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coal-burning power plantsThroughout history, taxes have been one way for governments to try and influence the behavior of their citizens economically. So-called "sin taxes," for instance, are levied on products like alcohol and tobacco, the idea being to curb their usage by making them more expensive.

Democratic Rep. Jim McDermott of Washington state has just introduced a tax bill into the House of Representatives that would attempt to do something similar. But in this case the sin is emitting carbon dioxide, and it's most likely consumers who are going to have to do the penance -- in the form of higher prices on just about everything.

Democrat Rep. Jim McDermottWhat Goes Up Must Come Down

The bill is called The Managed Carbon Price Act of 2012, and would levy a carbon tax that would make the production of carbon emissions more expensive and therefore reduce them.

Man-made carbon emissions are one of the primary causes of global climate change. Whenever fossil fuels are burned, carbon dioxide is given off. Familiar examples of carbon emitters are coal-burning power plants, natural-gas furnaces, and gas-burning automobiles.

Under MCP Act, the Treasury would issue federal emission permits that would be purchased by large-scale emitters, like power plants or any kind of heavy-manufacturing facility. Each permit would be valid for five years. Emitters would buy permits according to how much carbon they emit. Those that chose to take action to reduce their emissions will then save money because they'll need to purchase fewer permits.

Who Pays the Piper?

Some countries cut out the middleman and go directly to the consumer, by levying carbon taxes right at the gas pump, for example. But however it's done, the idea of a carbon tax isn't new. Even McDermott's bill is an updated version of similar legislation he introduced in 2009.

But even if it's not a direct consumer tax, the MCP Act is going to cost money, and it's very likely some of the costs will make their way down to the consumer level. Take steel. To make steel, you need heat. To make heat, you typically burn fossil fuels. If the proposed carbon permits cause the manufacturing costs of steel to go up, steel manufacturers will likely raise their prices.

Steel goes into cars, appliances, tools, and a host of other consumer products. So as the price of steel rises, the cost of many of the things you buy will likely go up, too. And that coal-burning power plant you depend on for your electricity? It, too, will have to buy carbon permits. Again, at least some of that cost will likely be passed on to you in the form of higher rates.

The Sunny Side of a Carbon Tax

McDermott's bill calls for part of the collected revenue to go toward reducing the federal deficit, with the rest to be passed back to consumers in the form of dividends. His belief is that these dividends would offset any increased costs at the consumer level.

That may or may not happen. It's estimated that the MCP Act would generate hundreds of billions of dollars' worth of tax revenue over the next several decades. But with government programs of this size, it's hard to make long term financial projections with a great deal of accuracy.

But dividend or not, it is neither thoughtful nor practical for us to charge blithely down the fossil-fueled path the world is on, pretending that all is well. If you believe in the power of the free market (albeit one with slight regulatory nudging), then McDermott's plan is a reasonable way to fight climate change.

A carbon tax even has the support of the conservative American Enterprise Institute and Mitt Romney's economic adviser. And according to Rep. McDermott, ExxonMobil (XOM) supports a carbon tax, as well. What are the chances of all that? As such, it might be best to make hay with this idea while the sun shines. So far at least, there's no permit required for a man using his pitchfork.


John Grgurich is a regular contributor to The Motley Fool, and owns no shares of ExxonMobil. The Motley Fool owns shares of ExxonMobil.


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Gumby

With reduced ari pollution , you old geezers will suddenly find that you dont need to keep popping pills to stay alive... Clean air improves your quality of life... Take off your horse blinders or green shades whatever you use... Wake up ! Breath deeply you will be happier , old geezers!

August 09 2012 at 11:32 AM Report abuse rate up rate down Reply
ecsnydr

How about attempting to influence behavior by putting a transaction tax on all Wall Street trades? This would help eliminate the deficit and possibly curb speculative trading.

August 08 2012 at 1:06 PM Report abuse -1 rate up rate down Reply
foxylynx

One of the reasons the middle class has fallen behind is taxes and fees like this, they will squeeze and squeeze until we are dead.

August 08 2012 at 9:14 AM Report abuse rate up rate down Reply
mily469

the carbon tax is a joke. the deficit is srious. my bank account is empty.

August 08 2012 at 8:34 AM Report abuse rate up rate down Reply
marine1942

This has to be passed as Obama has "broke us".
Going to be higher rates, less services, just good ole Hope and Change as we fall

August 08 2012 at 8:25 AM Report abuse +1 rate up rate down Reply
airsyspro

What a dumb idea!

First who really thinks that the Governement will not find some program to spend this tax money on.

Second and most important, do you think other countries like China are going to stop producing the same carbon emmisions. Bet that you will only see more jobs going to China if this thing goes in to law.

August 07 2012 at 7:00 PM Report abuse +1 rate up rate down Reply
Delaware Jack

Noted expert Peter Schiff says the U.S. economy is on the verge of an economic collapse worse than 2008 and is warning Americans to take immediate steps to protect themselves…….. Schiff warns that while any moves the Fed makes this year could "artificially" bolster the economy - and bring investors false hope that things are turning around - the truth is that the government will only be delaying the "Day of Reckoning." ……. "If the Fed ultimately comes through with QE3... it won't strengthen the economy, but it will weaken the dollar," Schiff said, noting that Bernanke's policies will eventually lead to a Greek style debilitating sovereign debt crisis where the dollar plunges and consumer prices and interest rates spike…….. "We have a much bigger collapse coming, not just the markets, but of the economy. It's like what you're seeing in Europe right now only worse," Schiff said. …….An Emmy Award-winning documentary filmmaker followed a team of scientists, economists, and energy analysts to explore an incomprehensible financial crisis that's facing average Americans. …… Schiff goes on to say that things will get truly ugly when we hit our fiscal cliff and have to slash government spending across the board……. "People on entitlements like Social Security and Medicare... they're not going to get the benefits they've been promised. Government workers are going to have to take pay cuts... banks are going to fail... people are going to lose money, not just investors but depositors. The housing market is going to fall again.". ……And Schiff isn't the only expert warning about the U.S. economy's dire predicament. …… A group of prominent scientists, economists and geopolitical experts have uncovered an emerging pattern... one they believe could soon hasten an American economic catastrophe - and a radical hit to the wealth and financial security of millions Americans. ….. Germany's military held a secret investigation into this emerging pattern and concluded it could lead to "political instability and extremism." ……. A large part of this has to do with the velocity of total credit market debt. It's part of a pattern of accelerating debt - and few have been able to track the speed of it, which is growing at a rate even faster than just a few months ago. ….. Chris Martenson, a highly acclaimed scientist and an expert on exponential growth, says the dangerous pattern of accelerating debt can go unnoticed at first. But what's happening underneath the radar is the speed of the doubling, which is now accelerating even faster to an unsustainable level. ….."That's when chaos breaks out," Martenson says……. As of today, the total credit market debt is 357% larger than GDP. That represents an astounding $691,000 for a family of four in America……. Yet the doubling period for this gets shorter at an exponential rate that increases every day. "It's a very dangerous exponential growth curve," says Martenson, "one that's setting us up for a situation worse than we've seen in Greece and across Europe."…… "Every American needs to know what this means and what steps to take with your finances, investments and day-to-day life to prepare for it, "Martenson added.

August 07 2012 at 1:05 PM Report abuse +3 rate up rate down Reply
unitedpaintings

The only one's that will profit from this are the Regressive Liberal-Crats with the likes of Fat Al Gore.

August 07 2012 at 12:41 PM Report abuse +2 rate up rate down Reply
1 reply to unitedpaintings's comment
mily469

no, just gore.

August 08 2012 at 8:35 AM Report abuse -1 rate up rate down Reply
tuckerp0

Wow, I wonder if a global mean temperature increase of 6 Celsius would harm my portfolio. It occurs to me that submerging 1/3 of human civilization and re-creating the dustbowl might be even worse for bank account than this tax. Hmmm

August 07 2012 at 11:46 AM Report abuse -1 rate up rate down Reply