Taxation Essay

728 WordsApr 30, 20153 Pages
As the world experiences the warmest year on record, the issue of climate change is becoming a reality. In many cases, all of us contribute to the emissions of carbon, whether by heating our home or driving our car. The consequence of substantial amounts of carbon emissions results in air pollution, which would be costly to our society and harmful to individuals’ health. Climate change has been revealed to be one of our most serious public health threats. Although a carbon tax would alternatively be a promising way to protect the environment and the people, it would not garner support from policymakers on the ground that it would address the issue of income distribution and economic inefficiency. First, and most obviously, implementing a carbon tax would affect lower and middle- income households in terms of income distribution. They would distribute a greater portion of their income because of the necessity of energy-based products, which comprised of a larger share in their expenditures. An NBER working paper, for instance, found that consumption differences would explain why a carbon tax would be regressive by combining the amount of carbon emissions from each industry and studying to customer expenditures by different income groups. Moreover, the NBER study found that the degree of regressivity would vary based on how to set a price on carbon. Assuming a levy of $ 28 metric ton of carbon, lower and middle- income households would spend an extra $425 per year and higher income households would take on a cost of $1,380 per year. This cost would account for 2.5% of after-tax income for the lowest income households; alternatively, it would only account for less than 1% of after-tax income for the highest income households (Cited). Due to the fact that a carbon tax more heavily affects lower and middle-income households than higher-income households, it is

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