Moments after the fiscal-cliff deal passed the House on New Year’s Day, Grover Norquist, the powerful antitax lobbyist, tweeted, “Obama’s budget adds ten trillion more debt. We cut more spending or he smashes average Americans with energy taxes. I vote: cut his spending.”
Here’s what Norquist was getting at.
The law passed to avert the fiscal cliff is indeed projected to add a staggering $4 trillion to the nation’s already-massive budget deficit. It also sets up a March 1 deadline by which sequestration—nearly $100 billion in harsh spending cuts to defense, health care, and entitlement programs—will kick in. Lawmakers and President Obama desperately want to avoid both outcomes. But to do so, they’ll need to find some way to raise enough revenue or cut enough spending—probably both—to fill the massive budget hole.
On Monday, Obama acknowledged as much, saying, “We can’t finish the job of deficit reduction through spending cuts alone,” though that’s what Norquist would prefer.
But despite all the talk by both parties of scraping together the difference by closing tax loopholes, budget experts say there’s one obvious option for reducing the deficit that lawmakers can no longer ignore: a carbon tax.
Taxing carbon pollution from burning coal, oil, and other fossil fuels—the “energy tax” Norquist was referring to—is an old idea. Economists of all political stripes have endorsed it for decades as a way to strike at two of the nation’s most urgent problems: climate change and the deficit.
Depending on how it’s structured, a tax on carbon pollution could transform the nation’s energy system, driving the market away from coal and oil and toward cleaner forms of energy that don’t contribute to global warming, while generating more than $100 billion annually in new revenue. The numbers make the story plain: A September report by the Congressional Research Service concluded that a carbon tax could cut the federal deficit by up to 50 percent.
A carbon tax is also a political third rail. By taxing the pollution caused by the burning of fossil fuels—which provide about 80 percent of the nation’s electricity and 95 percent of its transportation fuel—a carbon tax can rightly be slammed as an energy tax that could raise costs on consumers. Backing an energy tax sounds like political poison for any lawmaker who has to face reelection.
But when faced with the post-fiscal-cliff alternatives of continuing along the current path to a spiraling deficit—or cutting programs in defense, Medicaid, Medicare, and Social Security to the bone—a carbon tax begins to look more palatable. At the very least, budget experts concede that in the coming months, the conversation about deficit reduction is going to keep coming back to taxing carbon, if for no other reason than there’s nothing else that could do so much to solve the problem without forcing cuts to defense and social programs.
“They’ll be out there offering the carbon tax as a fix because nothing else works,” Norquist said. “It’s like a teenage boy on prom night who wants one thing— and he’s going to keep coming back, asking the same question, again and again.”
House Republican leaders say they plan to make sure that no matter how many times the question is asked, the answer remains “no.” Asked on Fox News about the prospect of a carbon tax, House Energy Committee Chairman Fred Upton, R-Mich., said, “We’re going to do our very best to make sure this is a mole that is not going to pop again.… Talk about a bad idea.”
On Wednesday, a bipartisan group of lawmakers led by West Virginia Republican Rep. David McKinley introduced a resolution aimed at blocking a carbon tax, should one be introduced.
“With 23 million Americans looking for work and an unemployment rate exceeding 7.8 percent for the last four years, America can’t impose a carbon tax that will drive the unemployment rate even higher,” Rep. McKinley said.
But carbon-tax opponents say they’re worried that new fiscal dynamics have ratcheted up pressure on congressional tax-writers to at least consider it. The Institute for Energy Research, a fossil-fuel-funded think tank, has launched a behind-the-scenes campaign to press lawmakers not to take up a carbon tax.
One thing that has opponents worried is that the fossil-fuel industry is no longer united against the carbon tax. Even oil companies such as ExxonMobil and Shell have indicated they’d support it, in part because both are now big producers of natural gas, a low-carbon form of energy that would gain market advantage in a carbon-taxed economy.
“It’s not going to go away. It’s too tempting of a revenue stream,” said the group’s leader Thomas Pyle, a former lobbyist for oil conglomerate Koch Industries. “The sheer size of the hole that Washington is in has changed the political dynamic of this issue. There’s far too much money.”
This article appears in the Jan. 16, 2013, edition of National Journal Daily as Carbon-Tax Talk Has Congress Feeling the Heat.