The Tax Foundation is the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.
The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
©2020 Tax Foundation
Creative Commons CC-BY-NC 4.0
Editor, Rachel Shuster
Designer, Dan Carvajal
1325 G Street, NW, Suite 950
Washington, DC 20005
A Carbon Tax to Make the TCJA’s
Individual Provisions Permanent
• At the end of 2025, most individual income tax provisions of the Tax Cuts and
Jobs Act (TCJA) will expire, increasing taxes on individuals.
• Making these provisions permanent is estimated to reduce federal tax
revenues by $176 billion annually (in 2021 dollars).
• While making these provisions permanent would increase the long-run size of
the economy by 1.4 percent, many lawmakers may worry about the potential
increase in the federal deficit from the reduced tax revenues and may look for
offsetting sources of revenues.
• One such option is a carbon tax. Introducing a carbon tax in 2021 at a rate
of $60 per metric ton of carbon dioxide equivalent, growing at 5 percent
annually, would raise sufficient federal tax revenues to cover the cost of
making the individual provisions permanent. A carbon tax would reduce long-
run economic growth by 0.4 percent.
In addition to being revenue-neutral, combining these policies would increase
the long-run size of the economy by 1 percent, making it a sustainable pro-
• However, this trade would put a disproportionate burden on lower-income
taxpayers. Expanding refundable tax credits or providing carbon dividends
could address this distributional concern.
The author would like to thank Kyle Pomerleau for his comments and invaluable modeling contributions to this report.
TAX FOUNDATION | 2
In December 2017, the United States pa