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Carbon tax proposal gives most Americans $132 a month

Carbon Tax Contested
Carbon Tax Proposal pays dividends

A new proposal heavily taxes carbon emissions and gives monthly dividend checks to U.S. citizens

E&E News – ClimateWire – June 9, 2014

The Citizens Climate Lobby will release a plan today for a carbon tax that proposes mailing monthly checks to nearly every American, including children.

The California– based group supports enacting a $10 tax on each ton of carbon dioxide in 2016. It would raise an estimated $56 billion in the first year, enough to provide a family of four with $44 in monthly rebates in 2016, supporters say.

The tax would rise by $10 a year through 2035, by which time each ton of carbon would carry a price of $200. That would eliminate the use of coal in the electricity sector while reducing U.S. greenhouse gas emissions by about half, according to a report being released by the group this afternoon.

The plan would raise energy prices, but the authors of the 126-page report assert that wouldn’t prevent the economy from growing. Employment overall would rise as investments in other sectors, like clean energy, help to strengthen the nation’s gross domestic product, they say, though other experts described that outcome as optimistic.

The “tax and dividend” approach is meant to offset the impact of higher-priced electricity and gasoline on families, said Daniel Richter, the legislative and science director for Citizens Climate Lobby. It would go further than that by mailing every adult about $15 a month in 2016, $96 a month in 2025 and $132 a month in 2035. Children under 18 would receive half a rebate.

“The average American family is still up 500 bucks a year” in 2025 after energy costs, Richter said. “Your average household will actually be better off under this proposal. They’ll have more money in their pockets.”

The plan is surfacing a week after the Obama administration proposed rules to regulate greenhouse gases at existing power plants. The Citizens Climate Lobby and other organizations believe that alternative action on climate change, like a carbon tax, could gain traction if lawmakers begin looking for a substitute to the highly complex new rules.

Some conservative groups are also hopeful that the carbon rules will finally prompt Republican lawmakers to become engaged on climate policies with a free-market twist.

“When we fail to present our solutions, Americans lose. There are numerous examples of this, and climate change is just the latest,” Kevin Croswhite, Wisconsin state director of the Energy and Enterprise Initiative, wrote last week in an op-ed published by the Milwaukee Journal Sentinel.

“For the sake of our economy, our environment and our liberty, conservatives should come to the table and offer our solutions to climate change,” he added.

Conservative: ‘I believe in climate change’

The Energy and Enterprise Initiative is run by former U.S. Rep. Bob Inglis (R-S.C.), who supports a revenue-neutral carbon tax that would result in lower income taxes. The group is working to promote those ideas in Wisconsin, which has a history of conservationist Republicans.

“I’m a very conservative person,” said Croswhite, who at 22 is the group’s first state director in the nation. “I believe in markets, I support the Second Amendment and I have conservative values. But I believe climate change is an issue that we should be correcting, and I look at it from the economic standpoint as a market failure.”

The plan by the Citizens Climate Lobby wouldn’t be his first choice because conservatives would argue that the revenue from a carbon tax should be used to cut other taxes, not provide dividends. Still, it’s better than President Obama’s current plan, Croswhite said.

“It’s definitely better than what we have with the EPA,” he added. “But we far prefer an income tax dollar-for-dollar tax swap that’s completely revenue-neutral.”

Today’s proposal by the Citizens Climate Lobby would likely lead to fewer jobs in some regions of the nation, where coal mining and oil refining take place. But the report asserts positive economic conditions overall as families spend their dividend checks on things like health care, retail and housing construction. Altogether, the authors say, the economy would grow by up to $90 billion in 2025 under their “fee and dividend” plan, or FAD.

“The FAD carbon tax tends to generate jobs in labor-intensive industries like healthcare and retail, which helps explain these results of 2.1 million [additional] jobs in 2025 and 2.8 million jobs by 2035,” the report says.

Study is ‘overly optimistic’

Roberton Williams, an economics professor at the University of Maryland and a senior fellow at Resources for the Future, says that a carbon tax can be inexpensive but probably would not be as cheap as today’s report suggests.

“The study’s results seem overly optimistic,” Williams said in an email. “It finds that a fee-and-dividend policy would substantially boost jobs and GDP- so the policy would provide a free lunch.”

“Most academic studies find that a revenue– neutral carbon tax has some cost to the economy, but that cost is small, and the policy easily passes a cost– benefit test,” he added. “In other words, there’s no free lunch, but it’s still a lunch well worth buying.”

At $10 a ton, the plan starts with a smaller tax than many other proposals, but it also escalates more quickly than its counterparts. By doubling its size in the second year, and adding $10 annually thereafter, the tax could cool investment, potentially offsetting the economic benefits of putting more money into the hands of families, said Peter Wilcoxen, an economics professor at the Maxwell School at Syracuse University and a senior fellow at the Brookings Institution.

“Overall, I’d expect the policy to raise consumption, at least for a time, but to depress investment, lower GDP slightly, and cause a sectoral shift in employment but not a long term increase,” Wilcoxen said in an email. “I’m surprised to see results suggesting that both GDP and employment increase immediately and permanently.”

Wilcoxen released his own findings on a carbon tax last week. The nation could sharply cut its emissions, retain existing employment levels and slightly increase GDP by 2038 with a $15 carbon tax that rises to $37 over 25 years. The revenue from his plan would be used to cut income taxes.

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