What's Your Household's Cap-and-Trade Tax Burden?

June 12, 2009

Tax Foundation Calculator Helps Individuals Estimate Annual Household Costs of a Proposed U.S. Cap-and-Trade System

Washington, DC, June 4, 2009 - Americans can now estimate how much a U.S. cap-and-trade system would cost their individual households annually with the Tax Foundation's new Household Cap-and-Trade Burden Calculator. The calculator can be found at http://www.taxfoundation.org/capandtrade.

The calculator is based upon a study released in March, Tax Foundation Working Paper No. 6, "Who Pays for Climate Policy? New Estimates of the Household Burden and Economic Impact of a U.S. Cap-and-Trade System." The study shows that a cap-and-trade system designed to reduce greenhouse gas emissions by 15 percent would place an annual burden of $144.8 billion on American households. The average annual household burden would be $1,218, which would be approximately 2% of the average household income.

Although carbon emission permits under a cap-and-trade system would be purchased first by energy companies, the costs are ultimately paid by American consumers. The calculator asks how much a household's combined monthly income is (pre-tax) and how much a household spends monthly on various items like electricity, natural gas, food, clothing and transportation. It then calculates the total annual additional cost that cap-and-trade would impose on that household as well as the cap-and-trade burden as a percentage of income.

Tax Foundation adjunct scholar Andrew Chamberlain, author of the working paper, emphasizes the importance of the calculator as a way to show Americans that cap-and-trade would not represent a "tax free" way to reduce greenhouse gas emissions.

"The purpose of the calculator is to bring to light the hidden tax burden that a cap-and-trade system would impose on American households," says Chamberlain. "This is because a cap-and-trade system offers lawmakers a way to curb greenhouse gas emissions through regulations rather than tax increases—a less visible approach that enjoys the popular perception of being less burdensome to households."

Working Paper No. 6 can be found at http://www.taxfoundation.org/legacy/show/24472.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

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