The Brookings Institution’s Remaking Federalism | Renewing the Economy series includes a call for a carbon tax, an issue that is heating up after spending election season on the backburner
Brookings proposes a $20/ton fee on carbon emissions which increases by 4% per year. The MIT Joint Program on the Science and Policy of Global Change projects that this tax would raise revenues by $150 billion a year over 10 years while significantly reducing emissions.
Revenues from the tax would be put towards clean energy R&D, deficit reduction, and tax cuts – particularly for low-income households, which would be most affected by a carbon tax.
Matt Yglesias would like to see more revenue raised to help the economy in the short term:
You could do a lot to boost the short-term labour market without upsetting the deficit scolds by doing short-term carbon taxation and offsetting it with lower payroll taxes. The only real constraint on this ought to be political feasibility. It’s true that a $30 per ton initial price is politically infeasible, but it’s also true that a $20 per ton initial price is infeasible. As long as we’re just writing white papers we may as well aim for the stars.
Interestingly enough, the $150 billion of increased tax revenues per year is also equal to the maximum amount the Congressional Research Service determined could be raised through limiting and eliminating tax deductions.
Perhaps a carbon tax might serve as a point of compromise as Fiscal Cliff negotiations progress.
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