Opinion: Tax Reform that Works for All
This article originally appeared in The Boston Globe on June 27th, 2017.
THE REPUBLICANS are trying to jam a reckless health care bill through Congress so that they can move on to their real objective: another round of deep tax cuts for the rich, paid for by deep cuts in public services, more debt on the backs of the young, and reckless disregard for the environment. We need tax reform, but of a very different kind.
A real tax reform would address four problems. First, it would raise total revenues as a share of GDP, in order to cut the chronic budget deficit. Second, it would address the crisis of falling wages and disappearing jobs facing working-class America. Third, it would curb carbon pollution, which is dangerously warming the planet. Fourth, to spur saving and investment, it would shift taxes toward consumption rather than income.
Tax policy should also help to address the crisis facing low-skilled workers. Technology continues to eliminate low-skilled jobs as workers are replaced by smart machines. The workers are forced to shift to even lower-paying jobs. To boost the take-home pay of low earners, we should expand the highly successful earned-income tax credit.
Tax policy should help to solve global warming by putting a new tax on carbon pollution. A reasonable approach would be to introduce a gradually rising tax on CO2 emission, accelerating the shift to wind, solar, nuclear, and other low-carbon sources of energy. Since the US economy emits around 5 billion tons of CO2 each year, a tax of $40 per ton of CO2 emitted would raise around 1 percent of GDP in revenues.
Finally, tax reform should shift taxation from income toward consumption, to spur higher saving and investment. A smart policy would be to reduce the marginal tax rate on new business investments by allowing companies to expense some or all of their new investments.
Therein lies the compromise. Liberals should accept the VAT as the price to pay for properly funding the government, including highly progressive objectives such as health, education, and infrastructure. Conservatives should accept the VAT as the way to fund the cuts in the marginal tax rate on business investment and as the effective answer to the already high and rising budget deficits.
Consider the test of pragmatism. How are the world’s most successful economies funding government? Australia, Canada, Denmark, Germany, the Netherlands, Norway, and Sweden all have lower deficits, better health care, lower tuitions, lower inequality, and less poverty than the United States. All of these countries raise more tax revenues, and offer more generous social policies, than the United States, in part through the VAT. It’s time the United States undertake a tax reform that is truly for the common good.
Jeffrey D. Sachs is University Professor and director of the Center for Sustainable Development at Columbia University, and author of “The Age of Sustainable Development.”