CHAPTER
3
A Carbon Tax to Reduce the Deficit
Mr. President, your administration will need many measures to deal with the federal budget deficit. As part of your deficit reduction strategy, we recommend that you introduce legislation to create a tax on fuels, based on their carbon content, that would increase gradually over time. A carbon tax will lessen the need to raise taxes on labor and capital formation (which we would like to encourage, not discourage); it also will create an incentive to shift to energy sources that contribute less to atmospheric concentrations of carbon dioxide and other pollutants.
Background
The income tax reductions that took place in 2001 helped ensure that the recession that year ...
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