Economic Impact of a Carbon Tax
Main Economic Arguments made by Carbon Tax opponents:
1. A carbon tax would be regressive, disproportionately affecting the poor.
2. A carbon tax would raise prices too much across the entire economy.
3. A carbon tax would put US goods at an international competitive disadvantage
Rebuttals to these arguments:
Regressive tax: Making the carbon tax revenue-neutral easily flips this argument on its
head. “Revenue-neutral” means for every dollar raised by a tax, an equivalent dollar is
returned to consumers. Do this equally across the country, and the poor end up ahead. To
illustrate this, in 2005, America’s richest 20% spent an average of $3,182 on gasoline, or
3.6 times as much as the $882 spent by the poorest 20%1. So, although the poorest 20%
of Americans spend a greater percentage of their income on carbon, they pay less overall
and thus would receive more money back than they paid in carbon taxes.
Prices rise too high: Table 1 shows the % price increase in goods of the 10 industries
most affected by a $15 carbon tax2. Table 2 gives a closer look at the effect on oil and gas
prices3. Except for those industries the tax is intended to raise prices for anyway, the
effect is relatively small. A revenue-neutral carbon tax minimizes the effect even further
because overall tax burdens would not rise. Unaccounted for in these figures are the costs
companies would incur to shift away from carbon-intensive inputs. These costs will be
passed forward to consumers. Those extra costs, however, will create jobs in new
industries aimed at carbon reductions.
US at competitive disadvantage: Representative Larson’s HR 1337 includes a stipulation
that the carbon tax would be waived for any US goods exported to countries without a
comparable carbon price. Similarly, any carbon-intensive goods imported into the US
would have the carbon tax imposed on them at the border4. Thus US exports would have
no carbon penalty, and foreign imports would have no competitive a