A Thought Experiment: Design a policy that slashes carbon emissions, junks virtually the entire personal income tax system, eliminates corporate taxes, and garners support from perhaps a third of the left and most conservative voters. Ohh and while you’re at it, make sure the USS Goodship Treasury doesn’t take one below the waterline.
Solution: Modernize the national revenue system by replacing it with a consumption tax of about 15 percent -25 percent on goods sold in the U.S. and a carbon tax add-on of perhaps 2 percent -10 percent. If revenue falls short of current Treasury receipts, a capped, spillover flat tax of 1 percent -10 percent makes up the deficiency. Similar tax ideas have surfaced before so what’s new? Switch up these tax systems with a federal constitutional amendment.
Conjoining such disparate tax ideas, consumption and flat, is novel, but not original. Jerry Brown pushed it in his 1992 Presidential bid.
The Economics: Quoting Brookings on the effects of using carbon tax revenue to reduce capital gains: “investment booms, employment rises, consumption declines slightly, imports increase, and overall GDP rises significantly.” As near a home run one gets from economists. Imagine GDP growth if capital gains taxes were eliminated along with all corporate and personal taxes.
Conversely, cutting carbon without cutting taxes cuts growth. The Paris Agreement on climate negotiated by President Obama is estimated to erase $150 billion of US GDP.
The Politics: In Washington State, the nation’s first carbon tax initiative lost by 9 percent. All revenue raised funded state tax cuts. The partisan breakdown of the vote is unknown as Washington’s exclusive use of mail-in ballots prevents exit polls, but the Left largely opposed, insisting revenue raised be directed to windmills and social programs. Leftists also claimed that that the tax yielded paltry carbon reductions.
We contend that the carbon reductions from a national consumption/carbon tax would be so massive that the left’s main opposition to the Washington state’s initiative, impotence, would peter out. We also think center/right support was limp because the initiative’s revenue neutrality doesn’t have the same juice as junking an entire tax regime, as we propose.
The Left’s Goody Bag: You get a tax system that penalizes consumption with an overlay of carbon taxes in a mixture you help craft because Constitutional amendments require supermajorities in both Congress and state legislatures. “Deep Decarbonization” becomes reality. Bonus: Reconstituting taxes to rely less on income and more on what economists call Pigovian taxes (i.e., penalizing harmful activities) could lead the way for carbon and solid waste reductions worldwide as China and India follow suit.
The Right’s Goody Bag: Not a single assumption of UN’s Intergovernmental Panel on Climate Change need be accepted for this plan to make sense to you: constrained consumption taxes beat untethered income taxes on every front including collection efficiencies, investment, growth, and, ultimately, jobs. Consumption taxes are the quintessential use taxes with an impressive conservative pedigree: Ronald Reagan favored use taxes. Revenue neutral carbon taxes make the conservative cut too (e.g., G. Mankiw and A. Laffer). Conceptually, conservatives are not against funding federal needs with consumption and carbon taxes, they are simply adamant that such taxes not be stacked on top of other taxes. But there is no chance of that here for all such taxes are in a constitutional lock box. A bonus: Liberty advances as interactions between tax collector and citizen taxpayer diminishes. Corporate tax professionals will bear that burden. No more tax audits of ordinary individuals, no more harassment.
Back to Washington State: The No vote groups, mostly energy companies, outspent the Yes vote groups $2.8 million to $1.5 million. But consider: ExxonMobil paid $31 billion in corporate income tax last year. Those taxes will go away, giving Big Oil a big reason to flip. Further, many companies pay little or no corporate taxes: General Motors, annual revenue of $150 billion, received a tax benefit of $28.6 billion last year. That wouldn’t happen under this proposal for all companies would pay 15 percent to 25 percent of their sales to the federal government.
An End Run Can Score: President-elect Trump can push Congress to send this to the states this summer, but if Congress won’t give states a chance to scrape our antiquated tax system, slash carbon emissions, and drive up jobs and economic growth, statehouses can. Thirty-four states can summon this Amendment without them. Republicans effectively control thirty-three statehouses putting abolition of federal income taxes and carbon emissions within, as they say in the heartland, spit’n distance.
Mark Mackie is former Chief Counsel for the US Senate Committee on Rules who now practices law in the Dallas/Fort Worth area. John Campbell is also a former Congressional staffer and a former Deputy Undersecretary of Agriculture for George H.W. Bush and is now an investment banker in the renewal energy and agriculture sectors in Wyoming.
The views expressed by authors are their own and not the views of The Hill.