Is This the Tax to Pass the Grover Norquist Test?

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 marketâ€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

Ezra Klein is a columnist for Bloomberg View.