Designing a Carbon Tax to Reduce U.S. Greenhouse Gas Emissions

TLDR

The article proposes a revenue‑neutral, distributionally neutral carbon tax for the United States, supported by a distributional analysis and arguments addressing common objections to tax‑based emission reductions. The tax’s revenue is earmarked for an earned‑income tax credit tied to workers’ earnings, offsetting regressivity and maintaining revenue neutrality while avoiding budgetary debates.

Abstract

This article describes a revenue and distributionally neutral approach to reducing U.S. greenhouse gas emissions that uses a carbon tax. The revenue from the carbon tax is used to finance an environmental earned income tax credit designed to be distributionally neutral. The credit is linked to earned income and helps offset the regressivity of the carbon tax. The carbon tax reform proposal is also revenue neutral and avoids conflating carbon policy with debates over the appropriate size of the federal budget. The article provides a distributional analysis of the proposal and also makes a number of political, economic, and administrative arguments in favor of a carbon tax and responds to the arguments that have commonly been made against using a tax-based approach to reducing U.S. emissions.