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1 Elke Asen, A Carbon Tax to Make the TCJA's Individual Provisions Permanent 1 (2020)

handle is hein.taxfoundation/tfcrbn0001 and id is 1 raw text is: A Carbon Tax to Make the TCJA's Individual Provisions Permanent FISCAL FACT No. 729 Sept. 2020 Elke Asent Policy Analyst The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)(3) nonprofit organization. ©2020 Tax Foundation Distributed under Creative Commons CC-BY-NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org At the end of 2025, most individual income tax provisions of the Tax Cuts and Jobs Act (TCJA) will expire, increasing taxes on individuals. Making these provisions permanent is estimated to reduce federal tax revenues by $176 billion annually (in 2021 dollars). While making these provisions permanent would increase the long-run size of the economy by 1.4 percent, many lawmakers may worry about the potential increase in the federal deficit from the reduced tax revenues and may look for offsetting sources of revenues. One such option is a carbon tax. Introducing a carbon tax in 2021 at a rate of $60 per metric ton of carbon dioxide equivalent, growing at 5 percent annually, would raise sufficient federal tax revenues to cover the cost of making the individual provisions permanent. A carbon tax would reduce long- run economic growth by 0.4 percent. In addition to being revenue-neutral, combining these policies would increase the long-run size of the economy by 1 percent, making it a sustainable pro- growth option. However, this trade would put a disproportionate burden on lower-income taxpayers. Expanding refundable tax credits or providing carbon dividends could address this distributional concern. 1 The author would like to thank Kyle Pomerleau for his comments and invaluable modeling contributions to this report. Key Findings