Almost all proposals for a broad-based national tax on consumption are terrible ideas. But there is one such proposal — a tax on carbon emissions — that might make sense so long as it includes features to keep it from burdening middle-income Americans and hitting low-income Americans the hardest. A new report from MIT researchers explores options for enacting a carbon tax, but unfortunately spends a lot of time discussing how the resulting revenue could be used to finance ill-advised cuts in other taxes.

Any consumption tax, like a value-added tax (VAT) or a sales tax, is regressive, taking a much larger percentage of income from middle- and low-income families than it would take from the rich.

That’s because middle- and low-income families have little choice but to put most or all of their income towards consumption (spending their paychecks to obtain basic necessities) while rich families can put a lot of their income towards savings — which are not touched by a consumption tax.

The same is true of a tax on carbon emissions, which would raise the price of gasoline, coal-generated electricity, and any product that is produced or shipped using fossil fuels (which is just about everything).

A carbon tax might be justified if these problems were addressed, and it met the compelling interest of preventing catastrophic climate change caused by greenhouse gasses. A tax on carbon emissions would reduce the amount of greenhouse gasses released into the atmosphere as manufacturers, shippers, and consumers shift away from fossil fuels.

Even though the purpose of a carbon tax would be to reduce the amount of carbon emissions, there would still be plenty of carbon emissions to be taxed, resulting in significant revenue. How that revenue is used determines whether or not the regressive impact of the tax is addressed.

The Congressional Budget Office recently found that a tax of $20 on each ton of carbon emissions would raise $1.25 trillion over a decade if it went into effect in 2012. The MIT report finds that it would raise $1.5 trillion over a decade if it went into effect in 2013.

In offering options for how this revenue could be used, the MIT report relies on some questionable assumptions that other types of taxes cause significant economic distortions. (A contrary view, in research from economists Peter Diamond and Emmanuel Saez, for example, finds that taxes affecting the rich are especially unlikely to create much economic distortions.) Yet the MIT report suggests that lower taxes on the well-off might be an appropriate use of carbon-tax revenue. To be fair, the MIT report does show (on pages 12-15) that the overall impact of a carbon tax would be regressive if the revenue is used to cut the personal or corporate income taxes. It also finds that the overall effect could be progressive if the revenue is used to shore up social programs that alleviate poverty.

In other words, a carbon tax could reasonably be considered as a part of a larger tax and budget reform if the revenue is used to offset the tax increases on middle- and low-income families, protect the elderly, and shore up the public investments that benefit people who would otherwise be hardest hit by such a tax.

But even if a Congress full of global-warming deniers would be willing to consider a carbon tax, the big question that would still remain is whether it would also be willing to offset the tax’s otherwise very regressive effects.

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