By Gilbert E. Metcalf
Washington, DC (January 1, 2007)- This report highlights the potential economic and environmental benefits of a revenue neutral tax reform where a national tax on carbon emissions is paired with a reduction in the payroll tax so the reform is both revenue and distributionally neutral.
With a new Congress in control, 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, which is used to rebate the federal payroll tax on the first $3,600 of earnings per worker.
About the Green Fees Initiative
The federal tax code can have a significant impact on the environment. Fiscal policy is used to encourage as well as discourage various business activities and consumer decisions. These activities affect the environment and human health by influencing how much we consume, how we use natural resources, and how much pollution is released into our air and water.
The President’s recent call for tax reform and the presence of persistent budget deficits provide opportunities for policy makers to consider changes to the federal tax code that could lead to not only greater fiscal responsibility, but also improved human and environmental health.
The World Resources Institute’s Green Fees initiative seeks to identify and analyze a portfolio of tax reforms that would be both fiscally prudent and environmentally sound. WRI and partners will educate policymakers, interest groups, and opinion leaders in order to build support for these measures.
The portfolio of reforms WRI will address include:
* Eliminating existing tax expenditures that forego revenue and that encourage activities reducing the quality of our air, the cleanliness of our water, and the abundance of our natural resources;
* Introducing environmental charges on pollution and waste to discourage environmental degradation, stimulate technological innovation, and improve the federal budget situation.
For more information, visit the World Resources Institute.