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

June 12, 2009

Many policymakers portray a cap-and-trade system as a way to curb greenhouse gas emissions without burdensome taxes. However, the financial burden of such a system would be passed on to consumers, not simply borne by energy companies.

A new Tax Foundation calculator now shows how much a U.S. cap-and-trade system would cost individual households annually. The Tax Household Cap-and-Trade Burden 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.

Calculate your household’s cap-and-trade burden.

Also, take a look at our new Environment and Energy Tax website research area, divided into four subtopics:

Cap-and-Trade and Carbon Taxes
Environmental Policy and Pigouvian Taxation
Gasoline Taxes, Tolls, and Transportation Charges
Windfall Profits Taxes

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