Taking the Leap for a Carbon Tax?

If the President knew the future as well as those who are telling him how to fix it, he’d stop worrying about going over the “Fiscal Cliff.”

On New Year’s Day, Washington politicians and American reformers would wake up to significant opportunities along with today’s risks: The American economy would still be growing slowly, but, as well, government planners would know—for the first time in this century—that there will be sufficient revenues coming in to run the place, and actually reform how that money is raised and how it’s spent.

In his first term, Obama gambled when he had almost no choice. In his second term, he’s in a stronger position to be very careful. Furthermore, he can’t know for sure whether another failure to make a deal with Republicans will lead to a better deal next year. Nor can he know whether other public and private leaders would be rational, minimizing the economic disruption caused by an across-the-board income tax increase and significant spending cuts that, together, would constitute the hard part of the landing.

Nevertheless, getting past George Bush’s ridiculously low income tax regime—a tax regime demonstrably unable to finance what elected conservatives and liberals keep promising and what red and blue state voters still want—would blow up a generation of slogans and fixed positions, and it would put real ideas (including new tax ideas) back on the table, with money to pay for them.

Along with modifying the new higher income tax rates for middle class taxpayers, liberal and conservative legislators could agree to find some additional, offsetting revenues by intelligently introducing consumption taxes. Canadian politicians got away with implementing a national consumption tax (GST) in the '90s, in part, because they had fiscal room to lower income tax rates. Washington would have that room next January.

David Frum lays out a comprehensive, timely, and politically serious case for introducing a carbon tax to kickstart a new global effort to resist climate change. It should be taken seriously, especially, if Washington actually takes the fiscal leap and is forced to be creative next year.