Democrats eye carbon border tax to help fund $3.5tn spending package

Democratic lawmakers are drawing up plans for a tax on imports from carbon-polluting countries to help pay for a $3.5tn package in new government spending on everything from universal childcare to an expansion of public healthcare benefits.

While details of the tariffs are scant, news of Democrats’ proposals came on the same day as the EU published its plans to impose a levy on imports based on their carbon footprint.

European diplomats had hoped that Washington would work with Brussels to address climate change through trade mechanisms such as a carbon border tax. But any US effort to impose levies on carbon entering the country would mark a shift in policy for Joe Biden’s administration.

John Kerry, Biden’s climate envoy, warned this year that a carbon border tax adjustment should be a “last resort” and that he was “concerned” about Brussels’ plans for such a mechanism.

Senate Democrats agreed late on Tuesday to press ahead with the $3.5tn spending package, paving the way Democrats to push through many of the president’s most ambitious agenda items without the support of Republicans. Biden’s wishlist includes investments in childcare and education, an expansion of government healthcare benefits for the elderly and measures to combat climate change.

On Wednesday, Biden joined Senate Democrats for lunch on Capitol Hill, where Chuck Schumer, the Senate majority leader, briefed all 50 Democratic lawmakers in the upper chamber on what had been agreed — and how it would be fully paid for, so that it would not add to the budget deficit.

A senior Democratic aide said revenues would be raised through tax reform — including changes to the corporate tax rate and taxes for high income individuals — but taxes would not be increased for families making less than $400,000 a year, small businesses or family farms.

Legislation has yet to be drafted, but a senior Democratic aide said the budget resolution would also propose “polluter import fees”, alongside other significant investments to help meet Biden’s goal of a 50 per cent reduction in carbon emissions by 2030.

It is unclear whether the Democrats are seeking to emulate the EU’s plans, which include expanding a scheme that makes companies pay the cost of polluting and imposing a carbon border adjustment mechanism that would force importers to pay extra for carbon imported from countries with weaker climate policies. 

The proposed $3.5tn in spending by Democrats is in addition to a $1tn bipartisan infrastructure deal agreed to last month between Democratic and Republican lawmakers.

Biden has called on Congress to pursue a “two track” strategy, passing the infrastructure deal with support from both parties and the bigger budget bill using a Senate procedure called reconciliation. That allows Democrats to circumvent filibuster rules — which require the support of at least 60 lawmakers in the 100-member chamber — and go it alone. The Senate is split 50-50 between Democrats and Republicans, with Kamala Harris, the vice-president, able to cast a tiebreaking vote.

The budget deal will still need to be signed off by all 50 Democratic senators. Joe Manchin, the conservative Democrat from West Virginia who has been a thorn in the side of the Biden administration, told reporters on Wednesday he wanted to see “more of the details”.

Manchin did not immediately comment on any tax on polluting companies, but reiterated his opposition towards eliminating America’s dependence on fossil fuels. West Virginia’s economy is heavily dependent on coal mining.