The European Commission proposed a new source of revenue as part of its second basket of own resources: a “temporary statistical own resource based on company profits.” This is an attempt to bolster the EU’s budget as it repays its debt.
Sens. Kevin Cramer (R-ND) and Christopher Coons (D-DE) have recently introduced a bill laying the groundwork for a possible solution to the problem: a tax on the carbon content of imports. But it falls short of the optimal approach in several ways.
The Carbon Border Adjustment Mechanism (CBAM) is a key aspect of the EU’s broader Fit for 55 package which aims to cut 55 percent of net greenhouse gas (GHG) emissions in the EU by 2030. The growing number of competing climate policies between the EU and U.S., such as tax provisions in the Inflation Reduction Act, could present policymakers on both sides of the Atlantic an opportunity to work together.
Our recent policy conference brought together academics and political leaders to present research on some of the most pressing issues in global tax policy and to discuss solutions that can unlock genuine global growth.
If the EU wants to strategically compete with economic powers like the United States or China, it needs principled, pro-growth tax policy that prioritizes efficient ways to raise revenue over geopolitical ambitions.
Before EU policymakers rush to implement massive reforms, they should remember the goals of the Single Market, its international limitations, and the role of tax policy.
The EU’s unilateral approach with carbon taxes, faster track on the global minimum tax, and threat of renewed efforts on DSTs means that U.S. policymakers face some hard choices. Policymakers on both sides of the Atlantic should keep in mind pro-growth tax and trade principles that promote a rules-based international order and increase opportunity.
As the Czech EU presidency considers a plan to manage various tax-related files, it would be wise to consider principled tax policy that broadens the tax base and reduces the tax wedge on strategic investment.
As policymakers on both sides of the Atlantic debate the way forward on carbon border adjustment mechanisms, it is important to keep principles of good tax policy in mind.
Given the uncertainty surrounding the war in Ukraine, future trade relations with Russia, and the overall CBAM revenue structure. The EU will need to adjust policy when challenges arise as it looks to increase its role in fiscal affairs through new own resources.