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Bruce Ackerman | We need a VAT and a tax on wealth and pollution or something





The traditional aims of the corporate tax are better served by other means. Imposing an annual wealth tax on the super rich is a more effective way to curb economic inequality. On very conservative assumptions, a 2% annual wealth tax on households with $7.2 million in assets — the top half of the top 1% — would yield $70 billion a year. As the experience of France, Norway and other nations shows, it is perfectly feasible to impose such taxes, and they would put real meaning into the rhetoric of shared sacrifice.

Similarly, a carbon tax on polluters to curb global warming provides a better way to ensure corporate responsibility. The tax could yield an estimated $1.25 trillion over the next 10 years. This gives firms a powerful incentive to clean up cheaply, while consumers pay prices that encourage them to buy products that do less environmental damage. Japan has already introduced such a levy, and it is on serious agendas elsewhere.

These taxes are usually nonstarters for Republicans in the House. But would they consider them an acceptable price to pay in exchange for reduced corporate rates? The corporate tax yielded $175 billion last year. With the new taxes generating $2 trillion over a decade, the corporate rate could be cut significantly as part of a grand bargain that generated a huge net gain for the Treasury.

The president and the speaker also should be expanding their negotiating room by considering how a tax on consumption might contribute to a better deal on the income tax. Although they should clean up egregious loopholes, it is wrong, for example, to view the charitable deduction as illegitimate.

A better way to raise additional revenue may be to impose a new tax on the value firms add to products, which they can incorporate into the final price to the consumer. These value-added taxes play a major role in China and Europe. A modest value-added tax could well smooth the way to a deal that preserves some valuable income tax deductions without losing excessive revenue.

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