Democrats scramble to find carbon tax options for $3.5T bill

WASHINGTON – Opposition from a single moderate Democrat to corporate and income tax rate increases has revived efforts in the Senate to draft a tax on carbon dioxide pollution as a way to pay for the Democrats' proposed $3.5 trillion budget bill.

Sen. Kyrsten Sinema, D-Ariz., has not advocated a carbon tax, which President Joe Biden and other key Democrats have shied away from as a huge political risk. But her resistance to tax rate increases to pay for the Democrats' ambitious social policy and climate legislation has set off a scramble for alternatives, including a carbon tax, international corporate changes and closing loopholes for businesses that pay through the individual income tax system.

Sen. Ron Wyden, D-Ore., chair of the Senate Finance Committee, confirmed that the Senate majority leader had asked him to craft legislation that would put a price on carbon emissions but to ensure that the policy would respect Biden's pledge not to raise taxes on families earning less than $400,000.

That could be done with some kind of rebate or "carbon dividend" to help taxpayers as the country transitions from gasoline-powered vehicles to electric cars and trucks, and from coal- and natural gas-fired electric power plants to renewable energy, Wyden said. Rebates would mean less revenue available from the carbon tax to pay for other elements of the package.

"We've got a lot of members who care very deeply about this," Wyden said, citing Sens. Brian Schatz, D-Hawaii; Sheldon Whitehouse, D-R.I.; and Martin Heinrich, D-N.M.

But other senators and Senate aides have confirmed the driver at the moment is Sinema, the iconoclastic Arizonan whose inscrutable policy positions in an evenly divided Senate can wreak havoc on Democratic plans. She has already said she cannot back a budget plan that spends $3.5 trillion, though she has not said what price tag she can support. Now her position on taxation has Democrats scrambling.

Economists have said for decades that a carbon tax, which would make it more expensive to burn fossil fuels, is the most effective way to shift the economy away from fossil fuels toward wind, solar and nuclear power, which do not produce the emissions that are heating the planet.

But, Democrats confirm, at least for the moment, Sinema is opposing both moves, potentially blowing a significant hole in the finances of a bill to combat climate change, make permanent a generous per-child tax credit, extend prekindergarten and community college to almost all Americans and subsidize child care, among hundreds of other matters.

"Nearly every day for weeks, Kyrsten has been engaged in direct, good-faith discussions with her Senate colleagues and President Biden and his team," John LaBombard, her spokesman, said. "Given the size and scope of the proposal — and the lack of detailed legislative language or even consensus between the Senate and House around several provisions — we are not offering detailed comments on any one proposed piece of the package while those discussions are ongoing."

Democrats such as Schatz and Whitehouse have long promoted a carbon tax, and it has some Republican support. But when a bipartisan group of senators tried to suggest it could pay for a $1 trillion infrastructure bill, the White House balked, fearing that it would harm the middle class.

Politically, the prospect of enacting a carbon tax remains dicey, Wyden said. Even if middle-class and low-income families are given rebates, the fear of higher prices for electricity and some goods has sunk other efforts — notably, those pushed by Gov. Jay Inslee of Washington, a Democrat.

"We feel very strongly about honoring the president's pledge to not take steps in excess of $400,000, and I personally have studied what happened in Washington state, one of the bluest states in the country, where Jay Inslee tried repeatedly to get a carbon fee or price, and it went down, largely because voters, dealing with transition in the economy, didn't feel it would make them whole," Wyden said. "In other words, they thought that they would be facing costs that were impossible for their family to handle."

Depending on how it is structured, a tax on carbon pollution could be the single most powerful policy enacted by the United States to tackle climate change.