Imposing a tax on carbon dioxide emissions would reduce the damage from climate change but would also impose a larger burden, relative to income, on low-income households than on high-income households. This paper evaluates two broad groupings of options for reducing the regressive effects of a carbon tax; one group of options would affect large segments of the economy, for example by reducing payroll taxes, and the other group of options would be targeted at low-income households, for example by providing an additional payment to households currently receiving electronic transfer benefits. Each option is evaluated based on the percent of low-income households that it would affect, whether it would provide comparatively larger benefits for lower-income households, its administrative costs, and its implications for economic efficiency, specifically whether it would increase incentives to work and invest and whether it would preserve the incentives to reduce emissions that the carbon tax would create. The broad based options could potentially provide support for a relatively large share of low-income households, but some of those options would provide relatively small benefits to those households. Options specifically targeting low-income households could be most effective in reaching households that do not file income taxes or that do not have earnings. Three of the seven options considered would increase the incentive to work or invest and all but one of the options would preserve the incentive to reduce emissions of carbon dioxide.
Several studies have examined how setting a price on carbon—either by taxing it or by implementing a cap-and-trade program—would affect households at different points in the income distribution. Most studies have found that such policies would be regressive, imposing larger burdens (relative to income or to other metrics) on low-income households than on their higher income counterparts. For example, the Congressional Budget Office (CBO) found that a policy that set a price of $28 per metric ton on CO2 emissions (roughly $103 per ton of carbon) would impose a cost of $425 dollars per year on the average household in the lowest income quintile and a cost of $1,380 per year on the average household in the highest income quintile. That cost would account for 2.5 percent of after-tax income for the average household in the lowest income quintile, compared with less than 1 percent of after-tax income for the average household in the highest quintile This paper compares two types of options for further offsetting the costs that low-income households would bear under a carbon tax.
The first type includes options that would direct some carbon tax revenue back to households in a manner that would benefit households in all income brackets, not just those at the lower end of the income distribution. Such possibilities include using carbon tax revenue to:
• Reduce income tax rates,
• Provide income tax rebates,
• Provide payroll tax rebates, and
• Increase incentives for energy-saving investments.
The second type includes options that would specifically target low-income households. Those options include using carbon tax revenue to:
• Increase Earned Income Tax Credit (EITC) payments,
• Provide an additional fixed payment to households that are eligible for SNAP payments, and
• Increase payments made to households through the existing Low Income Home Energy Assistance Program (LIHEAP).
Based on earlier CBO work, fully offsetting the additional cost that a carbon tax would impose on households in the lowest income quintile would take roughly 12 percent of the gross revenue collected by a carbon tax. Offsetting the cost for the second quintile would take an additional 15 percent of gross revenue.17 Those calculations do not account for the extent to which a carbon tax might increase the federal government’s own costs (for example, because of the increase in transfer payments and because of the federal government’s own higher energy costs if the burden of the tax is passed forward to consumers in the form of higher prices) or might decrease other tax collections (for example, because of lower wages and profits if the burden of the tax is passed backward on the factors of production).
China is building a new mega watt of coal fired electricity generation a week. Already they produce nearly twice the co2 America does. Nor can they stop for the only social contract which keeps the elite in power is improving living standards through economic opportunity. India will soon surpass us as well.
Nothing America does will impact their equations. But we could easily go to a natural gas solutions based on our Domestic Natural gas. But practical improvements is not the collectivist agenda.
All this redistribution nonsense is counter to human nature so it will never work.
Fact is the Progressives animating our local brain dead puppet troop do understand Global Warming religion requires lower human living standards. But the fact is as human living standards decline more damage is done to the environment by desperate people and desperate people have huge families.
Gore has made himself $100s of millions of dollars on this insanity. He used that wealth to indulge himself to more mansions, yachts and private jets with a carbon foot print not matched by millions of poor people. The European outcome of filthy rich socialist leaders is something we should be wise enough to avoid not embrace.
Rather than all this insanity why not just adopt Natural Gas as a surface fuel and reduce co2 generation by 40%? The world has thousands of years supply in hydrates which is already technologically and economically viable at less than current oil prices.
RLP shows us his delusions and hard heart insanity.
People who demand to starve fellow human beings for corn based ethanol corruption which has no benefit and increases co2 can be trusted with the power they demand to created social justice?
Collectivism already has the ovens running by starving human beings for no purpose. Time to wake up and take not then use your Just Common Sense before their body count goes even higher.