon emissions at the source, and that price would increase by $10 every year thereafter. If, after five years, that isn't enough to get the country on the path to cut emissions 80 percent from 2005 levels by 2050, then the tax rate could rise $15 per year.

Over the first decade, 96 percent of revenue generated would be refunded to taxpayers via payroll-tax rebates, with the remainder going to clean-energy tax breaks and transition assistance for workers in carbon-intensive industries.

While most Democratic leaders, including President Barack Obama, favor a cap-and-trade system for reining in greenhouse gases, Larson argues that a carbon-tax approach has distinct advantages, particularly during this time of economic chaos: A carbon tax would eliminate the need for a new national market in carbon credits and a new bureaucracy to manage it, and a tax is straightforward and easy to understand. "Having just been through another bubble, are we about to create yet another bubble?" asked Larson. "I think now more than ever the country wants to see something that's transparent. They want to be leveled with."

Many climate campaigners -- from big names like Al Gore and NASA climate scientist James Hansen to grassroots activists -- like the idea of a carbon tax, and economists do too, for its purported simplicity and efficiency. "We should tax what we burn, not what we earn," Gore likes to say. But he concedes that a cap-and-trade plan probably stands the best chance of passage, largely because of the widespread negative reaction to taxes.

Instead of emphasizing the new tax, Larson wants to emphasize the payroll-tax rebate, which he says would offset the inevitable rise in energy prices for low- and middle-income households.

"Nobody, to be honest about it, ever likes to embrace the notion of taxes," acknowledged Larson. "But I do think when you talk about a tax break and a lowering of payroll taxes, and you link that to the problems we face, then something that previously didn't have a lot of support begins to pick up support."

Of course, the industries paying the new tax would likely pass the cost along to consumers. "But how often does the consumer have the chance to be forearmed with the payroll-tax decrease?" asked Larson

Larson's bill, officially dubbed America's Energy Security Trust Fund Act of 2009, counts seven cosponsors so far, all of them Democrats. But Larson hopes it could be the climate plan that draws the most support from Republicans, who tend to dislike new bureaucracies and new schemes to put money into government coffers.

Some prominent conservatives have indeed said that they prefer a carbon tax to a cap-and-trade system, but their sincerity might seem ... questionable; they include leading climate change skeptics Rep. Joe Barton (R-Texas) and Sen. James Inhofe (R-Okla.), and ExxonMobil CEO Rex Tillerson. A cynic might assume that these players are angling to stall climate action by sowing division and highlighting a politically charged term. Larson is more optimistic: "Politics makes strange bedfellows."

Turf War

Larson's tax proposal also highlights the looming inter-caucus battle in the House over which committee will have primary jurisdiction on climate legislation.

A year ago, the Select Committee for Energy Independence and Global Warming, chaired by Ed Markey (D-Mass.), was the only committee that discussed climate policy regularly, and it lacks the power to mark up and move legislation.

Now, with climate-action advocate Henry Waxman (D-Calif) at the helm of the Energy and Commerce Committee, that panel is getting right down to work. Its subcommittee on Energy and Environment, chaired by Markey, has been hosting at least two hearings a week for the past month on the details of climate policy. Waxman expects the committee to approve climate legislation before Memorial Day. Both Waxman and Markey introduced cap-and-trade plans last year, and plan to stick with that approach.

But the Ways and Means Committee, which has primary jurisdiction over tax policy, is also flexing its muscle on climate legislation, on the grounds that either a cap-and-trade system or a carbon tax would generate revenue. The committee has ramped up hearings on climate policy, and its members are submitting legislation for consideration. In addition to Larson, Rep. Chris Van Hollen (D-Md.) has introduced a cap-and-dividend plan, a form of cap-and-trade that refunds to citizens the proceeds generated by auctioning carbon credits. And committee member Jim McDermott (D-Wash.) said last week that he, too, intends to introduce a climate bill in the coming weeks, though he hasn't specified whether it will be a cap-and-dividend or a carbon-tax plan.

The issue of dueling committees became obvious last Thursday, as Markey's Energy and Environment Subcommittee held a hearing on "Consumer Protection Provisions in Climate Legislation," while at the same time, three floors down in the Rayburn House Office Building, McDermott's Ways and Means Subcommittee on Income Security and Family Support held its own hearing on "Protecting Lower-Income Families While Fighting Global Warming."

In the end, it's likely that both committees will play a crucial role in shaping what the final policy looks like. As an aide to Speaker Nancy Pelosi (D-Calif.) noted last week, the 2007 energy bill included significant input from 11 different House committees. Many of those same committees will likely help to shape a climate bill -- no matter what form it finally takes.