CPC Budget Shows How to Tax Bad Stuff, Not Good Stuff

A basic principle of smart tax reform is that we should shift away from taxing good behaviors, like work and wealth creation, to taxing bad behavior, like pollution and speculation. 

If you want to see how this might work in practice, take a look at the new budget from the Congressional Progressive Caucus. The plan would raise $5.7 trillion in new revenues over the next decade compared to current law -- even as it keeps the Bush tax cuts for middle class households and expands tax credits for the working poor. One way it gets the big bucks is with two powerhouse taxes on bad stuff. 

First, the budget includes a tax on carbon of $25 per metric ton that raises $1.1 trillion after a portion of this revenue is kicked back to lower income households that would feel a disproportionate pinch from this step. A carbon tax is not some fringe idea of the left anymore, if it ever was. A growing number of scholars across the ideological spectrum, including at AEI, have expressed interest in this idea because such a tax would ensure that polluters are paying the true cost of spewing carbon into the atmosphere. 

Second, the CPC's budget would raise $879 billion from a financial transactions tax. Such a tax would help curb speculation on Wall Street and destabilizing high-frequency trading by imposing a tiny fee for every trade. Europe is far along in considering a FTT, and moving ahead with such a tax here would increase the chances that the entire developed world could move together against financial speculation. 

If tax reform does end up on Congress's agenda this year, as some expect, the CPC's budget provides a good starting point for a real conversation about fundamentally changing what the U.S. Treasury taxes. Another big idea that should be in this mix is a progressive consumption tax or a VAT. Lord knows Americans consume too much and save too little. This idea, too, has found support across the ideological spectrum. Conservatives may be dead set against more taxes, but they are certainly open to different ways to tax. 

One other thing about the CPC's revenue plan, which is that it would raise $606 billion by ending deferral of taxes on foreign corporate profits. That makes a load of sense, as I have argued here many times. Corporations should have to pay taxes when they earn profits -- not be able to pile up mountains of cash in offshore tax havens thanks to deferral. The fact that closing this loophole would raise over a half a trillion dollars shows just how costly deferral is to the rest of us taxpayers, who don't have Cayman accounts. 

Read more on the CPC budget here