Liberals Finally Admit a Carbon Tax Will Hurt Poor Families

By Michael Bastasch Published on December 11, 2015

Taxing carbon dioxide will hurt the poor and harm the very people liberals argue are the most vulnerable to the impacts of global warming, according to a policy brief by a liberal think tank.

“A carbon tax would be regressive, imposing a larger burden, relative to income, on low-income households than on high-income ones,” according to the Tax Policy Center (TPC), a group jointly funded by the Urban Institute and the Brookings Institution — both are left-leaning think tanks.

“A $20 per ton tax would be a hit of 0.8 percent of pre-tax income for households in the bottom fifth of the income distribution, but only a 0.5 percent hit in the top fifth,” according to TPC’s brief.

Democratic lawmakers have been pushing for a carbon tax in recent years as a way to cut U.S. carbon dioxide emissions, which scientists say warm the planet. Democrats, who tend to be more alarmist on global warming, even tried to attract Republicans to a CO2 tax, saying it could be tied to lowering corporate income tax rates.

In June, Democratic Sens. Brian Schatz of Hawaii and Sheldon Whitehouse of Rhode Island introduced a carbon tax bill at the American Enterprise Institute (AEI), a conservative think tank. The idea was to highlight the allegedly “conservative” aspects of taxing CO2 emissions as opposed to limiting them through the regulatory state.

“A carbon fee can repair that market failure by incorporating unpriced damage into the costs of fossil fuels,” Whitehouse told the audience at AEI. “Then the free market — not industry, not government — can drive the best energy mix is for the country, with everyone competing on level ground.”

Schatz and Whitehouse would tax CO2 emissions at $45 per ton, which would raise $2 trillion in revenues over 10 years. Some of that tax would be used to offset the top marginal corporate tax rate from 35 percent to 29 percent.

The bill also gives $750 billion to American households and $400 billion in benefits to retirees on Social Security. The Democrats’ bill would give $20 billion in block grants to states for “low-income needs, rural households, and transitioning workers,” Whitehouse said.

Few Republicans have warmed to the idea of taxing CO2 emissions, though North Dakota Republican Rep. Kevin Cramer introduced a bill to replace federal environmental regulations with a carbon tax. Cramer said he’d use that revenue to fund clean coal technology research.

The Tax Policy Center’s brief found that, on a macroeconomic level, some uses of carbon tax revenues would be better for poor families than others, but noted none of the scenarios they analyzed would benefit all income groups.

“Tax and dividend, in contrast, would do little to offset the macroeconomic drag of taxing carbon but would be very progressive,” TPC notes. “Households in the bottom 60 percent of the income distribution would come out ahead, while high-income households would be worse off.”

“A 50-50 mix, using half of carbon revenues to cut corporate taxes and half to pay dividends, would be close to distributionally neutral,” TPC found. “Low- and high-income households would come out slightly ahead, while those in the middle would come out slightly behind.”


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