Taxing carbon emissions could raise enough money to eventually cut the deficit in half, but policymakers would face tough questions about whether to use the cash to brighten the fiscal outlook or tackle other needs, a report finds.
Carbon tax proposals to help battle climate change are politically dead in Congress right now. But the Congressional Research Service overview nonetheless arrives at a time of renewed interest in the idea from some policy wonks, Democrats, and former GOP lawmakers.
The report finds that imposing an escalating fee that starts at $20 per metric ton could reduce the projected 10-year budget deficit by more than 50 percent, from $2.3 trillion to $1.1 trillion.That estimate relies on the Congressional Budget Office’s (CBO) “baseline” deficit projection.
But the report notes that the same carbon tax would have a much smaller impact on the deficit — cutting it about 12 percent — under CBO’s “alternative” scenario that forecasts a much bigger shortfall.
The report, relying on CBO analysis of carbon costs under a hypothetical cap-and-trade program, estimates that the escalating $20-per-ton tax could raise $88 billion in 2012, rising to $154 billion in 2021.
E2-Wire goes on to discuss other uses for the tax revenues, such as cutting taxes (snark: which would also cut the deficit, am I right? Bonus!).