Carbon Tax The Top Deficit Cutter, CBO Says

Pricing carbon makes such obvious sense that from Robert Reich on the left to Gregory Mankiw on the right, economists overwhelmingly agree that a carbon tax that helps reflect the true costs of fossil-fuel use would be the most efficient way to spur clean-energy development.

Turns out it could also cut the deficit by a whole heckuva lot. In fact, a new report from the Congressional Budget Office [PDF] finds it would do more to reduce the U.S. budget deficit – saving $1.060 trillion in the 2014-2023 period with carbon taxed at $25 per metric ton – than any other single measure considered.

From the CBO report, Options for Reducing the Deficit: 2014 to 2023

From the CBO report, Options for Reducing the Deficit: 2014 to 2023

The CBO acknowledges that imposing the tax, would which rise at an inflation-adjusted rate of 2 percent per year, would “increase businesses’ costs, which would reduce the tax bases for income and payroll taxes,” and its calculations reflect those lost revenues. So that $1.060 trillion in deficit reduction is the bottom-line fiscal impact (of course, there would also be benefits in improved health, etc.).

Now, a “discussion draft” of carbon tax legislation was unveiled earlier this year, but it doesn’t seem to have prompted a whole lot of talk. Maybe the CBO report will change that. The two pages devoted to a “tax on emissions of greenhouse gases,” as the CBO termed it, is definitely worth reading. It lays out the arguments for and against such a tax in a direct way, providing an excellent primer on a discussion the country really needs to have.

After the jump – Option 35: Impose a Tax on Emissions of Greenhouse Gases

Pete Danko is a writer and editor based in Portland, Oregon. His work has appeared in Breaking Energy, National Geographic's Energy Blog, The New York Times, San Francisco Chronicle and elsewhere.

  • jfreed27

    MAJOR TYPO IN THIS ARTICLE. IT WILL SAVE $1.06 TRILLION, NOT BILLION.

    • Pete Danko

      Doh! Thanks for letting me know! Now fixed.