Earlier today I talked about how difficult it will be politically to pass a second stimulus. For one thing, opposition to the stimulus has become a key GOP talking point, and continued job loss has given the talking point traction (even though it's incredibly dishonest to blame it on the stimulus). For another, the legislative calendar is so jam-packed with high-profile initiatives--health care, climate change, regulatory reform for Wall Street--that it's not clear there's room for another stimulus fight even if Obama wanted one.
As it happens, there's an idea out there capable of solving both these problems and then some: Why not pair a second stimulus with the cap-and-trade legislation now working its way through the Senate? That is, you could cut several hundred billion dollars worth of payroll taxes for low and middle-income workers, the argument being that they're the ones who'd be hit hardest by energy-price increases under cap-and-trade. As my colleague Jon Chait points out, it's hard to imagine the GOP opposing a tax cut. And you wouldn't need to have an entirely separate stimulus debate--you just piggyback on the cap-and-trade debate. Better still, it probably makes it easier for Democrats to pass cap-and-trade, since this defuses a key GOP criticism, which is that the resulting energy price increases will act as a tax on hard-working Americans.
True, a proposal like this raises longer-term fiscal questions--cap-and-trade wouldn't even take effect until 2012, so you'd have to keep the payroll tax cut in place at least until then and presumably several years after, making it somewhat expensive (depending on how generous the cut is). On the other hand, that would make the payroll tax cut more stimulative--people tend to spend a higher portion of a permanent tax cut than a temporary one. And, once you establish a norm of trading lower payroll taxes for higher energy costs, it might be easier to make up the lost revenue down the road with an energy tax. (Maybe you even make the extension of the payroll tax cut beyond a certain date contingent on an energy tax...)
For what it's worth, the idea already has support across the political spectrum. Former Bush White House economist Larry Lindsey proposed a version of it back in January. And Bill Drayton, founder of the social entrepreneurship organization Ashoka, is promoting something similar.