Last week, a bipartisan group of senators announced that they had reached an agreement on an infrastructure proposal which would not be funded by tax increases. During the negotiations, the group floated the idea of indexing the gas tax for inflation to raise revenue. The Biden administration quickly dismissed the idea because it would break the president’s pledge of not raising taxes on people who make less than $400,000 a year. President Biden’s no-tax pledge is not only stalling good tax policies; it’s also preventing common-sense climate policy. That is, a carbon tax. The administration seems to have created an unnecessary roadblock for meeting its ambitious climate goals.
Biden’s no-tax pledge hinders several good tax policy options to fund an infrastructure proposal: user fees such as raising the gas tax or enacting a vehicle mileage tax, and a carbon tax. This broad-based excise tax taxes the negative externalities of greenhouse gas emissions. A carbon tax has a unique advantage compared to the other pay-for options: it would raise a significant amount of revenue to fund the administration’s infrastructure proposal and help America achieve decarbonization most effectively and efficiently. Part of the revenue raised by a carbon tax could also be returned to low-income households as rebates to address the inherent regressivity of a carbon tax.
The administration’s adherence to the no-tax pledge is arbitrary. The administration says that indexing the gas tax for inflation would violate the pledge. But the administration’s proposal of increasing the corporate income tax to fund its infrastructure proposal would not. According to the Tax Policy Center’s model estimates, “about three-quarters of middle-income households would face a tax increase averaging about $300,” mostly due to higher corporate taxes. Howard Gleckman, a Senior Fellow at TPC, concluded that all Biden’s tax provisions (corporate income tax increases and other tax changes) “mostly, but not entirely” adhere to his no-tax pledge.
Additionally, Biden’s no-tax pledge only applies to tax policies but not to other government policies, such as regulations that may burden low-income households. If disproportionally burdening income earners below an arbitrary threshold is truly a concern, this should apply to all types of government policies, not just tax policies.
A carbon tax discourages the consumption of fossil fuels by putting a price on carbon emissions. This is a common-sense climate policy that would put America on the right track to Biden’s net-zero emissions goals. The administration should consider removing the no-tax pledge roadblock and make way for sound tax and climate policies.