POLITICS:

Who's afraid of a carbon tax? Not Romney's economic advisers

Three of Mitt Romney's most visible economic advisers have expressed support for pricing carbon, leading some economists to believe that the Republican candidate is receiving climate advice as he faces criticism about his mysterious tax plan.

The trio comes with conservative credentials and is deployed to explain, and defend, Romney's ambitious proposals to overhaul the nation's maze of tax codes by cutting government collections from corporations and individuals. These advisers have also recommended in the past that pricing carbon is a smart way to help finance these types of tax cuts. Romney, in contrast, has provided little in the way of details about how his plan might be paid for.

The notion of attaching fees to carbon dioxide -- or, similarly, gasoline -- is so ingrained in mainstream economic principles that one of Romney's key advisers, Greg Mankiw, said in 2009 that a politician who fails to embrace it is likely faking aversion to avoid painful political pitfalls.

"I believe that most politicians understand the arguments for higher taxes on gasoline and other energy products and are often privately convinced by them," Mankiw, a former chairman of the president's Council of Economic Advisers under President George W. Bush, wrote in the Eastern Economic Journal. "But they also know that the general public is not convinced, and so they feign opposition."

He sets out in the article to convince doubters that taxing carbon emissions will help address climbing temperatures while providing crucial new revenue that could be used to diminish more harmful taxes. The government, after all, is supposed to tax things that it dislikes -- and work is not one of them.

"If you are a person skeptical of higher gasoline and energy taxes, you are the person I am trying to convince," Mankiw wrote.

A silent chorus?

Whether he says the same thing to Romney is not clear. What's more certain is that he has company inside the campaign with similar opinions.

Glenn Hubbard, who presided over Bush's Council of Economic Advisers before Mankiw, has said that pricing carbon can result in American industries finding innovations that would replace oil or use it more efficiently. And Kevin Hassett, an economist at the American Enterprise Institute, suggested that energy subsidies be dismantled -- all of them -- so that wind power, for example, could be competitive with natural gas.

"If the president and congressional leaders are serious about energy security and global warming, they should zero out all our energy programs and replace them with a carbon tax," Hassett wrote in a 2004 Bloomberg column. "Since the resulting revenue can be used to finance tax cuts elsewhere, the policy shouldn't be harmful economically."

More recently, Hassett participated in private efforts between climate advocates and economists to discuss future paths toward taxing carbon.

That Romney would surround himself with advisers who believe that human-released carbon dioxide is causing temperatures to climb symbolizes the divide between him and the skeptics in his party, whose level of enthusiasm will be one key to the election's outcome.

It also showcases contradictions in Republican messaging that seeks to paint President Obama as an "eco-zealot," as Americans for Prosperity described him, striving to fulfill a liberal agenda. Romney's economic advisers, for example, have promoted higher fossil fuel prices through taxation, even as his campaign and Republican lawmakers attack Obama for voicing similar economic theories in the past.

With Romney facing continued criticism about the omissions in his economic plan, which calls for the competing goals of deeply reduced tax rates and lower deficits, some economists say it is unlikely that his economic advisers haven't pointed to carbon prices as one way to help finance it.

"They're all trying hard to put Chinese walls up between these views and the Romney campaign," Michael Greenstone, a former chairman of the Council of Economic Advisers under Obama, said of the Romney camp. "But it defies common sense to think that one can effectively do that. [Romney] knows what they think, and I'm sure they say it to him."

Mum's the word, so far

Two of Romney's advisers -- Mankiw and Hubbard -- declined interview requests. Hassett did not respond to inquiries. A spokesperson for the candidate's campaign, meanwhile, did not mince words: "Governor Romney opposes a carbon tax," she said.

A stand-alone tax on carbon will never fly with Republicans, economists and analysts say. But one that is pitched as a single dish in a buffet of tax reforms just might, says Arthur Laffer, an economist who worked in the Reagan administration during the last major reform of the tax code in 1986.

"The one reason why we all just go dingers and hate carbon taxes is because it's a tax add-on," Laffer said in an interview. "It's an additional tax and an additional encroachment of government on the private sector and will actually hurt the economy. That's a real problem. So therefore, if you can find another tax that is worse than a carbon tax and replace that tax with a carbon tax, I don't know of many people who would disagree with that."

Laffer called income taxes the "single most damaging tax that you can imagine," because they penalize nearly every American for contributing to the economy.

"So when you find a product that's bad -- bad, bad, bad -- like speeding, like criminal activities, and you fine it, you reduce the quantity of a bad activity and you collect money. It doesn't get any better than that," he added. "The risk of world calamity because we don't pump more carbon into the atmosphere is rather remote."

Economists say they could understand if someone who doesn't believe in climate change opposed pricing carbon dioxide -- because to that person, carbon dioxide and its greenhouse gas equivalents are harmless. And if it does not add costs to human health, catastrophes and economic activity, then taxing it would be foolish. It would serve only to put a drag on the economy.

But economists of all political stripes do believe carbon carries a cost, and apparently, so does Romney.

Would a $1-a-gallon gas tax be better?

He acknowledged recently in a written response to the magazine Scientific American that "the world is getting warmer, that human activity contributes to that warming, and that policy makers should therefore consider the risk of negative consequences."

But he also shot down the notion of taxing carbon, saying it would encourage businesses to move elsewhere. Yet that might be interpreted as him speaking to a stand-alone carbon tax, not one embedded in a major overhaul to the tax code designed to cut rates and reduce the deficit -- the kind of ambitious program that he has put at the center of his campaign.

"If we ever did get a bipartisan compromise to reduce the deficit, a carbon tax could well be part of it," said Alan Viard, an economist with the American Enterprise Institute. "It would be a tough thing for some Republicans to swallow. But the whole definition of that sort of deal is that of course both sides are going to have to swallow some things that they don't want to."

Romney's economic plan calls for a "fundamental redesign of our tax system," in which the top marginal corporate tax rate would be cut immediately from 35 percent to 25 percent. He also promises to eventually reduce marginal tax rates for individuals by 20 percent.

He has been criticized for not providing details about how to make up the revenue shortfalls that would accompany those reductions. There are a host of tax deductions and other expenditures that he could eliminate to provide the financing for his tax cuts.

Yet even if Romney cut back on an array of those tax spending programs, his plan would still fail to find enough money to pay for his proposed tax cuts, according to an analysis by the nonpartisan Tax Policy Center.

As it happens, the annual shortfall of $86 billion is about how much Mankiw, Romney's key economic adviser, said could be raised through a $1 hike in the cost of a gallon of gasoline. Not only would it reduce emissions, Mankiw said in 2006, but it would also provide $100 billion a year that could be used to lower income taxes.

Three years after that, he wondered when economists' "eminently sensible" ideas about taxing emissions would find traction among political candidates.

"Discussing the size of a carbon tax, rather than alternatives to it, would be a big step forward compared to where the public discussion is right now," Mankiw wrote.

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