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Carbon Tax Coming?

A new report released Tuesday by the Congressional Research Service (CRS) shows that a carbon tax of $20 per ton which rises 5.6% annually could halve the projected 10-year deficit—from $2.3 billion to $1.2 billion. In the first year alone, the CRS estimates the tax could generate $90 billion.

However, there is a catch: it is possible the generated revenue would not go entirely toward debt reduction, and instead go back into the industry in one way or another. Groups of people who disproportionately bear the carbon price might have revenue “recycled”; some revenue may be offset by lowering the payroll tax; some revenue may go back to the industry to help invest in low-carbon transitions, while some revenue may go into government clean-energy programs.

Regardless, the revenue generated from this carbon tax would benefit the environment and economy in a multitude of ways.

The political climate for a carbon tax is not good though, despite the clear benefits for a variety of interests. This does not come as a surprise, yet it is strange why the long-term advantages are still viewed as unfavorable opposed to the short-term fiscal expenditures.

The upcoming presidential election could prove to be the deciding factor in the implementation of this, or a similar, carbon tax. If President Obama wins re-election, it is likely a carbon tax could be packaged into deficit reduction legislation. Republicans have been campaigning against climate action though, but with the Bush-era tax cuts set to expire and the necessity for Republicans to give voters fiscal action, the odds may increase for carbon taxes. Additionally, voter polls show support for environmental action and “revenue neutral” taxes on fossil fuels.

Environmental and fiscal policy can coexist, and Americans are beginning to realize that. It is no longer an issue of politics or ideology, but an issue of representation in government. Perhaps as a result of the November elections, those elected will remember to do their job.

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