Carbon Taxes as Part of the Fiscal Solution

Research Report

Carbon Taxes as Part of the Fiscal Solution

Abstract

The U.S. faces substantial and unsustainable budget deficits, which will require tax increases and spending cuts to resolve. A carbon tax could raise revenues, with several positive effects: it would improve environmental outcomes, increase economic efficiency, and allow the elimination of selected tax subsidies and spending programs. While a carbon tax imposes a 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 provide a balanced distributional effect.

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