The Best Way to Pay for Tax Reform

Washington Republicans now have a month to do some deep thinking. They need to come up with ways to achieve something significant before facing voters again next year.

Most in the GOP see tax reform as the next act. It has been a priority even longer than repeal of Obamacare. House leaders definitely have their eyes on this prize: House Speaker Ryan recently told the Wisconsin State Journal that he plans to introduce a tax overhaul bill in September with the goal of moving it through the House by the end of the year. According to Politico, Senate Finance Committee Chairman Orrin Hatch said, “We’re not going back to health care. We’re in tax now. As far as I’m concerned, they shot their wad on health care and that’s the way it is. I’m sick of it.” For its part, the White House wants a bill on the president’s desk by December.

Here’s a central question: Will the bill run up the national debt even higher? That would be irresponsible. Publicly held national debt already exceeds $14 trillion. Without any tax cuts or new spending, it is headed for $25 trillion in 10 years. That would produce the highest debt-to-GDP ratio in modern times--crippling our ability to fund a strong national defense, pay for basic services, and care for an aging population.

With the border adjustment tax proposed by House leaders now dead, lawmakers need a new source of revenue to pay for tax cuts. The most promising option is a carbon fee. A $40/metric ton fee, rising gradually over ten years, would generate $2 trillion over that period. That revenue could pay for a sizable reduction in the corporate tax rate, protect low- and middle-income families from slightly higher energy costs, create jobs, make companies more competitive, and provide funds to help coal communities make the transition to a clean-energy economy.

Plenty of Republicans support a carbon fee/tax. They include Secretary of State Rex Tillerson, George Shultz, James Baker, Martin Feldstein, and Henry Paulson. They just need to convince the Republicans in Congress.

It’s not hopeless. The House Climate Solutions Caucus has just added its 51st and 52nd members and now includes more than 10 percent of the House. Half of them are Republicans. Caucus co-founder Carlos Curbelo (R-FL) recently told Florida’s WIOD News Radio, "We have a lot of Republicans, even from the deep South, who everyday come to me and say, 'Well, let's talk about this climate change thing and sea level rise.' There is growing interest and my hope is that we can build that coalition, that bipartisan coalition, as quickly as possible just so that we can advance common-sense policy solutions."

Clearly, the public appetite for solutions is growing. A new survey by Yale and George Mason University researchers found that two-thirds of registered voters think the United States should reduce its greenhouse gas emissions, regardless of what other nations do. Some of them may be reacting to the 105-degree readings in Oregon, the heat wave in Europe, or the rising waters along the Louisiana coast, which are swallowing a football field of land every hour. The urgency of the challenge was reinforced again Tuesday by the news that a major federal government report, in advanced draft form, finds that climate change is already taking a significant toll and that sizable reductions in carbon dioxide emissions will be necessary to minimize the damage.

The carbon fee is a free-market solution that almost all economists believe is the fastest, most efficient, and least expensive way to reduce greenhouse gas emissions.

Members of Congress need to return to their jobs determined to engage in creative compromise to solve our biggest problems. Climate change and our convoluted tax code are two of those problems, and we urge all editorial writers and columnists to call on our elected leaders to seize this opportunity to tackle these challenges simultaneously.