Network News

X My Profile
View More Activity

Thinking outside the box

Kevin Drum proposes replacing the corporate-income tax with a carbon tax and a financial-services tax. As a wonk, sign me up. But I would not want to be the politician who goes to the voters to explain that he's going to stop taxing giant businesses and begin taxing electricity and gasoline instead.

By Ezra Klein  |  June 15, 2010; 9:01 AM ET
 
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Wonkbook: Obama might push carbon price; Waxman to investigate BP; NRA gets a special deal
Next: They can pry the NRA's donor list from its cold, dead hands

Comments

The right answer is to replace some or all of the corporate tax with the increase on the highest income tax bracket from 35% to 39.6%.

The politics would work out and corporate taxes are making the United States less competitive in a world that is highly competitive for attracting business.

Posted by: lancediverson | June 15, 2010 9:20 AM | Report abuse

Kevin Drum really is a Tory's Tory.

Posted by: endaround | June 15, 2010 9:35 AM | Report abuse

So, according to Ezra we should raise the cost of doing business not once (with a carbon tax), but twice (with a financial services tax that would make the cost of capital more expensive).

So according to liberal theory you would suddenly have more business owners wanting to do business (because of the lower corporate tax), but they would be stuck because they couldn't borrow money...it would be cost prohibitive. What, banks are going to take on the expense of higher financial services taxes, and not pass it along in higher borrowing rates? You would either have a) banks less willing to loan money, or b) such prohibitebly high interest rates that business owners couldn't afford to borrow. And if the liberals are lucky, maybe both would happen...

Businesses would scale back, banks would hoard reserves, unemployment would rise....hmmmmm, sounds familiar....

The 1930's

Posted by: dbw1 | June 15, 2010 9:35 AM | Report abuse

So, according to Ezra we should raise the cost of doing business not once (with a carbon tax), but twice (with a financial services tax that would make the cost of capital more expensive).

And as an unintended consequence to this misguided liberal theory (as is typically the case) you would suddenly have more business owners wanting to do business (because of the lower corporate tax), but they would be stuck because they couldn't borrow money...it would be cost prohibitive. What, banks are going to take on the expense of higher financial services taxes, and not pass it along in higher borrowing rates? You would either have a) banks less willing to loan money, or b) such prohibitively high interest rates that business owners couldn't afford to borrow money to finance their businesses. And if the liberals are lucky, maybe both would happen...Businesses would scale back, banks would hoard reserves, unemployment would rise...

You know, maybe that's why progressives like Ezra make for fine professors, but make for horrible business leaders/managers. They live in a world of theory and text books...but have never actually had real jobs in the real world the rest of us live in.

Posted by: dbw1 | June 15, 2010 9:38 AM | Report abuse

Right now, we highly subsidize capital and highly tax labor. The latter is energy intensive- energy to run machines, energy to mine materials and manufacture them into equipement. True, accelerated depreciation schedules may spur technical change, and we think that's a good thing, but not always. But I've long been for some of the earlier proposals publicized by Al Gore:

replace the payroll tax with a carbon tax
create a personal carbon tax deductible with individual income taxes

This could be completely revenue neutral and have the effect of making it cheaper to hire people, and expensive to use carbon based energy.

Posted by: Lonepine | June 15, 2010 9:39 AM | Report abuse

Or we could just cut the corporate tax to be in line (or a little less) than most European nations, and close loopholes that allow giant mega corporations that do billions of dollars in business in America to somehow avoid paying any corporate taxes on said business (Exxon, cough-cough).

Or cap the carbon tax so it will be predictable lower than the corporate tax. Or have carbon/corporate tax combo. Corporate tax is 20%. Carbon pricing is . . . whatever it is. Then you pay the least amount. So, if you use next to no carbon, you pay next to no taxes. If you use a lot of carbon, you end up paying the full 20% corporate tax rate. It would reduce corporate taxes, encourage economic growth, while at the same time encourage carbon reduction because those who reduce carbon the most pay the least in taxes.

Posted by: Kevin_Willis | June 15, 2010 9:48 AM | Report abuse

Of course, if Democrats find that saving the environment requires cutting taxes, they will suddenly find themselves opposed to saving the environment. :)

Posted by: Kevin_Willis | June 15, 2010 9:59 AM | Report abuse

It seems like there are a lot of opportunities for the Democrats to call the GOP's bluff and take the middle ground (tax reform, long-term deficit reduction, etc) - kind of like Clinton-style triangulation. And these could be sound policies, consistent with progressive values, as well as political winners with the vast center. Why don't they do it? I know people think "the base" would be upset, but maybe we're underestimating the intelligence and overestimating the homogeneity of the Democratic base. Since when have Democrats marched in lock-step? Maybe some political courage would pay off.

Posted by: jduptonma | June 15, 2010 10:13 AM | Report abuse

Actually, Kevin, I really like the sound of your idea, and I'm (almost) as liberal as they come. Of course, I'd want something like a CBO report to tell me how that would affect revenue, and for somebody to figure out what the likely reduction in carbon emissions would be. Just from thinking about it for a few minutes, however, it does seem like it gives a really strong incentive for corporations to reduce their carbon emissions, which is what I care about most. At the same time, it seems like a good way to encourage companies it invest in doing business here, which I also care about but which I think would maybe be able to bring some conservatives on board. And at the same time, closing the loop holes would force companies like Exxon, which probably won't be able to drastically reduce its carbon footprint, will actually have to pay taxes.

Seems like a solid idea worth exploring to me. Now, maybe there's a down side I'm not seeing, but it seems like a decent starting off point for the conversation.

Posted by: MosBen | June 15, 2010 10:26 AM | Report abuse

And Kevin, I guess I should say that my support for this idea hinges on it actually reducing carbon emissions. I don't know how it will all shake out with your formulation of a carbon tax which is less than or equal to a 20% corporate tax, or how practical/impractical it would be to implement an system where corporations pay one or the other. It *sounds* like it could work to me, but if in practice it really just reduces the corporate tax rate without decreasing carbon emissions and/or increasing revenues, then it sounds less good.

But someone should definitely evaluate that as an option.

Posted by: MosBen | June 15, 2010 10:32 AM | Report abuse

Anyone who would sign on to any tax-plan du-jour without first scoring it through at least the CBO is naive.

Big corps are already sitting on trillions in hoarded cash they aren't using. Any further tax cuts are useless to them and to society.

Any offsetting tax cuts should be targetted to middle class.

Posted by: Lomillialor | June 15, 2010 10:50 AM | Report abuse

@Lom: "Big corps are already sitting on trillions in hoarded cash they aren't using. Any further tax cuts are useless to them and to society."

True enough, but one of the ways they do that is by paying little to no corporate taxes (in the U.S.). Tax cuts that closed loopholes would actually see them paying more into the U.S. treasury, not less. Thus, those business would spend billions lobbying against these "corporate tax cuts", which would employ advertising agencies all around America.

"Any offsetting tax cuts should be targetted to middle class."

Or small businesses. The bulk of employment, and economic growth, does not come from the Fortune 500 but the hundreds of thousands of companies that have significantly smaller revenues, yet bear all of the same (or more) tax burdens.

Perhaps an inescapable lower level tax, like .5% gross receipts. For a company that has gross revenues of $1 million, that's $5000. $10 million, it's $50000. $100 million, it's $500,000. $1 billion, it's $5,000,000. And so on. It's a base tax that you don't get away from and can't deduct and it doesn't matter if you're claiming that you're corporate headquarter are in Dubai--if you're doing business here, you still pay it. Or a lower gross tax + carbon tax. Everybody still pays something, but much less if you produce no carbon.

Something like that.

Posted by: Kevin_Willis | June 15, 2010 11:11 AM | Report abuse

The problem as I understand it, Lomillialor, is that there are altogether too many big corporations that aren't paying any taxes at all under the current regime. Now, you and I may simply say, "Then close the loophole." but I think we're both wise enough to see the political difficulty in doing that. And who knows, maybe conservatives have something when they say that simply closing the loop holes would dramatically increase the tax burden of corporations in the US and this would lead to companies leaving the country or something.

I don't know, which is why, as you said, any plan needs to be fully evaluated by the CBO and others.

What we're talking about is just a thought experiment. The purpose of cap and trade, from my understanding, is to value carbon emissions and to create an economic incentive for companies to reduce their carbon emissions. From just thinking about Kevin's plan for a little while, it seems like this might be another way to go about it which might have some pretty significant positive effect on reducing emissions. Again, maybe the CBO will come out and say that this will reduce federal revenues by 30% or something and we'll have to reevaluate the plan or tweak it. Or maybe an environmental study of the plan will reveal that the reduction in carbon emissions would be negligible and we'll have to rethink or tweak the plan.

Whatever. The debate has pretty much focused on either the imposition of a carbon tax or the imposition of cap & trade. Neither of those is looking likely to pass any time soon. Kevin's proposal is slightly different, with what seems to be features that can draw in some disparate groups: people focused on the fact that our corporate tax is higher than than some other countries, people that want carbon priced, and people that want companies like Exxon to not be able to avoid paying taxes by using loopholes. I wouldn't go so far as to call it novel, but it's enough of a new spin of the subject that we should make it a part of the discussion and have it evaluated.

Moreover, Kevin's a conservative. We're best served by having a big selection of fully explored plans to choose from rather than focusing in on one or two plans that we think we like the best. We should be able to make a spreadsheet of several different plans, all of which have been fully evaluated by the CBO and other groups. We should be able to weigh their pros and cons and then choose the one that produces the best mix of results, and we should also be able to say, "Well, you people support plan X, but more of us support plan Y. As you can see, however, there's not a world of difference between the plans, so there's no need for you to be completely upset that you lost this debate."

Posted by: MosBen | June 15, 2010 11:19 AM | Report abuse

Kevin_Willis wrote:
Of course, if Democrats find that saving the environment requires cutting taxes, they will suddenly find themselves opposed to saving the environment. :)

It appears to me that you are confused. Democrats delight at cutting taxes. It is the Republicans who oppose cutting taxes.

Center for Budget and Policy Priorities reported that "Middle-income Americans are now paying federal taxes at or near historically low levels." How low? The average family of four right now is paying 4.6 percent of its income in federal income taxes -- the second lowest percentage in 50 years.

http://www.cbpp.org/cms/index.cfm?fa=view&id=3151&emailView=1

Posted by: tinkabell1 | June 15, 2010 11:48 AM | Report abuse

tinkabell1, I think you're overstating the case a bit, but I do think the meme of "Democrats love raising taxes!" is profoundly stupid. Nobody likes paying taxes. Democrats simply believe that some government programs serve worthwhile causes and should be funded in some way, usually through a tax of some kind. Of course, they're far from perfect on actually making sure that expenditures are paid for, but the Republican party is worse. They're not the opposite in the sense that they think no programs are worthwhile and therefore cut the budget down to the bone. They don't cut programs, they just make sure they're not paid for.

Democrats don't like taxes, but recognize somewhat more often than Republicans that they are necessary.

Posted by: MosBen | June 15, 2010 12:12 PM | Report abuse

What people fail to realize is they are already paying the corporate tax, it just gets folded into the cost of whatever they buy from that corporation.

Posted by: staticvars | June 15, 2010 12:13 PM | Report abuse

Well, presumably not for the companies that aren't *paying* any corporate tax, like Exxon, but hey, they're probably factoring it into their prices anyway.

Posted by: MosBen | June 15, 2010 12:42 PM | Report abuse

@Tinkabell: "It appears to me that you are confused. Democrats delight at cutting taxes. It is the Republicans who oppose cutting taxes."

Saying it doesn't make it so. Bill Clinton raised taxes. On everybody. Promised a middle class tax cut but, as it turned out, he just couldn't do it.

"Center for Budget and Policy Priorities reported that 'Middle-income Americans are now paying federal taxes at or near historically low levels.' How low? The average family of four right now is paying 4.6 percent of its income in federal income taxes -- the second lowest percentage in 50 years."

80% of which is what? The Bush tax cuts. Even according to the CBPP's chart, the average tax rate began to fall shortly after the Republican's 94 sweep, and on up to 2008. How in the world is that an argument for Democrats loving to cut taxes while Republicans supposedly don't?

Anyhoo, I'd argue that the remaining 20 percent is due to underemployment, or unemployment during the year, dropping more middle-class folks down to a lower tax bracket. Which does not constitute a tax cut. Unless Democrats consider elevating the overall unemployment rate the same as a tax cut.

Posted by: Kevin_Willis | June 15, 2010 2:40 PM | Report abuse

Obama Plans To Sneak Through Carbon Tax By Stealth
President Obama is planning to sneak through his job-killing, economy wrecking carbon tax by stealth according to the Washington Post, by passing a weakened bill and then adding in cap and trade provisions after the heat is off following the November elections.
Described as the “lame duck climate strategy,” Obama is planning to secure enough votes in the Senate to pass a weakened energy bill and then drag out the conference long enough to ensure the stronger provisions contained in the original House version are added “after lawmakers have faced voters in November, thereby cushioning the vote’s political impact.”
“Several sources familiar with the administration’s thinking confirmed it has started pressing Senate Majority Leader Harry Reid (D-Nev.) to bring up a slimmed-down energy and climate bill next month. Such a measure would pass more easily than a comprehensive climate bill, and could still be negotiated with the broader bill the House passed a year ago,” reports the Washington Post.
“The Senate is expected to try and push a watered down bill with the hope of moving towards a carbon tax later on,” we reported on June 10, which is exactly the approach now being adopted by Obama. The elite are still desperate to impose a consumption tax on Americans as part of the move towards a “post-industrial revolution” and the kind of nightmare “green economy” that has left Spain with a 20 per cent unemployment rate. In a so-called green economy, over 2.2 jobs are lost for every “green job” created.
The government has aggressively exploited the BP oil spill in the Gulf of Mexico to manufacture an artificial urgency in an effort to speed the passage of cap and trade, an agenda firmly supported by the transnational oil corporations Obama is claiming to be reigning in. British Petroleum is one of the founding members of the cap and trade lobby, and has consistently “lobbied for tax hikes, greenhouse gas restraints, the stimulus bill, the Wall Street bailout, and subsidies for oil pipelines, solar panels, natural gas and biofuels.”
Yesterday, White House spokesman Ben LaBolt invoked the oil spill disaster to justify passage of the carbon tax bill. Obama , even went to the extreme of comparing the oil spill to 9/11, proving that he is perfectly willing to exploit the horror of nearly 3,000 dead Americans in a completely unrelated event nine years ago to underhandedly push his political agenda. http://www.infowars.com/obama-plans-to-sneak-through-carbon-tax-by-stealth/ and
http://www.youtube.com/watch?v=veHhcxQjZ2w&feature=player_embedded

Posted by: PaulRevere4 | June 18, 2010 3:02 PM | Report abuse

The comments to this entry are closed.

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company