Two policies that raise the same amount of revenue can have different economic impacts. Consumption taxes, which generally do not tax the economically important portion of an investment’s return, are generally viewed as a relatively efficient form of taxation. Capital income taxes, in contrast, are generally viewed as relatively inefficient because they discourage investment, which reduces the capital stock, reduces the productive capacity of the economy, and, ultimately, dampens economic growth and living standards. Taxes levied on business income are often capital taxes. Examples include the corporate income tax, the global intangible low-taxed income (GILTI) tax, and pass-through income taxes. 

Carbon pricing policies are, in effect, a type of consumption tax, albeit only on the consumption of carbon-intensive goods and services. Accordingly, they have some of the efficient revenue-raising attributes of consumption taxes generally. Moreover, to the extent carbon pricing policies also help reduce carbon emissions and address climate change, they may also have economic advantages that go beyond the advantages generally associated with consumption taxes. 

This report compares the macroeconomic impacts of a carbon price (i.e., a consumption tax on carbon-intensive goods and services) to a revenue-equivalent increase in the corporate income tax rate (i.e., a business income tax).