Carbon Taxes Hurt Our Economy and Fail to Fix the Budget

February 28, 2013

A new study by the National Association of Manufacturers called Economic Outcomes of a U.S. Carbon Tax should serve as a reminder to Congress that passing new taxes to fix our budget may seem like an easy short-term fix, but will inevitably hurt America’s economy more than help. In addition to eliminating tax-incentives that help the oil and gas industry with the cost of doing business in America, some groups and members of Congress also want to pass one of two possible carbon taxes. NAM’s study shows that either of the two proposed carbon taxes would actually lower taxable income and cost jobs.

The first proposal would tax each ton of CO2 emitted at $20 per metric ton. The more drastic of the two proposals extends the $20 per ton tax until 2018. After 2018, this second proposal would steadily increase taxes per metric ton of CO2, capping at a maximum tax rate of $1000 per metric ton, until producers reduce their emissions by 80 percent. According to NAM’s study, both tax schemes would fail to reduce emissions to the levels required by prior climate legislation and would levy huge a burden on the economy.

The following bullets are taken directly from the study’s overview and explain how unforeseen consequences of implementing a carbon tax would hurt our economy and fail to fix our national budget:

  • Any revenue raised by a carbon tax—under both carbon tax cases—would be far outweighed by the negative impacts to the overall economy.
  • A carbon tax would have a net negative effect on consumption, investment and jobs, resulting in lower federal revenues from taxes on capital and labor.
  • Factoring in lost revenue from reduced economic activity, the net revenue from a carbon tax available for deficit/debt reduction and lower tax rates is relatively small.
  • The increased costs of coal, natural gas and petroleum products due to a carbon tax would ripple through the economy and result in higher production costs and less spending on nonenergy goods.
  • A carbon tax would lead to lower real wage rates because companies would have higher costs and lower labor productivity. Over time, workers’ incomes could decline relative to baseline levels by as much as 8.5 percent in the 80 percent reduction case.
  • The negative impact of a carbon tax on total manufacturing output would be significant, with output from energy-intensive manufacturing sectors dropping as much as 15.0 percent and output from non-energy-intensive manufacturing sectors dropping as much as 7.7 percent.

You can read NAM’s study here.