The Peter G. Peterson Foundation recently tasked seven Washington-based think tanks from across the political spectrum to develop proposals to address our country’s looming fiscal crisis.
Five of the seven proposals included a carbon tax; excerpts from each are below.
We believe a carbon tax is the optimal, most efficient policy response to carbon pollution. It would cost less than regulations or subsidies that would achieve the same emissions reductions, and it would harness, rather than fight, the power of markets to reduce emissions.
We acknowledge that policymakers do not share economists’ enthusiasm for a carbon tax, primarily because they avoid discussing or supporting taxes, which is one of the reasons why the government is operating a $2 trillion-per-year deficit and is $35 trillion in debt. Today, our political system prefers to borrow money from future generations than to charge current voters for the benefits they receive.
When increasing deficits is no longer an option—perhaps when extending the Tax Cuts and Jobs Act or restoring solvency to the Social Security Trust Fund—Congress will need to raise trillions of dollars. This is not enthusiasm for new taxes; this is basic math.
The process is going to be ugly and unlike anything we have ever seen in modern politics. Negotiations will start, stop, and resume many times; unimaginable sums will be spent on lobbying; and political careers will end. But it is necessary to resolve what the Congressional Budget Office has called an unsustainable fiscal trajectory. Now, it is just a matter of what taxes and when.
We wish a carbon tax is the result of enlightened policymaking to respond to climate change. But we have accepted that it will more likely be a response to our fiscal condition.
The math is undeniable and the reason a carbon tax will always be on the list of potential revenue raisers. Sure, the math forces the consideration of other taxes, such as eliminating the mortgage interest deduction or the capital gains rate or increasing individual or corporate rates. And since none of them are popular, a battle of which unpopular tax is the least unpopular will ensue.
This is just beginning.
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American Action Forum: The AAF plan would make two other important tax changes: It would increase the payroll-tax cap to capture 90 percent of earnings and would implement a carbon tax. The carbon tax would impose a $20-per-metric-ton tax on CO2 and would increase by C-CPI-U + 5 percent each year. (page 56)
American Enterprise Institute: A carbon tax would be imposed in 2025 at a level of $25 per metric ton of CO2 equivalent, increasing thereafter by inflation plus 2 percent per year. (page 62)
Economic Policy Institute: We call for a carbon tax of $80 per ton of CO2 equivalents of greenhouse gases, and gradually raise it to a level of $120 per ton—a measure closer in-line to estimates of the social cost of carbon emissions. To ensure that putting a price on carbon does not impose hardship on households, our plan calls for recycling more than the full amount of revenue collected by the carbon tax in a per-capita lump-sum allocation across U.S. households (we rebate 125 percent of all revenue collected). In a sense, it can be seen as a carbon tax-funded universal basic income to provide a bridge over the transition costs associated with moving to a greener economy. (page 80)
Manhattan Institute: Additionally, a modest carbon tax would have its revenues rebated back to all but the top-earning half of households. (page 86)
Progressive Policy Institute: Specifically, we call for a 15 percent value-added tax and a border-adjusted carbon tax to reduce both our deficit and greenhouse gas emissions. (page 93)