The GOP tax reform, now adopted as the 2017 Tax Cuts and Jobs Act, aimed to cut business taxes to stimulate investment, lower some personal taxes, eliminate deductions and tax credits to help pay for the tax reductions, and reduce the shifting of profits abroad by U.S. companies. Some of these objectives have been achieved, but at the cost of a potentially substantial increase in the fiscal deficit, among other problems. As a result, corrections will be needed in future years.

Many of the Act’s undesirable features reflect its drafters’ inability to come up with sufficient revenue to compensate for the tax reductions. This paper explores a carbon dioxide (CO₂) tax as perhaps the only measure that’s consistent with the declared tax-reform principles of the GOP leadership, likely to draw Democratic support, and large enough to compensate for the Act’s revenue-losing provisions. After summarizing the process that led to the Act and its major shortcomings, the researchers—applying the MIT U.S. Regional Energy Policy (USREP) model—show how, when the Act is opened up for repairs, a CO₂ tax could help correct its flaws while serving environmental goals.