It was billed as radical tax reform ― reducing taxes for the middle class and closing loopholes for the rich ― but the Republicans have come under serious fire for offering the biggest breaks to companies and the wealthy.
The Trump administration wants to cut the corporate tax rate from 35 percent to 20 percent, and changes to individual tax rates in the House and Senate bills are set to favor the wealthiest people. An analysis from the Tax Policy Center found that the richest 20 percent of households would get 90 percent of the benefits from the proposed tax changes over the next 10 years.
Critics have already taken aim at the bills, which are now headed to a conference committee, where the House and Senate will hash out their differences. Then the legislation will get final congressional approval before going to President Donald Trump to be signed into law.
“This is about more than economics ― it’s about our values,” Sen. Elizabeth Warren (D-Mass.) tweeted as the Senate passed its version of the bill in the early hours of Dec. 2.
But what if tax reform were used to try to create an economy that works better for society and the environment? Here are some ideas for how that might look.
1. Tax Carbon Emissions
What?
Create a tax on the emissions that come from burning fossil fuels, in other words oil, coal and gas.
Why?
Energy consumption has lots of positive benefits, but when it’s powered by fossil fuels it comes with big social and environmental costs.
Research from 2015 suggests a societal cost of about $40 per metric ton for carbon dioxide emissions. This includes the long-term negative effects such as climate change damage and health problems, most of which are not shouldered by the polluters.
“The basic premise of a carbon tax is you are taxing pollution, taxing the bad,” said Anthony Leiserowitz, director of the Yale Program on Climate Change Communication. The aim is to encourage efficiency and help develop cleaner types of energy.
Revenues collected could go toward clean energy development, helping support coal workers whose jobs are disappearing, paying down the deficit, or simply back into the pockets of Americans as a dividend, making the tax revenue-neutral.
The latter option may be particularly attractive as, while the tax would hit big fossil fuel corporations, it would also hit low-income households as more of their money goes toward energy bills.
Who’s arguing for it?
Lots of people, including most Americans, support the idea. A recent study from Yale found that the majority of registered voters support a carbon tax even if that means paying 15 percent more on their energy bills. The same study also found broad support from both Democrats and Republicans.
A group of senior Republican statesmen, including former Secretary of State James Baker, is making the case for a carbon tax. The group’s argument is that tax plan uses free market principles, rather than government regulation, to reduce pollution.
Even corporations, including oil giants Exxon Mobil Corp., BP and Chevron Corp., have come out in favor of it, though not everyone trusts their motives.
Who’s against it?
Conservative Republicans tend to be more opposed, as is Trump, who expressed his feelings on Twitter last year:
Who’s already doing it?
Lots of countries ― to varying degrees ― including the United Kingdom, Denmark, Australia, Costa Rica and Sweden are onboard. And California has a cap-and-trade policy where companies need to buy permits to emit carbon. Industries in the state falling under the scheme cut emissions by 5 percent in 2016, according to data released by state officials.
“There is more and more evidence from different countries and states on how carbon tax is good for the economy, good for climate change and also benefits local households,” said Helen Mountford of global research nonprofit the World Resources Institute.
2. End Fossil Fuel Subsidies
What?
End the tax cuts, government money and incentives encouraging the development of and exploration for fossil fuels.
Why?
It would stop taxpayers’ money from going to prop up the polluting oil and coal industries, which cannot continue to grow if we are to keep global warming within the 2 degree threshold beyond which we’re likely to see catastrophic climate change.
Fossil fuels around the world are subsidized to the tune of $5.3 trillion a year, according to a study published in the journal World Development. That’s $10 million a minute.
Who’s arguing for it?
The Organisation for Economic Co-operation and Development and the World Bank are among those that have called for an end to support for fossil fuels.
Who’s against it?
The Trump administration has called for coal and nuclear energy to be subsidized and claims subsidies for renewables are the real problem, accusing them of distorting the market and damaging the coal industry.
Who’s already doing it?
“About 50 countries internationally have started subsidy reforms,” Mountford said. “They have recognized they are not a useful way to spend money, they’re very environmentally and economically costly.”
The G-7 ― that’s the U.S., U.K., Canada, France, Germany, Italy and Japan ― have pledged to eliminate “inefficient fossil fuel subsidies” within the next 10 years. Indonesia is acting too, with spending on fossil fuel subsidies estimated to have decreased from more than 3 percent of gross domestic product in 2014 to less than 1 percent in 2016.
3. Shift Tax From Labor To Resources
What?
Reduce taxes on labor ― i.e., people earning money ― and increase taxes on environmentally harmful activities by taxing resources such as minerals and fossil fuels.
Why?
The aim is to provide incentives to businesses and people to reduce their environmental footprint by reducing the use of non-renewable resources.
At the moment, about 80 percent of U.S. tax income comes from taxing labor, and about 3 percent from environmentally related taxes ― such as those on energy, transportation, pollution and resources.
Who’s arguing for it?
The Ex’Tax project, which involves Deloitte, PwC and EY, looked at shifting tax from labor to consumption and natural resource use. Its recent report said such a shift in the European Union would create 6.6 million more jobs and reduce carbon emissions by more than 8 percent.
Who’s against it?
Concerns include a potentially adverse effect on businesses, the complexity of setting the right level of tax, and that such taxes could hit poorer households harder ― as they consume more in relation to their incomes.
Who’s already doing it?
Some states in the U.S., such as Alaska and Texas, implement “severance taxes,” which typically affect the extraction of non-renewable resources like oil, coal and natural gas.
Resource taxes exist in most of the EU member states but their revenue is limited and for the most part they haven’t involved a shift away from taxing labor. More than 50 percent of tax revenues come from labor compared with 6 percent for “green” taxes.
4. Make Robots Pay Tax (Sort Of)
What?
Create a tax on robots. It could be a tax on robot makers, robot owners, businesses that use robots instead of human workers, or even on the robots themselves.
Why?
It could help cope with the surge in automation that many believe threaten millions of American jobs. The idea is to add incentives for businesses to hire human workers, and the revenue would go toward supporting and teaching new skills to displaced workers.
Who’s arguing for it?
Bill Gates, in an interview with Quartz, has said robots should be taxed for the work they do, in order to slow down the march of automation and raise revenues for helping displaced workers.
In the political sphere, San Francisco Supervisor Jane Kim has been pushing for a continuation of payroll taxes on any job where a human is replaced by a robot or algorithm. Under her plan, funds would be used for education, training and raising the pay of low-wage workers.
“We encourage innovation when we work to make sure that the benefits of innovation benefit everyone ― not just those at the top,” she said.
Who’s against it?
The robotics industry, which argues that a tax would be a block on innovation. Frankfurt-based International Federation of Robotics, for example, told Reuters, it would harm competition and employment.
The Trump administration is also against it. Treasury Secretary Steven Mnuchin, when asked about the threat of artificial intelligence, told Axios’ Mike Allen that “it’s not even on our radar screen.” The Republicans’ Senate tax bill includes incentives for automation by allowing companies to deduct from their taxable income the entire cost of business investments, which include robots. It offers no provisions to help displaced workers.
Europe debated and rejected the idea of a robot tax earlier this year.
Who’s already doing it?
No country has yet implemented a robot tax, although South Korea has just implemented something akin to one. In August, it announced proposals to limit the tax breaks available to businesses investing in automation.
5. Tax Financial Transactions
What?
Place a small charge on financial transactions such as the sale of stocks, bonds and other derivatives.
Why?
It would curb financial bad behavior including excess speculation and high-frequency trading ― the casino-like betting that is accused of helping cause the financial crash. And it would raise money, of course.
Who’s arguing for it?
It was a theme of the 2016 elections. Democratic presidential candidate Hillary Clinton suggested a tax on high-frequency trading, while her primary opponent Bernie Sanders went further, calling for a tax on all financial transactions with the proceeds going toward free university tuition and other education programs.
The Tax Policy Center estimated a “well designed” financial transactions tax could raise $50 billion a year in the U.S. And last year, researchers from the University of Massachusetts found that a tax could generate around $300 billion a year.
The EU proposed a financial transactions tax in 2013 to “temper irresponsible trading” and raise money, although the details have yet to be thrashed out.
Who’s against it?
Some economists cast doubt on the ability to raise any meaningful revenue through the tax, while others say it could just lead to tax avoidance.
John Cochrane, senior fellow at the Hoover Institution at Stanford University, said it would be fairly easy to avoid, would increase the complexity, and in terms of a fund-raising mechanism, “it cannot possibly add enough revenue to make a dent in the big picture.”
Who’s already doing it?
Since 2012, Italy has put a tax of 0.1 percent on the trading of bonds, stocks and derivatives. France imposed a version of the tax in 2013.
6. Tax Plastics
What?
This could be as taxing all single-use plastics ― think water bottles and take-out containers ― or simply a plastic bag tax, or a deposit return scheme to give people incentives to return their bottles.
Why?
Plastic pollution is a huge problem. There will be more plastic than fish in the oceans by 2050, according to the Ellen MacArthur Foundation, and plastics are killing marine life and even ending up in our drinking water.
Who’s arguing for it?
Many ocean protection nonprofits believe it could play an important role. Nick Mallos, director of Ocean Conservancy’s Trash Free Seas Program, said a tax on plastics “can go a long way in raising awareness of the ocean trash problem and be a source of revenue to implement necessary systemic changes globally, including waste collection and product and material redesign.”
Who’s against it?
Not everyone is convinced a tax would solve the problem of plastics pollution. The EU, for example, has ruled out a tax on single-use plastics, arguing it would not be sustainable, and said the focus should instead be on creating recyclable plastics and eradicating microplastics, tiny plastic particles that come from many sources including clothes, cosmetics and the breakdown of larger plastics.
Who’s already doing it?
California brought in a ban on single-use plastic bags at large retail stores in 2014. Customers are charged a minimum of 10 cents for recycled and reusable plastic bags.
Several U.S. cities have also implemented a plastic bag tax. Chicago started charging 7 cents a bag in February. Early results show that after the tax the average number of disposable plastic bags used decreased by about 40 percent per shopping trip.
China banned plastic bags in 2008, and a few months ago Kenya made it illegal to produce, sell or use plastic bags, with sanctions including up to four years in prison or a fine of $40,000.
Norway and Denmark have a deposit return scheme for plastic bottles ― and both see more than 90 percent of bottles returned for recycling. “Every day 3.5 million empty bottles are collected at 1,000 collecting points in Denmark,” said Henrik Beha Pederson, founder of Plastic Change, a Danish-headquartered nongovernmental organization.
There are fewer examples of a tax on other single-use plastics. U.K. Chancellor Philip Hammond is calling for evidence on the effects of a tax on single-use plastics and whether it could reduce pollution and protect bird and marine life.
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