What might Tax Reform 2.0 look like?

What might Tax Reform 2.0 look like?
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Conservatives waited a generation for the tax reform legislation that President TrumpDonald John TrumpConservatives express concern over House GOP immigration bill Poll: McSally holds 14-point lead in Arizona GOP Senate primary Trump defends Nielsen amid criticism over family separations MORE just signed into law. But given the temporary status of many tax cuts in that legislation, we cannot wait another 30 years before passing the next tax reform.

As we look to the future, conservatives should consider a proposal that not only would ease the pathway for revenue-neutral tax reform but also would complement the Trump administration’s aggressive efforts to cut environmental regulations that are choking economic growth.

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What would a pro-growth, conservative policy look like? It should create incentives for industry to limit carbon emissions without burdensome and inefficient regulations, while simultaneously generating revenue that could be used for revenue-neutral tax reform.

 

A revenue-neutral carbon tax could achieve these goals.

By harnessing the power of market forces, a consumption tax on carbon emissions would reduce pollution without relying on the power of government bureaucrats. By killing regulations and placing a uniform cost on CO2, it would incentivize businesses and consumers to voluntarily shift toward lower-cost clean energy, putting it squarely in line with conservative free market principles.

A carbon tax would ideally be imposed on power plants, oil refineries and a limited number of other places where carbon enters the economy to become CO2. It would then be passed down the consumption chain through prices, which would impact decision making. It might lead a utility company, for example, to favor the use of clean-burning natural gas over carbon-laden coal.

A carbon tax would generate over $1 trillion in additional revenue over the next decade, which lawmakers could use to make the 2017 tax reform permanent and further reduce income taxes. Tax cuts along those lines would raise GDP in the long run by as much as 2.1 percent, or nearly $3,000 per household, per year on average. Compare that to carbon regulations, which actually cost American households over $1,300 per year.

In addition to being pro-growth, a revenue-neutral carbon tax would incentivize companies to invest more in developing clean energy technologies and capabilities. It would place innovation — rather than regulation — in the driver’s seat of environmental progress. American innovation gives us by far the best chance of solving climate challenges, yet current rules stunt it.

Energy innovators face a long list of regulations that are just as effective at reducing productivity as they are at reducing emissions. These include the Obama administration’s Clean Power Plan, the renewable fuel standard, Corporate Average Fuel Economy standards, and other federal and state-level restrictions. A national carbon tax could be set to achieve the same reduction in emissions as these regulations, but without the economic downsides.

Conservatives should be careful to support only carbon tax proposals that are pro-growth. This requires two things: using the proceeds to reduce other, more damaging taxes, and rolling back growth-impeding regulations.

Unlike the 2017 tax reforms (which polled poorly), conservatives would find broad political support to this approach. Young Americans heavily weigh climate stewardship when choosing how to vote, and conservatives increasingly do as well. About half of conservative voters now say they would be more likely to back a candidate who fights climate change. Further, there is a growing recognition that our country’s fiscal problems require pro-growth reforms that do not worsen the deficit.

Many conservative Republicans are working to advance this policy. Last year, a diverse group of loyal Republican, conservative thought leaders and policy experts launched the Alliance for Market Solutions. Our mission is to promote dialogue on the benefits of a revenue-neutral carbon tax paired with a regulatory rollback, because we believe there is simply no reason for liberal thinkers to have a monopoly on environmental policy — especially when so many of their ideas do more harm than good.

Through our research, we have concluded that our carbon tax proposal is a double win for Republicans: it will allow us to compete with Democrats on environmental policy while also advancing pro-growth tax reform that boosts the income of everyday Americans. Best of all, it paves the way toward a brighter future — for our politics, our economy and our climate.

Alex Flint it the executive director of the Alliance for Market Solutions. He previously served as staff director of the U.S. Senate Committee on Energy and Natural Resources, senior vice president of governmental affairs at the Nuclear Energy Institute, and as a member of President Trump’s transition team.