Carbon tax floated as manufacturers ponder post-election future

FABTECH panelists: A 'modest tax' might provide a Congressional bridge for the fiscal cliff


If the colors of Election Night were red and green, the post-election analysis is focusing on green.

Money—how to make it, how to keep more of it and how much more the government might be taking in the wake of Barack Obama’s re-election as president—was a major focus of a panel discussion at FABTECH in Las Vegas on Nov. 13.

Attorney David Goch of the law firm Webster, Chamberlain & Bean, and Omar Nashashibi a partner in The Franklin Partnership, a Washington D.C consultancy, represented both ends of the political spectrum. Neither thought the end game for the Lame Duck Congress would be the country cascading over the so-called “fiscal cliff” of tax increases and spending cuts.

“The politics are bad,” Nashashibi said, “but the real impact on real people is worse.”

They also repeated a idea first floated by the Brookings Institute to bridge the fiscal cliff. Nashashibi said what he called a “modest tax” on carbon consumption could raise $1.2 trillion in new tax revenues over the next 10 years – the exact number needed to offset potential income tax increases built into the fiscal cliff legislation.

“It makes economists happy, it makes environmentalists happy and it pleases lawmakers because it’s a consumption tax, not a tax increase,” he said.

The two discussed the election’s outcome and its impact on manufacturing at the FABTECH forum moderated by Paul Nathanson, a senior partner at Bracewell & Giuliani in Washington, D.C. Goch noted the election outcome will have an impact on manufacturers, but only to a point.

“The future is bright for manufacturing. But you have to accept that happened and move on,” he said. He said whatever tax rates finally wind up at, “everyone is just looking for certainty. Then they can plan for the future.”

And Nashashibi said manufacturing, which got a tremendous amount of attention from candidates in all races during the election, needs to build on that momentum. “While you have their attention, keep at it and don’t let them off the hook.”

“How do you influence Congress? You have to get involved,” Nathanson added. “They don’t know your issues unless you educate them.”

Goch and Nashashibi said the way the tax system is altered in the coming weeks to avoid the fiscal cliff—and how much more alteration it will need to produce a workable system for the long-term—are critical issues. “The president has proposed dropping the 28% corporate tax rate to 25%, but only for C-corporations. About 70% of the people in this room are not C-corporations,” Nashashibi said. “If you look at the overall issue, if you’re serious about creative globally competitive tax rates, how are you going to do that?”

Nashashibi said the attitude toward education also needs to change. “We see education as a strategic issue,” he said. “Education is just as important as defense spending. When you treat it like a social issue, you keep falling behind.”

That led to one area where the panelists were in agreement. They both said the Skills Gap, with an estimated at 600,000 open jobs in need of skilled workers, was a critical issue manufacturing needed to address at the local level.

Sidebar: Brookings Institute proposal on carbon tax:

Here is the Brookings Institute’s proposal for a federal carbon tax:

“The nation should institute a modest carbon tax in order to help clean up the economy and stabilize the nation’s finances. Specifically, Congress and the president should move to design and implement a carbon fee system that would:

  • Establish a modest carbon levy of roughly $20 per ton of carbon dioxide emissions. According to the MIT Joint Program on the Science and Policy of Global Change, a carbon tax starting at $20 per ton and rising at 4 percent annually per year in real terms would raise on average $150 billion a year over a 10-year period while reducing carbon dioxide emissions 14 percent below 2006 levels by 2020 and 20 percent below 2006 levels by 2050.
  • Set aside at least the first $30 billion of revenue annually for clean energy- and energy efficiency-related RD&D and technology deployment. This reflects the need to complement pricing strategies with direct investments in technology “push” measures to ensure that decarbonization proceeds rapidly and adequately. Along these lines, at least the first $30 billion of carbon tax revenue each year should be deposited into an independently managed fund for supporting top-quality energy-system RD&D activity. This figure reflects a Metropolitan Policy Program analysis of the amount the federal government needs to invest in clean energy technology development (that industry won’t do on its own) simply to bring the energy industry’s RD&D intensity in line with comparable technology industries such as health or IT.
  • Allocate the rest of the revenue (approximately $120 billion a year) to tax cuts and deficit reduction as well as rebates to affected low-income households, as determined by Congress and the president.

Source: Brookings Institute.

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