Progressives and Green Taxes

I wrote last week about how we can shift our tax model to taxing things that are harmful, like pollution, and away from taxing things that are productive, like work and wealth creation. But, there has been little discussion in the mainstream on this issue, even though tax reform is almost certainly set to become a top issue in Washington in the next year or two, with both parties agreeing that the tax system is due for an overhaul. The radio silence on taxing bad stuff is particularly confusing given that a significant portion of voters approve of the idea and it remains fairly non-polarizing with bipartisan support for the idea.

Last year, The Solutions Initiative asked six think tanks spanning the ideological spectrum for their own plans to achieve long-term sound fiscal policy. When looking at other taxes to impose, four of the six called for the inclusion of a carbon tax. In total, five of the six think tanks advocated for taxing bad behavior. On the progresive side, the Center for American Progress proposed a carbon tax and increasing the gas tax with lower income tax levels to help offset higher costs. The Economic Policy Institute’s proposal (developed with Demos and the Century Foundation) similarly called for a carbon tax and an increase in the gas tax. It also called for a tax on sweetened beverages while decreasing income taxes on lower and middle-class incomes. The Roosevelt Campus Network called for a carbon tax and a repeal of the gas tax.

The Bi-Partisan Policy Center did not call for a carbon tax but advocated for an initial 6.5 percent consumption tax that would be phased down over time once the debt started to decrease. It also advocated replacing the income tax brackets with just two -- 15 percent and 27 percent. The conservative American Enterprise Institute would replace an array of energy subsidies, tax credits and regulations with a carbon tax. AEI’s proposal also replaces the income tax system and the estate and gift tax with a progressive consumption tax.

There was some talk of consumption taxes this summer when the House Ways and Means Committee held a hearing on the idea. In addition to AEI, the conservative Heritage Foundation also released a plan that advocated for the idea. However, as Elon Green wrote, there was little hope that it would be advanced due to little support from either party, even though it has great potential for raising revenue and every other industrialized country has a Value Added Tax, a form of consumption tax. And, while shifting our tax system will likely be more equitable, progressives have been slow to champion the idea and in the Solution Initiative’s paper, neither of the progressive think tanks proposed the same shift in our tax base that AEI did. Strangely, one of America's most conservative think tanks is ahead of the curve on what should be one of the most important causes for progressives.

The opportunity for progressives to start changing the dialogue is ripe, and not only because of the cross-ideological possibilities here. The recent news out of Washington is that the GOP is threatening to hold the payroll tax cut holiday hostage once again. And, once again, they are holding it hostage in return for advancing the Keystone XL pipeline. Instead of engaging in this fight on its own terms, progressive should call for scraping payroll taxes all together and focusing instead on imposing pollution and consumption taxes.

Shifting our tax base will take considerable political support but it can be done. Looking at Australia’s recent carbon tax victory, analysis shows that even though media coverage was more negative than positive, the government was still able to pass the historic measure due to a long and patient campaign. Apart from organizations like the Carbon Tax Center and a handful of elected officials, the same sustained support and effort has yet to materialize among progressives here in the U.S.

Tomorrow’s State of the Union address is unlikely to propose any meaningful shift in our tax base, but if President Obama really wants a blueprint for an economy that’s built to last, he should start by changing what we tax and progressives should loudly back his attempts.