A Greener New Deal, CO2eight: Cutting Carbon, Income Taxes, and Poverty
Not a new chemical element, CO2eight is a call to cut CO2 emissions and modernize taxes with enactment of the 28th Amendment to the US Constitution. This proposal would (a) slash American carbon output and cut plastic and other solid waste generation, (b) replace an antiquated and corrupt income tax scam with a modern consumption/carbon tax system, and, bonus, (c) reduce poverty by providing cash payments directly to low-income citizens.
Here’s How it Works. Economists on both left and right endorse a switch from income to consumption taxation. This old idea has gone nowhere because of fears that the nation would end up with both federal income and consumption taxation al la Europe. But an old idea can get a new life with CO2eight that features a constitutional mechanism to ensure that virtually all personal and corporate income taxes are entombed in exchange for a modern federal consumption/carbon tax system. And the new consumption/carbon tax order will cost the country no more money than the current income tax regimes.
A Most Unusual Effective Date. The new consumption/carbon tax system would originate as a Congressional proposal, which, if signed by the President, would become law only upon the world’s most unusual effective date: the date enough states ratify a constitutional amendment to repeal the Sixteenth (income tax) Amendment. Why repeal Congress’ income tax authority with an Amendment: Because the country won’t stomach piling a federal consumption/carbon tax system onto two existing income tax systems. Ask President Macron about the wisdom of foisting fuel/carbon taxes on top of other taxes without offsets. The Macron miscalculation was anticipated just last November by a soundly rejected carbon tax ballot initiative in left-leaning Washington state.
On its own, an efficient carbon and consumption tax regime would likely raise less revenue than our current income tax systems. To make up the difference, the amendment would also authorize a flat tax of an additional tax on higher-income individuals of 4% to 10%. For scale, President Clinton proposed a flat tax of 30% on incomes above $100,000 to replace all personal income taxes. The flat tax would be a revenue shock-absorber dropping in years consumption tax revenues rise. The flat tax rate can increase in emergencies, e.g., during time of war, with supermajority Congressional votes that lapse unless extended. Consumption taxes would be limited by the Amendment to a historic percentage of GDP.
Here’s Who Wins. First, the left: Progressivity is built in by granting lower-income taxpayers advanced rebates (i.e., prebates) on necessities including food and gas. Direct cash payments akin to a negative income tax would be authorized. An odd mix endorses the latter idea: Milton Friedman, Richard Nixon, and, wait for it, the Green Party. Senators Booker and Harris push versions of anti-poverty payments. Direct cash payments would be partially funded by reductions in non-cash federal poverty programs.
Swapping income taxes for carbon taxes will very nearly buggy-whip the internal combustion engine and other CO2 emitters. Carbon reductions would surpass Mr. Obama’s deep decarbonization aspirations and blow away Paris Accord goals. Solid waste generation plummets slowing the throwaway society as the left can insist on national consumption taxes on single-use plastics, like bottled water, excessive packaging, and if it continues to strike their fancy, even Happy Meals.
The Right Shouldn’t Care. The left’s Pigovian (i.e., behavior-altering) taxes should not deter the right because, finally, the income tax incubus is caged; tax-paying accountancy is performed by companies, not individuals facing IRS scrutiny. Liberty grows with distance between citizen and government. Income tax leakage, that is, cheating, is reduced and revenues rise as corporate professionals report and collect taxes mostly at the point of production or sale, not citizens fighting to stay one step ahead of the IRS. Underground bad guys surface to pay federal taxes on everything they buy, reducing tax burdens on the lawful.
The right should not fear a carbon/consumption tax shift for one need not accept a single conclusion of the UN’s IPCC for this Amendment to make sense: limited consumption taxes beat untethered income taxes on every front including spurring savings, investment, and growth; such taxes have a conservative pedigree (e.g., President Reagan favored use taxes); the right also gives revenue-neutral carbon taxes good reviews (see A. Laffer and G. Mankiw).
Goodies for All. The deeper the dive into CO2eight, the better it gets: US corporations still harbor gargantuan profits off-shore because domestic corporate taxes starve our economy of a huge capital resource. The recent tax bill lowered the corporate rate from 35 to 21 percent resulting in $450 billion returned this year. Well done, golf clap, but $2.5 trillion in US money is still parked overseas. Under CO2eight there would be no barrier for the rest to come home, which could spark gold rush GDP numbers for the US economy. Consider: $2.5 trillion coming home would exceed total foreign investment in the US at $2.4 trillion and is more than 60% of all US trade in 2017 at $3.9 trillion.
US exports get goosed too. Europe and other VAT nations kill American exports by charging VAT taxes on products we sell there and rebate VAT taxes to its companies shipping here. When corporate taxes go away and we charge consumption taxes on imports, our shipments overseas will nearly be on the same pitch with Europe and other VAT nations.
The World Wins Too. CO2eight success at home can breed carbon reductions abroad as the other world champion carbon emitters, China and India, eye the results. They may conclude such an audacious launch of an American idea that helps both environment and economy is worth a go. If they do, decarbonize and solid waste reductions would multiply on massive scales as would economic growth. Europe may reach the same conclusion, perhaps prompting reform of its oppressive system of income and VAT tax regimes that have gained it nothing but decades of economic sclerosis.
Congress May Suck; States Don’t Have To. Even though CO2eight requires an Amendment, I think it has a better chance of being enacted than a Green New Deal, which has a target of 2030. CO2eight can beat that by years. If our dysfunctional Congress can’t get the CO2eight ball rolling, states can: Two-thirds of our state legislatures can advance the proposal without Congressional action. CO2eight can launch an anti-carbon, anti-income tax, anti-plastic, and anti-poverty revolution, setting in motion environmental and economic changes on Trumpian scales.
Where might the House Problem Solvers Caucus and the President be on CO2eight?
Mark Mackie, MA, JD, is former Chief Counsel for the US Senate Committee on Rules and practices law in the Dallas/Fort Worth area.