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Don’t Fall for the Carbon Tax Trap

The centrist policy framed as a win-win on fiscal and environmental sustainability is a red herring.

Chip Somodevilla/Getty Images
President Biden talks at his first press conference.

After a few weeks of being compared to Franklin D. Roosevelt and Lyndon B. Johnson, Joe Biden seems to be losing some of his transformational zeal. The administration is reportedly walking back from initial plans to make the child tax credit provided by the American Rescue Plan permanent, and is feeling newfound pressure to balance out new spending with tax hikes. The White House’s total Build Back Better Agenda could now top $4 trillion, which is more than the $3 trillion that had been floated last week. But it intends to pair that bigger package with $3 trillion worth of tax increases, citing concerns about political buy-in and the size of the federal deficit.

Those are slated to be taxes on wealthy investors, corporations, and the rich. New York Times White House correspondent Jim Tankersley tweeted Tuesday night that the first $2 trillion phase of the Build Back Better agenda will reportedly be spent over 8 years, and paid for by corporate tax hikes over 15 years. But the Washington Post editorial board recently suggested another idea to finance new spending: “The need for funds is so great, and energy-saving such an important goal of the administration, that new revenue from carbon taxation should not be left out.”

Upcoming infrastructure and recovery bills are widely seen as the first and potentially last opportunity to shepherd big climate policy through this Congress. The United States doesn’t need to raise taxes to do so. And while framed as a win for both fiscal and environmental sustainability, tying green infrastructure or any other spending to a carbon tax, in particular, could prove riskier than its proponents claim.

There’s a very good case to be made for raising taxes on corporations and the wealthy—including for the climate: As University of Toronto political scientist Jessica Green argued in a recent paper on the subject, cracking down on corporations’ offshore tax havens helps limit their enormous power to warp politics in ways that have made comprehensive climate policy impossible so far in the U.S. The rich, Green pointed out, are also the planet’s most prolific greenhouse gas emitters. According to the United Nations Environment Program, the richest 1 percent of the world’s population account for more than double the greenhouse gas emissions of the poorest 50 percent. That wealthy people are now pouring their excess money into carbon-intensive digital currencies and non-fungible tokens should be evidence enough that our tax policy is out of whack.

Passing tax hikes on the rich isn’t easy. But a carbon tax, not unlike the fuel tax Transportation Secretary Pete Buttigieg first proposed on Monday then immediately walked back, comes with the risk of sparking unnecessary political backlash for little discernible gain. Raising taxes on the wealthy and corporations, not to mention repealing the intangible drilling costs tax break and other production subsidies that line the pockets of fossil fuel executives, could go a long way toward curbing emissions and be an easier sell to voters.

Debating what sorts of tax policy are ideal and politically feasible, though, begs the question of whether Democrats actually need to raise taxes to fund a climate bill in the first place. The GOP rarely bothers to specify how it wants to pay for new fighter jets or tax cuts for the wealthy. As economist Stephanie Kelton describes in a recent interview, “State and local governments need tax revenue to operate. The federal government does not. To have a fruitful discussion about federal tax policy, the word ‘revenue’ should never come up.”

The U.S. dollar is not a scarce resource. The time we have left to take on the climate crisis very much is. If the Biden administration does feel the ill-advised need to show how it’ll pay for new spending, it should leave carbon taxes out of that equation. Where they have managed to pass, carbon prices haven’t done a great job of reducing emissions. In the U.S., the modest help that carbon pricing might lend to nudging certain polluting activities out of the system doesn’t outweigh their miserable, nearly 30-year-old track record in politics here, where the seemingly elegant, one-size-fits-all solution to global warming reliably results in ugly political stalemates. Lawmakers’ and wonks’ fascination with the supposed efficiency of carbon taxes dates back to a time when a generation scarred by Watergate saw markets—not governments—as the ideal way to deliver New Deal ends through neoliberal means. Like deficit hawkishness, that thinking looks increasingly like a relic: Even Joe Biden has now come around to the idea that state investment and regulations are needed to deal with the climate crisis, not just market tweaks. That’s long been the case in parts of the world moving faster on climate than the U.S., where carbon pricing is now seen not as a silver bullet for climate policy—as it’s often framed here—so much as complementary to industrial policy and state planning.

In the U.S., the specter of carbon pricing has helped politicians ward off more serious policy. It’s not a coincidence that—as green infrastructure and new pollution rules loom—the American Petroleum Institute has now followed the lead of its oil and gas company members in officially backing the idea of a carbon price; ExxonMobil did the same thing as cap-and-trade was being debated over a decade ago. What the Washington Post editorial board sees as a “broad private-sector front” in the API’s apparent support for climate policy is a red herring. As was learned in 2009 with the cap-and-trade bill, corporations are more than capable of expressing theoretical support for a climate policy while working behind the scenes to sabotage it.

A needless fight over a carbon tax, battled on the right’s turf, could poison the well for federal climate policy for another decade the planet doesn’t have. Republicans and their donors in the fossil fuel industry have plenty of dog-eared scripts for batting off a carbon tax, and talk of higher gas prices plays especially well with so many still out of work and struggling to make ends meet. That most of those attacks about carbon taxes bankrupting hardworking families are unhinged from reality doesn’t matter so long as they work—and they have before.

Like Republicans’ fearmongering about the size of the federal deficit, polluters’ half-hearted support for carbon pricing has always been put forward in bad faith. For them, it’s a win-win: Water down whatever price is on the table so that it’s too weak to make a difference, even coming in below the internal carbon pricing most major oil and gas companies already factor into their long-term planning. Then fight like hell against any actual legislation. It’s way too late to fall for the same traps.