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THOMAS FRIEDMAN: Carbon tax idea slowly smolders

on March 18, 2013 10:20 AM

One of my favorite quotes about the state of U.S. politics was offered a couple years ago by Gerald Seib, a Wall Street Journal columnist, when he observed that "America and its political leaders, after two decades of failing to come together to solve big problems, seem to have lost faith in their ability to do so.

A political system that expects failure doesn't try very hard to produce anything else." That's us today -- our entire political system is guilty of the "soft bigotry of low expectations" for ourselves.

I raise this now because it strikes me as crazy that one of the obvious solutions to our budget, energy and environmental problems -- the one that would be the least painful and have the best long-term impact (a carbon tax) -- is off the table. Meanwhile, the solution that is as dumb as the day is long -- a budget sequester that slashes spending indiscriminately -- is on the table.

Shrinking the tax deduction for charity is on the table. Shrinking Social Security, Medicare and Medicaid for the poor are on the table. But a carbon tax that could close the deficit and clean the air, weaken petro-dictators, strengthen the dollar, drive clean-tech innovation and still leave some money to lower corporate and income taxes is off the table. So the solutions that are lose-lose and divisive are on the table, while the solution that is win-win-win-win-win -- and has both liberal and conservative supporters -- is off the table.

Writing in The New York Times in support of a carbon tax back in 2007, N. Gregory Mankiw, the Harvard economist, who was a senior adviser to President George W. Bush and to Mitt Romney, argued that "the idea of using taxes to fix problems, rather than merely raise government revenue, has a long history. The British economist Arthur Pigou advocated such corrective taxes to deal with pollution in the early 20th century. In his honor, economics textbooks now call them 'Pigovian taxes.' Using a Pigovian tax to address global warming is also an old idea. It was proposed as far back as 1992 by Martin S. Feldstein on the editorial page of The Wall Street Journal. ... Those vying for elected office, however, are reluctant to sign on to this agenda. Their political consultants are no fans of taxes, Pigovian or otherwise. Republican consultants advise using the word 'tax' only if followed immediately by the word 'cut.' Democratic consultants recommend the word 'tax' be followed by 'on the rich.'"

Yes, to win passage of any carbon tax, Republicans would insist that it be revenue neutral -- to be offset entirely by cuts in corporate taxes and taxes on personal income. But maybe they could be persuaded otherwise. In an ideal world, you would have 45 percent go to pay down the deficit so that we don't have to cut entitlements as much -- appealing to liberals and greens -- and have 45 percent go to reducing corporate and income taxes -- to encourage work and investment and appeal to conservatives. The remaining 10 percent could be rebated to low-income households for whom such a tax would be a burden.

According to the Center for Climate and Electricity Policy at the nonpartisan Resources for the Future, a tax of $25 per ton of carbon-dioxide emitted -- through the combustion of fossil fuels used in electricity production, commercial and residential heating and transportation -- "would raise approximately $125 billion annually." This $125 billion "could allow federal personal income tax reductions of about 15 percent or corporate income tax reductions of about 70 percent, if all carbon tax revenues were used to replace current tax revenues. Alternatively, the federal deficit could be reduced by approximately $1.25 trillion over 10 years" -- roughly what we are trying to do through the foolish sequester. Such a tax would add about 21 cents per gallon of gasoline and about 1.2 cents per kilowatt-hour of electricity. It could be phased in gradually as the economy improves. Experts believe that the mere signal of a carbon tax would get companies to become more energy efficient. And that's the point. As part of any grand bargain -- which will have to include spending cuts and tax increases -- introducing a carbon tax into the mix makes all kinds of options easier and smarter.

Alas, right now both sides are trying to inflict maximum pain on the other, rather than framing the debate as: "Here's the world we're living in; here's what we need to thrive; and, if we cut and tax here, we can invest in these 21st-century growth engines over here." Our goal is not to balance the budget. It's to make America great.

So how come the best ideas are off the table? Several reasons, argues Adam Garfinkle, editor of The American Interest and author of a smart new e-book, "Broken: American Political Dysfunction and What to Do About It."

First, because our democracy today is perverted more than ever by deep-pocketed lobbies and oligopolies. So, "in order to get and stay elected today, you have to raise huge sums of money from corporations, wealthy individuals and dues-laden unions," Garfinkle notes, and all that money leads to "twisted decision-making at the high-politics level" and "regulatory capture" at the bureaucratic-administrative level. The fossil fuel, auto and power companies have bought a lot of politicians to block a carbon tax.

The only way around them, argues Garfinkle, would be for leaders to galvanize the public, but that requires building "governing coalitions" in the center rather than "political coalitions" that can get you elected but little else after that. President Barack Obama is belatedly trying to do that; the Republican Party hasn't even tried. "This is what real leaders do," said Garfinkle. "They change the conversation." They don't just read the polls; they shape the polls.

But we can't put this all on lobbyists. It's also our generation. "We're the most self-indulgent generation in American history," argues Garfinkle, always demanding more services than we're ready to pay for. "Too many of us want to be unbound by broader social obligations, but the network of those obligations creates the moral ballast that makes good governance possible."

As Nathan Gardels and Nicolas Berggruen note in their insightful book, "Intelligent Governance for the 21st Century: A Middle Way Between West and East," we prefer a "Diet Coke culture -- sweetness without calories, consumption without savings and safety nets without taxes." No wonder anything hard or smart is off the table. We pushed it there.

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