For the rest of society, perhaps the worst problem with a carbon tax is that it is extraordinarily regressive. Because poorer households spend a much greater share of their income on energy than do wealthier households, the price increases created by a tax eat up a greater share as well. Economists from the Brookings Institution and American Enterprise Institute found that a $15-per-ton carbon tax would cost the bottom 10 percent of households more than 3.5 percent of their income, and most taxes under consideration are two to three times higher. That’s the equivalent of a new income tax of 10 percent for the lowest-income households and 2 percent for the highest-income ones.
A rebate could offset this regressive effect, but sending a monthly check to every American has problems of its own (not least of them the de facto establishment of a guaranteed income). Unfortunately, analyses also consistently show that the economic drag of a new carbon tax could be counteracted only if the revenues from that tax are used to reduce corporate income-tax rates. Take your pick: a carbon tax that hurts the poor or a carbon tax that slows economic growth. Most likely we’ll get a carbon tax that does a little bit of both.
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