Carbon Tax Getting Serious Consideration As CBO Seeks To Address Regressiveness

CBO estimates that a carbon tax that yielded $103 per ton of carbon released would cost the average low-income family (lowest 20%) about $425 per year.  Top 20% families would end up paying $1,380 per year.  This is on the regressive side since it would represent 2.5% of the after-tax income of lower income families and less than 1% of the income of higher income families.  CBO considered two types of rebate schemes

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).

via Carbon Tax Getting Serious Consideration As CBO Seeks To Address Regressiveness – Forbes.