Carbon Taxes as Part of the Fiscal Solution

par Danièle Revel · 14/03/2013

Carbon Taxes as Part of the Fiscal Solution / William G. Gale, Samuel Brown and Fernando Saltiel. Brookings Institution, March 2013, 19 p.

Summary of key lessons (© Brookings) :

The United States faces substantial and unsustainable medium- and long-term budget deficits, which will require a combination of tax increases and spending cuts to resolve.
A carbon tax could raise significant revenues, with several additional positive effects: it would improve environmental outcomes, increase economic efficiency, and allow the elimination of selected other tax subsidies and spending programs.
While a carbon tax imposes a disproportionately larger burden on lower-income households, the opposite applies for many of the other options like scaling back tax expenditures. A long-term deficit reduction package that included a reduction in income tax expenditures as well as a carbon tax and offsetting payments could in principle provide a balanced distributional effect.