Progressive Democrats Endorse Rep. Larson’s Carbon Tax Bill

In his State of the Union address, last week, President Obama called for passage of “a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America.” The President did not mention cap-and-trade.

Several days ahead of Obama’s speech, Progressive Democrats of America, endorsed the straightforward, ramped-up carbon tax proposal introduced last March by Rep. John Larson of Connecticut, who heads the House Democratic Caucus. PDA recognized that as cap-and-trade legislation falters in the Senate, a long-term, grassroots effort to enact a stronger, simpler direct CO2 pricing approach will be needed.

Larson’s “America’s Energy Security Trust Fund Act” (AESTFA) would impose a steadily-increasing fee on carbon-based fuels upstream at the first point of sale and apply the revenue to reduce workers’ payroll taxes. Could there be a better time to encourage employment?

Larson’s 21-page bill is easy to understand. There are no offsets to monitor, report and verify; no carbon market for Wall Street to game; and over its life more than 95% of the revenue would go right to where it’s needed — into workers’ and retirees’ paychecks. Best of all, the carbon price would step up predictably by $10/T CO2 each year, with a bump-up in the rate to $15/ton if EPA monitoring indicates that the higher rate is needed to achieve the targeted emissions reductions. The Senate should substitute AESTFA, as endorsed by PDA, for the flawed and politically dead Kerry-Boxer cap-and-trade legislation.

Progressive Democrats of America was founded in 2004 when progressives, many with roots in the environmental, civil rights, labor, peace and social justice movements recognized the need for a strong progressive voice within the Democratic Party. PDA is urging supporters to contact senators and representatives to point out that AESTFA is the best answer to President Obama’s call for climate legislation to make clean energy profitable.

Rep. Larson’s bold proposal offers a win-win: it would put a clear, gradually-increasing price on CO2 pollution to reflect more of the real costs of dirty fossil fuels while simultaneously lifting taxation of workers that discourages employment and prolongs the recession.

Comments

  1. says

    This is the best news I can imagine getting today. I can think of no more effective and valuable single tool our societies have at our disposal to make our economies stable, our lifestyles more sustainable, our daily actions greener, and our future more hopeful. Putting a clear, simple and increasing price on carbon may even our waistlines slimmer!

  2. says

    This proposal is of course far better than any cap and trade system. Here in france, our taca association (taca as TAx CArbon with redistribution) finds that there is a new release of this carbon tax based upon 2 basic principles:
    .every one has to pay for his current pollution (carbon tax)
    .these payments are a kind of financial offset for using a part of commons (the atmosphere) so these payments belong to every human being, one head one share.
    This is the Hansen tax extended to the whole humanity.
    Using the 2007 figures of the International energy agency, with the assumption of a tax at 32$ per CO2 ton (equivalent to 0,08$ per litre of petrol), we would obtain the following numbers:
    Equal share given to every human being per year: 140$
    average CO2 expenditure for the average consumption of the following country (per people and per year):
    North America: 650$
    western Europ: 300$
    China: 100$
    India: 40$
    Poor african country: 15$.
    A famous economist asked about these numbers told me the USA and EU countries will never accept to pay so much!
    But this is the basic principle we pay for our pollution!
    Are we (rich country habitant) be ready to pay for our current CO2 pollution?
    Are we ready to pay to salvage our Climate?

  3. Alan Jenks says

    Why not use a Carbon Tax to pay for Universal Healthcare?

    This seems like a win-win proposal on so many levels! 



    The private health insurance industry is currently a drag on the economy with one in every three healthcare dollars wasted. Providing universal healthcare (Medicare for All) will mean businesses and individuals will not have to pay for private medical insurance, putting thousands of dollars a month back into people’s pockets and more than offsetting increased energy costs from a carbon tax.

    

Pricing carbon will encourage long term investment in green technology, create jobs, reduce our dependence on fossil fuels, reduce CO2 emissions and future global warming. 


    
Think about it. What’s not to like? 


  4. Ken Johnson says

    “Why not use a Carbon Tax to pay for Universal Healthcare?” Because the objective of regulatory climate policy is to eliminate carbon emissions; it is not to foster economic dependence on continued emissions.

  5. Dan says

    I second (and expand on) Jean’s comment (#3, above). Each national government could collect the carbon fee (on the basis of $ per ton) as it determines best and submit the appropriate sum to an international carbon trust fund. The fund would re-distribute money back to each country in proportion to its population. The money would have to be spent on climate change mitigation and/or adaptation.

    I suggest that countries that pay more than they receive be allowed some added control over expenditures.

    For example, maybe 1 percent of the net flow of money to “benefiary countries” would have to be spent on technical assistance from the “donor countries” (similar to many governmental contributions to multilateral lending agencies).

    Or maybe some of the money would go to “beneficiary countries” in the form of credits for purchases in the “donor countries” (as in the Marshall Plan).

    This would tend to make the idea more acceptable to the EU and the US.

    Efforts by developed countries to mitigate climate change will be futile unless developing countries join the effort. An international carbon fee will provide the same $/tonne incentive for emission reductions in developing countries as it provides in the developed ones.

    An international fee is also consistent with commitments made by developed countries through the UN Framework Convention on Climate Change. That treaty commits developed countries to help the developing countries implement emission reduction policies and measures. The treaty is explicitly based on the principle that developed countries have a greater share of responsibility in solving the climate change problem than do the poorer countries.

  6. Dan says

    Larson’s bill (H.R. 1337) looks good in that it imposes a gradually-increasing fee and makes adjustments for energy-intensive goods that are imported and exported. However, when it comes to distributing the funds, the bill seems seriously flawed. I’m not sure it is being properly characterized by some observers. In fact, I am not sure I understand it. I invite anyone with a good understanding of the bill’s distribution provisions to correct me if my analysis below is wrong.

    The bill would create a new section (36B) within Subtitle A (Income Taxes) of Title 26 (Internal Revenue Code of 1986). Section 36B would allow a credit for individuals on their income taxes. It would not decrease the amount an employer pays on behalf of an employee for Social Security and Medicare (typically about 7.6 percent of wages). Nor would Section 36B reduce an employee’s contribution to Social Security and Medicare (also typically about 7.6 percent).

    The amount of the individual income tax credit, which the bill calls a “carbon tax rebate”, is limited by the amount of Social Security and Medicare tax paid “with respect to” the individual (that is, it includes both the amount paid by the employer and the amount paid by the employee). However, there would be no decrease in the tax paid by employers or in the deduction on an individual’s paycheck for SS and Medicare. The amount paid for Social Security and Medicare would not change.

    Calling the income tax credit “payroll tax relief”, as the bill does in section 9511(c)(3), seems misleading to me because payroll tax relief is often played up to be a decrease in employers’ expenses that will promote employment. Larson’s bill will not decrease employers’ labor costs unless it induces employees and employers to voluntarily negotiate lower wage rates in consideration of the employees’ new income tax credit.

    The carbon tax rebate is to be allocated on a “per capita basis”, based on the total amount of money available in the newly-created carbon trust fund after relatively small amounts are directed to research and development and to certain hard-hit industries. I assume that the “per capita basis” refers only to employed workers and to Social Security recipients.

    There are about 135 million employed workers in the U.S. and I assume that there are about 50 million SS recipients. So, the money will be split up among about 185 million people. I can understand reasons for not including children. But what is the justification for excluding tens of millions of voluntarily-unemployed and involuntarily-unemployed adults?

    The bill would also exclude adults who are claimed as dependents on someone else’s tax return. That is, millions of college students, who may be earning money and paying for fuel and energy that would be taxed, would receive no tax credit unless their parents gave up claiming them as dependents. These exclusions seem grossly unfair. Endorsers of the bill should clarify that they take exception to this distribution plan. I note that James Handley did this in a previous post.

    After dividing the money available in the trust fund on a per capita basis, the bill places limits on the amount of an individual’s income tax credit. The credit may not exceed the amount of the employee’s and employer’s Social Security and Medicare contributions (typically about 15.2%, but less for high earners) or 10 percent of a Social Security recipient’s SS income.

    Here are some typical figures to illustrate how the tax credit limits would work. First, assume we have a carbon tax of $100 per tonne of carbon dioxide. That will yield $600 billion at today’s emission rates, but we expect the emission rate to decline, so let’s assume we have $400 billion to distribute among 185 million employees and SS recipients. That is $2160 per person. That amount is equal to the SS and Medicare tax paid on behalf of an employee making about $14,000 per year. So, if you make less than that, you don’t get your full per capita share of the tax rebate.

    To make matters worse, $2160 is the tax on a taxable income of $17,200 for an individual. This is taxable income after deductions, which would be at least $5,700 (the standard deduction for an individual). So, an individual earning less than $23,000 would not be able to take full advantage of the tax credit. The ability to take advantage of the carbon tax rebate could be decreased further to the extent an individual uses other credits that reduce their tax liability to zero.

    Consider what happens to Social Security recipients, whose tax credit is limited to 10 percent of their SS income. The per capita share of $2160 could not be fully claimed by someone whose annual income is less than $21,600 (assuming no income other than SS income). That is $1800 per month – an amount typically received by someone who worked in a well-paying job and retired at 66. But a low-income laborer who retires at 62 because of a sore back doesn’t get $1800 per month, and so won’t get his/her full per capita share of the rebate. If a person gets $1000 per month from SS and $1,000 per month from investment income and rental of a spare bedroom, the tax rebate would be only $1,200 for the year (10 percent of $12,000 from SS; the investment income doesn’t count for anything).

    If my understanding of the bill’s distribution scheme is flawed, I hope someone will explain how it really works. But if my understanding of the bill is correct, I hope that “progressive democrats” and others will consider putting exceptions on their support for HR 1337 and that Mr. Larson will make revisions so that the bill is not rejected because of unfair and unreasonable provisions in the revenue distribution scheme.

  7. Dan says

    In Comment #6 above, Ken makes a good point about the undesirable outcome of funding medical care or insurance through a carbon fee. That policy would make the funding of an essential service dependent on a funding source that we hope will decline over time.

    The same flaw would occur if we channel carbon fee revenue to employers in the form of a break on payroll taxes, in particular Social Security and Medicare taxes. We would be funding a growing financial obligation (SS and Medicare) with revenue from a source that we hope will eventually decrease (after first increasing, of course).

    The reference in the last paragraph of Mr. Handley’s post to “taxation of workers that discourages employment…” seems misleading to me, or maybe I don’t understand it. Larson’s bill would provide a credit on individual income taxes that is limited by the amount of SS and Medicare tax paid on behalf of each individual. But, it would not decrease the tax burden on employers. So, I don’t see how this would promote employment.

    The link in Mr. Handley’s post regarding “discourages employment” is to a blurb by “Get America Working” explaining that nations with payroll tax rates exceeding 40 percent (of wages, I assume) have lower employment rates than nations with payroll tax rates of less than 30 percent. What do employers pay in the U.S.? Well, there is 7.2 percent for Social Security and Medicare; and there is about 6 percent maximum for unemployment insurance; and there are various small state and local taxes – so we have maybe 15 percent maximum. The Get America Working blurb shows no evidence that employment rates continue to rise as a result of cutting employers’ payroll taxes below 15 percent.

    I don’t see any strong argument for linking a carbon fee to cuts in payroll taxes.

    As an aside, Wikipedia defines “payroll tax” to include withholdings from an individual’s income (such as income tax withholding; which is not a tax paid by employers) as well as the numerous taxes on employers. For clarity, it would help a lot if people would be more specific when they talk about payroll taxes. If it is the “employers’ contribution to Social Security and Medicare’ that one is talking about, that should be stated. Larson’s bill refers to payroll taxes, but in fact all it is referring to is an income tax credit based on the amount of SS and Medicare taxes imposed on both employers and employees, while it does nothing to actually decrease SS or Medicare taxes – it is very confusing.

  8. says

    In response to:

    1) Jean: Thanks for quantifying the wide disparity in the per capita carbon footprints across the globe. In Copenhagen, Global Utmaning (Sweden) presented: “Carbon Taxation, a forgotten climate policy tool?” articulating many advantages of carbon taxation, including the stimulative effects of shifting away from taxes on wages and pointing out that in developing countries (which are understandably reluctant to accept “caps”) carbon taxation is not regressive. The UN Kyoto process seems hopelessly stuck in an allocation struggle. In contrast, a direct carbon pricing system would sidestep that impasse. The burdens (and incentives) of direct carbon pricing would fall most heavily on the heaviest fossil fuel users both within and between nations, reflecting a form of “climate justice” which became a rallying cry of the developing nations in Copenhagen.

    2) Dan: Yes, Larson’s bill would use carbon revenue to credit income tax to reimburse for payroll taxes paid by workers and would also credit Social Security recipients. This avoids tampering with the Social Security Trust fund. You may be right that cutting the employer’s portion of the tax could stimulate employment more than cutting the worker’s burden. In an efficient market, the employer could pay a lower wage if the employee could take more of it home, thus the employer would have an incentive to hire. But of course, the labor market isn’t likely to be that transparent or responsive. Rep. Inglis has proposed a carbon tax that would split, effectively cutting both the employer and employee portion of the payroll tax. A bipartisan Larson-Inglis bill reflecting that thought would be a real breakthrough.

  9. David F Collins says

    Things are looking scary and scarier.

    Has anybody taken a gander at the comments posted to the article “Fuel Taxes Must Rise, Harvard Researchers Say” (by Sindya N. Bhanoo, not Andy Revkin) in NYT’s Dot·Earth? It looks like denizens of a black-water lagoon were set loose there. (“Sic ‘em!) It appears the “commenters” did not bother to read the essay.

    But those are only dittoheads. The CTC-referenced essay “$7-A-Gallon Gas Needed to Meet Government’s CO2 Cuts” by the Heritage Foundation’s Nick Loris says pretty much the same thing, albeit in well-composed English.

    Churlish dittoheads or urbanely mendacious scriveners for the Heritage Foundation and other interested entities, they never mention the “dividend” concept. Or other ideas. Yet they have taken the floor and they have the gavel. How can ideas be discussed?

    • says

      David,

      The Carbon Tax Center has clearly said that we think a carbon tax would have to rise briskly and for a long time to de-carbonize our economy to the degree needed. As you note, that’s an important reason for revenue recycling to households. But a carbon tax is still a lot less costly and burdensome than trying to regulate our emissions down.

      And keep in mind that we respond to prices more over time. Trains and subways filled up, highway traffic thinned and SUV sales plummeted when gasoline hit $4 a gallon three years ago. Where would we be if that price had held? Would we be fixing “crumbling roads and bridges” or building transit? If we have time, we all find ways (including new technologies) to adapt, so it doesn’t seem likely to me that $7 gasoline would be needed to induce a 15% reduction if the price rise was gradual and we knew it was coming.

      Cap/trade with free allowances to polluters won’t return carbon revenue to households, so if and when a cap it actually constrains supply (no time soon with the huge supply of offsets included in the Waxman-Markey bill) we’ll hear screaming about the price of fuel and electricity. Cap/trade advocates think they can get a bill through the Senate by hiding the price. But even if can pass, they will have done little to prevent a public backlash, probably followed by a repeal. Revenue recycling can prevent that. Premier Gordon Campbell was re-elected in British Columbia after he implemented a revenue-neutral carbon tax.

      The Heritage article displays its bias here:

      …a carbon fee would do very little to reduce CO2 emissions. As Senior Policy Analyst Ben Lieberman points out, gasoline prices have already reached these levels in Western Europe where nations have made commitments to cut CO2, yet we are outperforming them in terms of emissions reductions.

      By what measure? The EU has less than half the per capita carbon emissions of the US. Decades of higher fuel prices have built public support for transit and well designed cities. Copenhagen has a wonderful, heavily-used system of safe, separate bike routes on most major streets and they’re building a network of superhighways for bikes. Few people commute by cars. I don’t think they’d have done it without higher fuel prices.

  10. David F Collins says

    First, an apology to Charles: I forgot to congratulate you on your wonderful essay “Gore’s Climate Remedy Must Match Diagnosis” in the March 1 HuffPost.

    Ben: I agree completely; you’re preaching to the choir. (As an aside, I sang for many years in our church’s choir. We are as ready as anybody else to take the preacher to task if we felt the sermon was off.) But I didn’t make myself clear enough in the last paragraph. Just how do we go about the politics? The science is clear enough; the economics are there; the politics and the implementation are wanting, and they are not being adequately and effectively addressed. Or so it seems to me.

  11. says

    David,

    Yep, the politics of climate policy seem like a Gordian knot. PDA’s bold support of Rep. Larson’s proposal is a great first slice at the knot. The House has already done the heavy lifting of passing Waxman-Markey, so it may seem strange to be endorsing a proposal that was overlooked in that stampede.

    But as we watch the Senate straining to pass its own, even more watered-down version of cap/trade, we need you and other concerned citizens to remind their Senators and Representatives of the simple, effective carbon tax proposals made by both by Rep. John Larson (D-Conn), leader of the House Democratic Caucus and Rep. Bob Inglis (R-SC) who serves on the Science & Technology committee.

    We need support from green groups like the Sierra Club. (Full disclosure: I’m a life member.) David Bookbinder’s comments last week were encouraging; we look forward to fresh ideas from their incoming executive director, Michael Brune. (His new book “Coming Clean” on energy and climate is on my list.) If you’re a member of any green groups working on climate legislation, this might be an opportune time to let them know your views (and to volunteer your help).

    In short: the trek to effective climate policy looks like a long, steep climb; the Larson bill is a terrific step. Stay tuned. And check out the Price Carbon Campaign and the Citizen’s Climate Lobby. We’re working with them to build the political support.

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Last modified: February 1, 2010