Climate Challenges and the Tax Code

Finance: Climate Challenges: The Tax Code’s Role in Creating American Jobs, Achieving Energy Independence, and Providing Consumers with Affordable, Clean Energy, April 27, 2021

On warming in general, there is no doubt that it is man-made. While there was a warm period around the first millennium, we came to it gradually. Industrialization may have ended what is called the Little Ice Age, but that warming is sudden and has dire consequences. We do not know that it will stop the way it did in the Middle Ages, indeed, it is not likely to, which makes these hearings vital.

Starting with the coasts, there will be sea level rise. Indeed, the flooding shown in Vice President Gore’s latest film shows how bad it is getting. The wealthy don’t seem to care, because they have flood insurance. 

The most basic step to at least get wealthier taxpayers on board (including the upper-middle class) is to cap flood insurance benefits to a level where beach houses properties  can no longer be insured. Even that small step could never be enacted. Too many donors have beach houses.

Our economic system is the problem. Until we move to something more cooperative, the well-off will turn their economic power into political power.

Without a technical solution, (like fusion, which Koch et all are slow rolling) all the incentives in the world will not stop plutocrats from scuttling every attempt at regulating emissions. Historically, unless people start dying from the air, as they are in China and did in Pennsylvania from the smog, nothing gets done. The river had to be actually burning in Cleveland before anything was done. Expect no less, which is why the hurricanes are coming in handy now.

Polluters will only accept carbon taxes as an alternative to direct regulation. If we dropped fuel efficiency standards and imposed carbon taxes instead, I suspect that car makers and the energy industry would jump on board. Some level of regulation, like some level of social welfare, helps save business owners from themselves. One need only remember the smog that blanketed Beijing during their Olympics to see what happens from minimal regulation. China is now going all in on renewable energy. Will we learn the same lesson?

We have the capacity to do both. Regulations need to be ramped up AND Carbon Value Added Taxes need to be enacted to fund infrastructure and research into technical solutions like Helium-3 fusion and electric cars which receive computer control and power from a covered roof deck - preferably one topped with grass. 

I use the term carbon value added tax (CVAT) because energy prices are tax inelastic. When energy is needed, it is purchased, especially for transportation. Unless gasoline taxes approach $4 per gallon, people simply fill up their SUV’s and cope with the price changes. There is plenty of space to increase gas taxes before consumers change their behavior.

Because energy usage is inelastic, carbon usage must be included on receipts or invoices. It is the only way to assure consumers have the information to purchase responsibly.

The Fair Tax, the Green New Deal, Carbon Taxes, and Goods and Services (Credit Invoice) Taxes all assume some sort of subsidy to hold poor families harmless - some kind of rebate or prebate. Many even believe that levying such taxes could be a good way to increase household income to for poorer families, which would also produce economic growth. I agree that subsidizing families will increase growth, however I submit that the best way to do so is through either existing subsidies or wages.

Increasing the Child Tax Credit, making it permanently refundable and establishing a carbon VAT should all be elements of comprehensive tax reform. The first attachment offers the latest update to the Center for Fiscal Equity’s proposal. Reform should be bipartisan so that it has staying power. One possible point of compromise is to end the requirement for all but the wealthiest to file income tax.

The nation has already taken steps on the journey to reform in passing the American Rescue Plan Act. 

The ARPA has its pluses and its minuses. On the minus side, families who had adequate income during the pandemic now have money to blow. Instead of spending it they are using it to speculate. Masses of people are about to enter the bottom half of EFT and Crypto markets, which will allow the top tiers of the scheme (whose seed money was provided by the Ryan-Brady-Trump tax cuts) to get out.

On the plus side, the increased child tax credit and its new refundability will provide long term economic security families. The second essential step is to increase the minimum wage so that no one has to work for free or have a decreased standard of living without working by living solely on the CTC. 

The minimum wage should be immediately increased to match the Republican offer of $10 per hour. To return wages to 1965 levels, which rewarded productivity gains, the wage should be increased over time to between $11 and $13 an hour, which is a nice range to compromise,

We should also make  a commitment to also decrease what constitutes a full-time work week. 32 hours, with four 8 hour days or five 6.5 hour days would put more people to work at higher wages. Increased minimum wages are important given increases to the Child Tax Credit so that no one will attempt to simply live on what is paid to their children.

The current challenge in implementing a higher CTC is how to get the money to families immediately. Doing so through direct IRS payments cannot be a long term solution.

There are two avenues to distribute money to families. The first is to add CTC benefits to unemployment, retirement, educational (TANF and college) and disability benefits. The CTC should be high enough to replace survivor’s benefits for children. 

The second is to distribute them with pay through employers. This can be done with long term tax reform, but in the interim can be accomplished by having employers start increasing wages immediately to distribute the credit to workers and their families, allowing them to subtract these payments from their quarterly corporate or income tax bills.

Over the long-haul, tax reform is necessary to cement these gains. Our tax reform plan is designed to provide adequate income and services to families (both with increased minimum wages and child tax credits) through employer-paid taxes, funding government services through a goods and services tax, separating out taxation of capital gains and income from income to an asset value added tax and higher tier subtraction VAT collections on wage income up to the $330,000 level and above, with additional personal income taxation for incomes over $425,000. 

The top rates for higher tier subtraction VAT, personal income taxes and asset VAT would all be set to the same rate, say 26%, so that forms of income are not manipulated to avoid taxation. It would also effectively raise taxes on salaried income to 52%, with capital incomes reinvested or investments funded by salary income adding an additional 26% of taxation. Spending money will also trigger taxation. 

Adding the effect of lower tier subtraction VAT collection to taxation on business owners and the top marginal rate approaches 90%. Such taxes are meant to prevent payment of extreme salaries rather than maximizing revenue. This provides more wages to the rest of the population, especially to those who are not adequately compensated at lower income levels.

Reform allows a rebalancing of fiscal responsibilities. The federal child tax credit we propose, plus increases in the minimum wage to at least $12/hour may provide enough family income in most states. Other states would add additional support through a state subtraction VAT.  Comprehensive reform will truly end welfare as we know it by giving families what they need for a decent living.

Please see a second attachment for an updated treatment of energy taxes as a whole, which was first submitted in 2012. Energy taxes can take three forms: infrastructure development, environmental sin taxes and subsidies to industry (and how to avoid them).

Attachment: Tax Reform

Attachment: Energy Taxes