Tuesday, July 10, 2007

Another Vote for a Revenue-Neutral Carbon Tax

A Green Tax Swap by Gilbert Metcalf with the Brookings Institution

As the new Congress convenes, both Democratic and Republican lawmakers are proposing limits on greenhouse gas emissions. Most of these proposals are for carbon cap and trade systems similar to the European Union Emissions Trading System.

A carbon tax is another way to limit emissions. This policy brief describes how a carbon tax could be implemented and presents an analysis of a Green Employment Tax Swap (GETS). Under this proposal, a national tax on carbon emissions is paired with a reduction in the payroll tax. In particular, the brief assesses the impact of a tax of $15 per metric ton of carbon dioxide (CO2), which is used to rebate the federal payroll tax on the first $3,660 of earnings per worker. This reform is both revenue-neutral and distributionally neutral.

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