President Trump has returned to the White House to be met by a tax-reform effort in crisis. He can get it back on track by embracing a solution that is obvious and equitable – and that ought to be easy.
“The boldest ideas for changing the nation’s tax code are either dead or on political life support,” the Wall Street Journal’s Richard Rubin reported Monday. “The clear winner, so far, is the status quo.”
That would be a disaster for the economy, of course. The nation’s high corporate tax rate leaves “stranded” abroad trillions of dollars in profits that could be repatriated and put to work here in business expansion or returned to shareholders via dividends or stock buybacks. A special repatriation window could be used to induce some of this money to return more quickly and create a revenue bump, but it would still be only a portion of what’s needed to finance tax reform and the investments in the military and infrastructure that Trump promised on the campaign trail.
One obvious answer is to raise the existing federal levy that makes the most sense to the most voters: the federal gas tax. Currently less than 19?cents a gallon (higher on diesel) and stuck there since 1993, the federal gas tax generates approximately $35 billion in revenue a year. This month, Trump told Bloomberg News that he is open to a tax reform package that hikes the federal gas tax. Good. In contrast to a “border adjustment tax” that few support and fewer understand, a hike in the federal gas tax could be easily explained to voters as the price of three distinct goals: infrastructure investments, the building of the Trump-promised 350-ship Navy and tax reform that ignites broad and sustained economic growth. If a half-a-buck-a-gallon hike brought in $100 billion in revenue annually, it could be coupled with a cut in the corporate rate; repeal of the military-crippling sequester and a real increase in defense spending (especially on the Navy fleet); a dip in marginal income-tax rates; and, crucially, a boost in local infrastructure spending.
The naval buildup has to be devised and supervised by Congress and the president, just as federal tax policy must emerge from inside the Beltway. But there is no reason that, say, a third of any new gas tax revenue couldn’t immediately be returned to the counties of the United States on a per capita basis so local people could decide the local infrastructure needs that deserve priority. Enough of “shovel-ready” declarations from inside the Beltway. Send the infrastructure dollars to local people to spend. Trump can sell a gas tax hike that does these things because it makes sense and because all drivers will pay it. A “rebuild the fleet” tax would have deep appeal even to those patriots who might otherwise reject raising any federal tax but who understand how damaging the Obama-era sequester has been to the ability of the United States to answer the calls upon it. And, yes, it should be easy to do – if ideologues of both left and right are pushed aside for the common good. The corporate tax rate has to come down. The fleet has to expand. And everyone who drives anywhere in the United States knows that roads and bridges must be repaired, just as anyone who flies knows that some airports need work done yesterday. Go with your gut, Mr. President, and push the GOP to get in the game. This isn’t that hard. Put some points on the domestic policy board and do so by kickoff of the NFL’s regular season (Sept. 7, for those who are wondering). If Congress has to stay in town and work through July and August, demand it do so. How many other Americans are doing exactly the same thing through the summer months?
Tax hikes are most accepted when they are understood by most and paid by all. With states such as California busy raising their marginal income-tax rates, there’s no risk of the U.S. tax system becoming regressive as a whole. The need to make sure everyone shoulders part of the lift to meet key national goals points to the gas tax.