A Green Employment Tax Swap: Using a Carbon Tax to Finance Payroll Tax Relief

As the new Congress convenes, both Democratic and

Republican lawmakers are proposing limits on greenhouse

gas emissions. Most of these proposals are for carbon cap

and trade systems similar to the European Union Emissions Trading System.

A carbon tax is another way to limit emissions. This policy

brief describes how a carbon tax could be implemented and presents an analysis of a Green Employment Tax

Swap (GETS). Under this proposal, a national tax on carbon emissions is paired with a reduction in the payroll tax.

In particular, the brief assesses the impact of a tax of $15

per metric ton of carbon dioxide (CO2), which is used to rebate the federal payroll tax on the first $3,660 of earnings per worker. This reform is both revenue-neutral and

distributionally neutral.