The Design and Implementation of Policies to Protect Low-Income Households under a Carbon Tax
A climate rebate implemented as a component of comprehensive carbon tax legislation can protect low- and moderate-income households from the loss in purchasing power they would otherwise experience from higher energy prices due to the carbon tax.
Key findings
- Well-designed carbon-tax legislation can generate enough revenue to fully offset the hit to the most vulnerable households’ budgets from higher energy prices, cushion the impact for many other households, and leave plenty to spare for other uses.
- A three-pronged delivery mechanism using existing tax and benefit systems can deliver a lump sum rebate to a very high percentage of low-income households. Such an approach would include the following:
- 1) A refundable tax credit for workers; 2) a supplement to direct federal payments for retirees, the disabled, and veterans; and 3) a payment delivered using the electronic benefit transfer (EBT) system used to deliver SNAP (food stamp) benefits.
- The EBT mechanism is critical for reaching very-low-income households (primarily families with children) that have very low or no earnings over the year and do not receive Social Security or other similar federal benefits.
- Arguably, the group mentioned above is the most important to reach with a climate rebate, because the loss of purchasing power due to a carbon tax could push these individuals and their children deeper into poverty and create serious hardship.
Authors
Chad Stone
