Carbon Taxes and Corporate Tax Reform

The revenues from a carbon tax could help finance lower corporate tax rates, extending business tax preferences, or other corporate tax reforms. Such a tax swap would reduce the environmental risks of carbon emissions and improve the efficiency of Americas corporate tax system. But it would also pose a significant distributional challenge. A carbon tax would fall disproportionately on low-income families, while corporate tax cuts would disproportionately benefit those with high incomes. Policymakers may want to use some revenue to offset those impacts. They may also want to use some carbon revenues for deficit reduction.