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Canada’s Dress Rehearsal for the U.S. Carbon Tax Debate

2 min readBy: Scott Hodge

Both Senator McCain and Senator Obama favor a cap and trade system as a means of limiting American’s reliance on carbon-based products. A cap and trade system has the effect of a carbon taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. except that it is managed through a regulatory regime rather than the tax code.

Thanks to our neighbors to the North, we no longer have to speculate what the debate will look like when the next president introduces his solution to global climate change. Canadian Liberal Leader Stephane Dion has introduced a real carbon taxA carbon tax is levied on the carbon content of fossil fuels. The term can also refer to taxing other types of greenhouse gas emissions, such as methane. A carbon tax puts a price on those emissions to encourage consumers, businesses, and governments to produce less of them. that “would impose a tax of $10 per tonne of greenhouse gas emissions in the first year, rising to $40 per tonne in the fourth year,” reports the Toronto Star.

To assuage charges that such a tax (C$15.5 billion annually) would be place an undue burden on low-income citizens and, potentially harm the economy, Dion promises to cut individual and business taxes. For individuals, Dion would use $11 billion to reduce the lowest individual tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s and for corporations he would deliver $4.5 billion in unspecified tax cuts.

Dion has made other concessions. For example, he would exempt gasoline from the tax – because it is already subject to a federal tax – and give special consideration to non-profit organizations. According to some accounts, the plan would also protect the elderly, pensioners, natives and the disabled from the impact of the new tax.

Critics are attacking the plan from multiple fronts. One columnist points out the inherent contradiction of Dion’s promise that the carbon tax will be painless because of the offsetting tax cuts. “Except, if no one’s going to notice the cost, how is it going to work? If we’re going to be so flush from the tax cuts, why would we bother turning down the thermostat or replacing the windows?” writes Kelly McParland.

The Conservative Party has lunched a nationwide campaign against “Dion’s Tax on Everything” because it would affect every aspect of the daily lives of Canadian citizens.

The same could be said of the plans touted by Senators Obama and McCain, and neither has adequately said how he would address these criticisms.