Carbon tax could have no impact on young and unborn Americans

Carbon taxes could affect Americans differently depending on their age, with those born after 1995 generally feeling smaller economic impacts than today's decisionmakers, a team of researchers found.

People who are 18 years old or younger would pay about $10 a year or less under a policy that uses the revenue from a $30 carbon tax to reduce capital taxes, according to economists at Resources for the Future. Future generations would pay less than that. The tax would have no cost for those born between 2010 and 2030.

Adult Americans, meanwhile, would see a range of possible impacts. People born in 1945 would pay the most under the tax swap scenario, about $40 a year, because they have less retirement income to invest and would benefit the least from cuts to capital taxes. The research shows that people born between 1950 and 1965 would come out ahead, by about $5 a year.

Resources for the Future, which developed an "overlapping generations model" to estimate the financial cost of a carbon tax for living and unborn Americans, found that the emissions levy could generate between $1.6 trillion and $3.6 trillion over a decade. The revenue is dependent on the size of the tax, which the researchers assumed would be between $20 and $50 per ton of CO2.

"This is real money," said Rob Williams, a senior fellow at the think tank. "It's not just sort of a little tweak around the edge."


The researchers studied four different "revenue neutral" tax swaps, in which the money from a new carbon tax would be used to pay for reductions in other tax rates. In addition to capital taxes, the economists studied consumption taxes, also known as a sales tax, and labor taxes. They also looked at the generational impact of refunding the carbon tax to every American adult with annual rebates of about $600.

$600 rebates don't help the economy

The researchers ignored the environmental benefits of addressing climate change, like the positive effects that reduced emissions might have on the economy through improved health and subdued disasters.

"The idea is, let's look at a carbon charge as strictly a fiscal policy and try to understand its implications as a fiscal measure, setting aside completely the benefits that might accrue to the U.S. and the world [by] reducing greenhouse gas emissions," said Ray Kopp, who directs the Center for Climate and Electricity Policy at Resources for the Future.

They found that cutting capital taxes has the least variance on generations, from about $40 a year for older Americans to no cost on toddlers and the unborn. It also produces the smallest damage to the economy. In a presentation last week, the researchers said gross domestic product could rise slightly over the long term by trading carbon taxes for cuts to capital taxes.

Other swaps have bigger impacts on born and unborn Americans, as well as the economy.

Providing an annual rebate of about $600 to every adult benefits someone born in 1945, but for everyone else it's the most expensive swap considered. People born between 1960 and 1975 would have to pay about $150 a year on balance, while an 18-year-old today would pay about $100 for the rest of his life. The main reason for that is it has a larger negative impact on the economy than the other swaps, by failing to spur investment or encourage work.

Using carbon revenue to reduce consumption taxes would make older Americans happy, as that's one of the largest types of taxes they pay. They could make money on the swap, from about $90 a year downward depending on their age. Others born between 1965 and 2005 would pay at least $50 a year.

A labor tax swap would pinch older Americans for about $100 and those born in 2030 for about $10, according to the research, which will be available publicly within a month.

Climate is a 'liberal hoax'? No problem

Researchers seemed to zero in on the carbon-for-capital taxes swap.

"We're actually getting a small boost in growth, although again we're talking about 1 percentage point in the size of GDP showing up over a 20-year period. If you look at annual growth rates, that would be sort of a rounding error," Williams said.

"If you're somebody who believes that climate change is a liberal hoax [and] we shouldn't worry about it at all [because] there are no benefits to cutting CO2, you would probably still like this policy," he added.

The research dovetails with President Obama's campaign to raise awareness about climate change. He has framed it as a challenge to help future generations avoid rising risks from higher temperatures, pointing to his own children, and theirs, as motivation to reduce emissions.

Obama has withheld his support for a carbon tax, perhaps because that could inflict political damage on a long-shot policy that conservatives are unlikely to support, especially if it's endorsed by the White House.

But the issue has its backers among policy circles. An op-ed in The Weekly Standard on Friday argued that conservatives should provide their own solutions to climate change to prevent Obama from issuing harmful regulations on power plants. It argued that a revenue-neutral carbon tax was the right policy.

"Rather than pretend climate change isn't a problem, there are ample opportunities for Republicans to point out the obvious flaws in the left's plans to deal with it and offer alternatives of their own," Eli Lehrer, president of the R Street Institute, wrote in the op-ed.

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