CBO: Carbon tax chops $1 trillion from deficit

The Congressional Budget Office (CBO) floated 103 ways to help cut the deficit Wednesday, and one option takes out a much bigger bite than any other: A carbon tax.

A $25-per-ton tax that rises 2 percent annually would raise slightly over $1 trillion over a decade, according to the nonpartisan CBO.

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Its closest competitor? Increasing the payroll tax rate for Medicare hospital insurance by one percent, which would raise an estimated $859 billion between 2014 and 2023.

The CBO’s paper lays out deficit options and doesn’t endorse any. But it does describe the merits and shortcomings of the various ideas, including taxing emissions from fossil fuels.

“One argument in support of the [carbon tax] option is that it would reduce emissions of greenhouse gases at the lowest possible cost per ton of emissions because each ton would be subject to the same tax,” the CBO paper states.

It later adds: “An argument against a tax on GHG emissions is that curtailing U.S. emissions would burden the economy by raising the cost of producing emissions-intensive goods and services while yielding benefits for U.S. residents of an uncertain magnitude.”

Although the CBO stays neutral, one carbon tax advocate tells E2-Wire that, “I would say that, implicitly, if they thought it was a terrible idea they probably wouldn’t mention it [on the list].”

The environmental think tank Resources for the Future estimates that a $25-per-ton carbon tax would raise gasoline prices by 21 cents-per-gallon.

It’s a pretty theoretical debate for the time being.

Carbon tax proposals don’t have traction on Capitol Hill. The White House, which is moving ahead with carbon emissions regulations, has flatly ruled out floating a carbon tax.

But some advocates of the idea, such as Senate Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.), hope for an eventual opening during wider fiscal and tax policy debates in Congress.

Boxer floated a bill with Sen. Bernie Sanders (I-Vt.) in February that imposes a $20 dollar-per-ton tax that rises 5.6 percent annually.

But their "Climate Protection Act" only uses some of the money for deficit reduction.

It returns three-fifths of the revenue to U.S. residents and spends some other revenues on programs to help soften the economic impact on “energy-intensive and trade exposed” industries, among other distributions.