The House will vote on a resolution to oppose a 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. today. According to Politico, the symbolic vote is meant to unite the party against the 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. just in case Hillary Clinton is elected president. Some believe that with Clinton in the White House a comprehensive tax reform package could contain a carbon tax as part of a “grand bargain.” Interestingly, this symbolic vote comes before Clinton, herself, has even endorsed the idea of a carbon tax.
A carbon tax is a tax levied on the manufacture of certain carbon-based fuels. The level of the tax would vary based on how much carbon is emitted by each fuel when burned.
In economic theory, a carbon tax is often thought of as a “Pigouvian taxA Pigouvian tax, named after 1920 British economist Arthur C. Pigou, is a tax on a market transaction that creates a negative externality, or an additional cost, borne by individuals not directly involved in the transaction. Examples include tobacco taxes, sugar taxes, and carbon taxes. ”: a tax designed to make businesses and individuals shoulder the social costs they create that are not reflected in the price of the product. For instance, a producer and a consumer generally agree on a price based on the cost of production and the consumer’s willingness to pay. However, the price may not take into account the social costs of production if the manufacturing process creates air pollution, harming unrelated parties. Lawmakers may wish to levy Pigouvian taxes on economic activities that create especially high social costs.
Proponents see a carbon tax as a more attractive way to reduce carbon pollution and fight global climate change than EPA regulations. In addition, the tax itself is very broad-based and could raise a significant amount of revenue. We found that a $20 per ton carbon tax could raise $1.3 trillion over the next decade (See Option #84 in our new book: Options for Reforming America’s Tax Code). These revenues could be used to help reform the overall tax system. One could easily see the tax replacing the revenues of a less efficient tax, such as the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. .
Opponents, however, are concerned about the carbon tax’s impact on certain industries. By design, the tax is meant to reduce the output of fossil fuel producers, which would result in a reduction in employment in those sectors. We found that just levying a carbon tax with no other changes to the tax code would result in 425,000 fewer full-time equivalent jobs. In addition, some are concerned about the tax’s regressivity. We found that the tax is slightly regressive, falling a little harder on low-income taxpayers than high-income taxpayers.
It is likely that in an election year, many lawmakers will vote (symbolically) against a new tax. However, I don’t think this means that the carbon tax is gone for good. We will likely see discussion of the carbon tax continue whether it is part of tax reform or as a stand-alone provision.
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