Paul L. Caron

Monday, September 25, 2017

Kleinbard: A Grand Bipartisan Bargain On Tax Reform — Fund Lower Corporate Rates With A Carbon Tax

Wall Street Journel op-ed:  A Grand Bipartisan Bargain on Tax Reform, by Edward Kleinbard (USC):

A levy on carbon would satisfy Democrats, while Republicans would get far lower corporate rates.

As Republicans take on tax reform, they seem hell-bent on repeating the tactical mistakes they made during their attempts at health-care reform. Again GOP policy makers have cloistered themselves to develop a bill whose prospects will hang by a thread in the Senate. Yet there is a powerful bipartisan grand bargain in corporate tax policy waiting to be struck.

Democratic and Republican policy makers agree that the corporate tax system is irredeemably broken. They even concur on the broad direction of a replacement system—lower rates and fewer loopholes. But the two parties are far apart on the most important issues in corporate tax reform: what exactly the new corporate tax rate will be, and whether companies can write off their business investments in the year those investments are made. ...

Republicans are between a rock and a hard place. Growth comes from a permanent low corporate tax rate, not one that expires in 10 years. The GOP should embrace a new revenue-raiser that can attract moderate Democrats without undercutting the economic benefits of reform. The answer? A carbon tax, which raises revenue, satisfies long-term economic efficiency and environmental goals, and is as important to Democrats as corporate tax rate reduction is to Republicans.

Most Republican politicians hate the idea of a carbon tax, even though some distinguished conservatives, like Arthur Laffer and George Shultz, support it. And progressive Democrats would never agree to revenue-losing corporate tax reform. Both sides should hold their noses and work toward major corporate tax reform financed in part with a carbon tax.

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A carbon tax makes a lot of sense but it is a tough political sell. It will take some time to make it acceptable.

Posted by: mike livingston | Sep 25, 2017 4:20:19 AM

Sure carbon tax is a great idea but politically a very heavy lift. Remember that for many it is a gas tax, and this impacts rural states. Another perhaps easier source of funds is undistributed corporate profits. That yields about 700 billion if taxed at a 35 percent rate. Of course corporate interests won't permit such a tax.

Posted by: Victor Thuronyi | Sep 25, 2017 10:53:03 AM