Potential Linkages between a U.S. Carbon Tax and the Earned Income Tax Credit

Brief

Potential Linkages between a U.S. Carbon Tax and the Earned Income Tax Credit

Abstract

This brief summarizes, individually and jointly, an excise tax on carbon and an expansion of EITC benefits to childless workers. We find that although in principle a carbon tax that lowers wages could affect EITC benefits and thus impact low-to-moderate income households, the likely magnitude of the effects is very small. We find that far more important to the distribution of burden is the extent to which the carbon tax passes through to raise retail prices, a decidedly regressive outcome, versus lowering wages, which is distributionally much more neutral.

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