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CBO not so subtly suggests a carbon tax to raise revenues

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Michael Bastasch DCNF Managing Editor
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The Congressional Budget Office says that a carbon tax would raise the most revenue out of the 35 different options suggested by the budget forecasting office.

The CBO estimates that a $25 per ton tax on carbon dioxide emissions would raise government revenues by $1.06 trillion over the next decade, while lowering U.S. carbon emissions by 10 percent as well.

A carbon tax is by far the biggest revenue raiser suggest by the CBO. The office suggested 35 different revenue options for cutting the federal budget deficit, including options like increasing income taxes and imposing a minimum tax. The second-highest revenue raising option listed by the CBO is eliminating deductions for state and local taxes, which would raise $954 billion over ten years.

According to the CBO, a carbon tax would be more efficient than having the Environmental Protection Agency impose clean air regulations to lower carbon emissions. The CBO also argues that there would be “co-benefits” from taxing carbon such as lowering other harmful pollutants and emissions as the power sector switches from using coal to natural gas or nuclear power.

Critics of the carbon tax have pointed out that it would be economically harmful, as it would raise the cost of virtually every good produced. Opponents also charge that a carbon tax will just allow politicians to recklessly spend more money.

“Washington politicians have run out of other people’s money, so they need a new source,” Daniel Kish, senior vice president of policy at the Institute for Energy Research. “Anybody who thinks that Washington isn’t coming after a carbon tax must live in a jurisdiction where pot is legal for recreational use.”

“All that does is hurt the poorest among us, it doesn’t hurt Al Gore, it doesn’t hurt the people at the CBO,” Kich added. “It hurts the people on the lowest rung of the economic scale that the president says he’s trying to help.”

The CBO’s carbon tax advocacy also comes as the Obama administration continues to implement its “social cost of carbon” (SCC) estimate. The SCC puts a monetary value on the economic damages caused by increased carbon dioxide emissions and must be used by federal regulatory agencies when calculating the costs and benefits of regulations.

The White House has repeatedly denied having plans to implement a carbon tax, but earlier this year the Obama administration quietly raised its SCC estimate from $21 per metric ton to $35 per metric ton — higher than the hypothetical $25 per ton carbon tax used by the CBO.

“It’s a proxy for a carbon tax,” Kish said. “They don’t want it to be the price the CBO uses, they want it to be a little higher, so they can say ‘it’s lower than the social cost of carbon.'”

There is little chance that lawmakers would pass a carbon tax outright, as House Republicans have been heavily opposed to such efforts. In the Senate, Republicans, along with some energy state Democrats, have also come out against a carbon tax.

However, California Democratic Sen. Barbara Boxer has said she will push for a carbon tax as both parties enter negotiations about how to reform the U.S. tax code to make it more efficient. Carbon tax supporters have floated the idea of imposing a carbon tax in exchange for lowering other tax rates — something Republicans might go for as part of a grand tax bargain.

“There’s one thing for sure, there is a bullseye that’s being painted by the U.S. government on Americans’ wallets,” Kish added. “Taking a trillion dollars to spread around and buy votes.”

Even the CBO puts forward some arguments against the carbon tax as well, saying that it would burden the economy with increased costs on goods made with fossil fuels — which is most goods we consume — while yielding uncertain benefits. Furthermore, the CBO notes that U.S. efforts to cut emissions could be undercut by carbon-heavy energy production moving outside the U.S. to other countries with lower environmental controls.

“More generally, averting the risk of future damage caused by climate change would depend on collective global efforts to cut emissions,” according to the CBO. “Most analysts agree that if other countries with high levels of emissions do not cut those pollutants substantially, reductions in emissions in this country would produce only small changes in the climate.”

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