Last week, Senator Sheldon Whitehouse (D-RI) and Senator Brian Schatz (D-HI) introduced the American Opportunity Carbon Fee Act. According to the Senators, this bill aims to address concerns regarding climate change, while simultaneously improving economic performance. Specifically, this bill will impose a 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. on carbon dioxide emissions.
This tax would be levied at $45/metric ton in 2016 and increase by 2% each year afterward. The tax is targeted at large emitters of greenhouse gases, such as methane, and companies that mine, extract, or import fossil fuels. Over the course of a decade, the Joint Committee on Taxation estimates the total revenue collected would surpass $2 trillion.
The senators plan to use the tax revenue in four ways. First, cut the marginal 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. rate by 6%, from 35% to 29%. Second, provide workers with $500 refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit. against their Social Security payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. . Third, increase Social Security, veterans, and disabled Americans benefits by $500, which would be adjusted for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. going forward. Lastly, the revenue would fund block grants to states to fund programs to help workers of impacted industries transition to new jobs.
There haves been mixed reviews of a carbon tax as a policy from both the left and the right. Some see the 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. as an appropriate means to reduce carbon emissions and global climate change. However, others have pointed to the practical limitations of a carbon tax given that the global climate is a public good and that without other countries joining the United States, the tax’s impact on the climate would be minimal.Share