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125-429: A carbon tax is a tax levied on the carbon emissions from producing goods and services. Carbon taxes are intended to make visible the hidden social costs of carbon emissions . They are designed to reduce greenhouse gas emissions by essentially increasing the price of fossil fuels . This both decreases demand for goods and services that produce high emissions and incentivizes making them less carbon-intensive . When

250-434: A carbon fee and dividend , rather than a plain tax. A carbon tax as well as carbon emission trading is used within the carbon price concept. Two common economic alternatives to carbon taxes are tradable permits with carbon credits and subsidies . Carbon dioxide is one of several heat-trapping greenhouse gases (others include methane and water vapor) emitted as a result of human activities. The scientific consensus

375-431: A flat percentage rate of taxation on personal annual income, but most scale taxes are progressive based on brackets of yearly income amounts. Most countries charge a tax on an individual's income and corporate income . Countries or sub-units often also impose wealth taxes , inheritance taxes , gift taxes , property taxes , sales taxes , use taxes , environmental taxes , payroll taxes , duties , or tariffs . It

500-433: A pay-as-you-earn basis, with corrections made after the end of the tax year . These corrections take one of two forms: Income-tax systems often make deductions available that reduce the total tax liability by reducing total taxable income. They may allow losses from one type of income to count against another – for example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate

625-552: A carbon offsetting program, it receives carbon credit or offset credit, which account for the net climate benefits that one entity brings to another. After certification by a government or independent certification body, credits can be traded between entities. One carbon credit represents a reduction, avoidance or removal of one metric tonne of carbon dioxide or its carbon dioxide-equivalent (CO 2 e). Two related taxes are emissions taxes and energy taxes . An emissions tax on greenhouse gas emissions requires individual emitters to pay

750-484: A carbon tax, emissions trading, and command-and-control regulation at the industry level, concluding that market-based mechanisms would perform better than emission standards in achieving emission targets without affecting industrial production. Both energy and carbon taxes have been implemented in response to commitments under the United Nations Framework Convention on Climate Change . In most cases

875-844: A carbon tax, while only 33 percent are opposed to a carbon tax. In 28 of the 31 countries and territories listed in the poll, a majority of their populations are supportive of a carbon tax. Carbon emission trading (also called cap and trade) is another approach. Emission levels are limited and emission permits traded among emitters. The permits can be issued via government auctions or by offered without charge based on existing emissions (grandfathering). Auctions raise revenues that can be used to reduce other taxes or to fund government programs. Variations include setting price-floor and/or price-ceiling for permits. A carbon tax can be combined with trading. A cap with grandfathered permits can have an efficiency advantage since it applies to all industries. Cap and trade provides an equal incentive for all producers at

1000-426: A certain area ( social engineering ). For example, a high excise is used to discourage alcohol consumption, relative to other goods. This may be combined with hypothecation if the proceeds are then used to pay for the costs of treating illness caused by alcohol use disorder . Similar taxes may exist on tobacco , pornography , marijuana etc., and they may be collectively referred to as " sin taxes ". A carbon tax

1125-446: A commodity is sold to its final consumer. Retail organizations contend that such taxes discourage retail sales. The question of whether they are generally progressive or regressive is a subject of much current debate. People with higher incomes spend a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore common to exempt food, utilities, and other necessities from sales taxes, since poor people spend

1250-469: A definition and system of classification of internal taxes, generally followed below. In addition, many countries impose taxes ( tariffs ) on the import of goods. Many jurisdictions tax the income of individuals and of business entities , including corporations . Generally, the authorities impose a tax on net profits from a business , on net gains, and on other income. Computation of income subject to tax may be determined under accounting principles used in

1375-475: A description as "the most efficient way to guide the decisions of producers and consumers", since "carbon emissions have an 'unpriced' societal cost in terms of their deleterious effects on the earth's climate." However, carbon taxes have been opposed by a substantial proportion of the public. They have also been rejected in several elections, and in some cases reversed as opposition increased. One response has been to specifically allocate carbon tax revenues back to

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1500-437: A desirable negative leakage could occur due to reduced demand for coal, oil, and gas in developed countries, lowering prices. This could allow developing countries to substitute oil or gas for coal, lowering emissions. In the long-run, however, if less polluting technologies are delayed, this substitution might have no long-term benefit. Carbon leakage is central to climate policy , given the 2030 Energy and Climate Framework and

1625-455: A fee, charge, or tax for every tonne of greenhouse gas, while an energy tax is applied to the fuels themselves. In terms of climate change mitigation , a carbon tax is not a perfect substitute for an emissions tax. For example, a carbon tax encourages reduced fuel use, but it does not encourage emissions reduction such as carbon capture and storage . Energy taxes increase the price of energy regardless of emissions. An ad valorem energy tax

1750-519: A few examples of direct taxes existing in the United States (though not all of these meet the US constitutional definition of a direct tax, as stated below): Direct taxation has a few advantages and also some inconveniences in comparison of indirect taxes. It promotes equality and equity because direct taxes are based on ability to pay of the taxpayer and in the case of a progressive tax structure, every person

1875-619: A fossil fuel such as coal , petroleum , or natural gas is burned, most or all of its carbon is converted to CO 2 . Greenhouse gas emissions cause climate change . This negative externality can be reduced by taxing carbon content at any point in the product cycle. In its simplest form, a carbon tax covers only CO 2 emissions. It could also cover other greenhouse gases , such as methane or nitrous oxide , by taxing such emissions based on their CO 2 -equivalent global warming potential . Research shows that carbon taxes do often reduce emissions. Many economists argue that carbon taxes are

2000-587: A greater warming potential. Many countries tax fuel directly; for example, the UK imposes a hydrocarbon oil duty directly on vehicle hydrocarbon oils, including petrol and diesel fuel . While a direct tax sends a clear signal to the consumer, its efficiency at influencing consumers' fuel use has been challenged for reasons including: Vehicle fuel taxes may reduce the " rebound effect " that occurs when vehicle efficiency improves. Consumers may make additional journeys or purchase heavier and more powerful vehicles, offsetting

2125-409: A group of delegates to the 1787 U.S. Constitutional Convention who dissented from the document sent to the states for ratification, objected over this kind of taxation, and explained: The power of direct taxation applies to every individual ... it cannot be evaded like the objects of imposts or excise, and will be paid, because all that a man hath will he give for his head. This tax is so congenial to

2250-428: A higher evaluation of the costs of carbon pollution on society. Stanford University scientists have estimated the social cost of carbon to be upwards of $ 200 per ton. More conservative estimates pin the cost at around $ 50. The use of the revenue is another subject of debate in carbon tax proposals. A government may use revenue to increase its discretionary spending, or address deficits. However, such proposals often run

2375-406: A higher proportion of their incomes on these commodities, so such exemptions make the tax more progressive. This is the classic "You pay for what you spend" tax, as only those who spend money on non-exempt (i.e. luxury) items pay the tax. A small number of U.S. states rely entirely on sales taxes for state revenue, as those states do not levy a state income tax. Such states tend to have a moderate to

2500-593: A higher tax rate. Historically, in many countries, a contract needs to have a stamp affixed to make it valid. The charge for the stamp is either a fixed amount or a percentage of the value of the transaction. In most countries, the stamp has been abolished but stamp duty remains. Stamp duty is levied in the UK on the purchase of shares and securities, the issue of bearer instruments, and certain partnership transactions. Its modern derivatives, stamp duty reserve tax and stamp duty land tax , are respectively charged on transactions involving securities and land. Stamp duty has

2625-497: A large amount of tourism or inter-state travel that occurs within their borders, allowing the state to benefit from taxes from people the state would otherwise not tax. In this way, the state is able to reduce the tax burden on its citizens. The U.S. states that do not levy a state income tax are Alaska, Tennessee, Florida, Nevada, South Dakota, Texas, Washington state, and Wyoming. Additionally, New Hampshire and Tennessee levy state income taxes only on dividends and interest income. Of

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2750-430: A non-marginal impact, but are asserted to not be catastrophic. The design of a carbon tax involves two primary factors: the level of the tax, and the use of the revenue. The former is based on the social cost of carbon (SCC), which attempts to calculate the numeric cost of the externalities of carbon pollution. The precise number is the subject of debate in environmental and policy circles. A higher SCC corresponds with

2875-753: A pan-European minimum tax on pollution permits purchased under the European Union Greenhouse Gas Emissions Trading Scheme (EU ETS) in which the proposed new tax would be calculated in terms of carbon content. The suggested rate of €4 to €30 per tonne of CO 2 . Tax A tax is a mandatory financial charge or levy imposed on a taxpayer (an individual or legal entity ) by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities . Tax compliance refers to policy actions and individual behavior aimed at ensuring that taxpayers are paying

3000-553: A particular amount. Such upper or lower limits may apply for retirement but not for health-care components of the tax. Some have argued that such taxes on wages are a form of "forced savings" and not really a tax, while others point to redistribution through such systems between generations (from newer cohorts to older cohorts) and across income levels (from higher income levels to lower income-levels) which suggests that such programs are really taxed and spending programs. Unemployment and similar taxes are often imposed on employers based on

3125-488: A permit system may be more advantageous. In the case of uncertainty regarding the costs of CO 2 abatement for firms, a tax is preferable. Permit systems regulate total emissions. In practice the limit has often been set so high that permit prices are not significant. In the first phase of the European Union Emissions Trading System , firms reduced their emissions to their allotted quantity without

3250-728: A permit. Economist Gilbert Metcalf has proposed such a system, the Emissions Assurance Mechanism, and the idea, in principle, has been adopted by the Climate Leadership Council . James E. Hansen argued in 2009 that emissions trading would only make money for banks and hedge funds and allow business-as-usual for the chief carbon-emitting industries. Carbon offsetting is a carbon trading mechanism that enables entities to compensate for offset greenhouse gas emissions by investing in projects that reduce, avoid, or remove emissions elsewhere. When an entity invests in

3375-401: A price rather than an emission limit. In addition to creating incentives for energy conservation, a carbon tax puts renewable energy such as wind , solar and geothermal on a more competitive footing. In economic theory, pollution is considered a negative externality , a negative effect on a third party not directly involved in a transaction, and is a type of market failure . To confront

3500-625: A result of market forces . Certain countries (usually small in size or population, which results in a smaller infrastructure and social expenditure) function as tax havens by imposing minimal taxes on the personal income of individuals and corporate income. These tax havens attract capital from abroad (particularly from larger economies) while resulting in loss of tax revenues within other non-haven countries (through base erosion and profit shifting ). Legal and economic definitions of taxes differ, such that many transfers to governments are not considered taxes by economists. For example, some transfers to

3625-511: A single-rate form of taxation regardless of ability to pay (the Community Charge , but more popularly referred to as the Poll Tax), led to widespread refusal to pay and to incidents of civil unrest, known colloquially as the ' Poll Tax Riots '. Some types of taxes have been proposed but not actually adopted in any major jurisdiction. These include: An ad valorem tax is one where the tax base

3750-405: A tax imposed upon a transaction. In this sense, indirect taxes such as a sales tax or a value added tax (VAT) are imposed only if and when a taxable transaction occurs. People have the freedom to engage in or refrain from such transactions; whereas a direct tax (in the general sense) is imposed upon a person, typically in an unconditional manner, such as a poll-tax or head-tax, which is imposed on

3875-437: A tax on net worth (assets minus liabilities), as a percentage of the net worth, or a percentage of the net worth exceeding a certain level. The tax may be levied on " natural " or " legal persons. " A value-added tax (VAT), also known as Goods and Services Tax (GST), Single Business Tax, or Turnover Tax in some countries, applies the equivalent of a sales tax to every operation that creates value. To give an example, sheet steel

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4000-493: Is a per unit tax, where the tax base is the quantity of something, regardless of its price. An excise tax is an example. Consumption tax refers to any tax on non-investment spending and can be implemented by means of a sales tax, consumer value-added tax, or by modifying an income tax to allow for unlimited deductions for investment or savings. This includes natural resources consumption tax , greenhouse gas tax (i.e. carbon tax ), "sulfuric tax", and others. The stated purpose

4125-430: Is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However, this distinction does not apply in other jurisdictions; for example, if using this terminology UK inheritance tax would be an estate tax. An expatriation tax is a tax on individuals who renounce their citizenship or residence. The tax

4250-469: Is a form of pollution tax. David Gordon Wilson first proposed this type of tax in 1973. Unlike classic command and control regulations , which explicitly limit or prohibit emissions by each individual polluter, a carbon tax aims to allow market forces to determine the most efficient way to reduce pollution. A carbon tax is an indirect tax —a tax on a transaction—as opposed to a direct tax , which taxes income. Carbon taxes are price instruments since they set

4375-590: Is a full VAT. The province of Quebec collects the Quebec Sales Tax [QST] which is based on the GST with certain differences. Most businesses can claim back the GST, HST, and QST they pay, and so effectively it is the final consumer who pays the tax. An excise duty is an indirect tax imposed upon goods during the process of their manufacture, production or distribution, and is usually proportionate to their quantity or value. Excise duties were first introduced into England in

4500-442: Is a general tax levied periodically on residents who own personal property (personalty) within the jurisdiction. Vehicle and boat registration fees are subsets of this kind of tax. The tax is often designed with blanket coverage and large exceptions for things like food and clothing. Household goods are often exempt when kept or used within the household. Any otherwise non-exempt object can lose its exemption if regularly kept outside

4625-589: Is a tax on the consumption of carbon-based non-renewable fuels, such as petrol, diesel-fuel, jet fuels, and natural gas. The object is to reduce the release of carbon into the atmosphere. In the United Kingdom, vehicle excise duty is an annual tax on vehicle ownership. An import or export tariff (also called customs duty or impost) is a charge for the movement of goods through a political border. Tariffs discourage trade , and they may be used by governments to protect domestic industries. A proportion of tariff revenues

4750-426: Is also possible to levy a tax on tax, as with a gross receipts tax . In economic terms ( circular flow of income ), taxation transfers wealth from households or businesses to the government. This affects economic growth and welfare , which can be increased (known as fiscal multiplier ) or decreased (known as excess burden of taxation ). Consequently, taxation is a highly debated topic by some, as although taxation

4875-440: Is an ad valorem tax levy on the value of a property that the owner of the property is required to pay to a government in which the property is situated. Multiple jurisdictions may tax the same property. There are three general varieties of property: land, improvements to land (immovable human-made things, e.g. buildings), and personal property (movable things). Real estate or realty is the combination of land and improvements to

5000-484: Is considered the most viable option to operate the government (instead of widespread state ownership of the means of production ), as taxation enables the government to generate revenue without heavily interfering with the market and private businesses; taxation preserves the efficiency and productivity of the private sector by allowing individuals and companies to make their own economic decisions, engage in flexible production , competition , and innovation as

5125-433: Is deemed necessary by consensus for society to function and grow in an orderly and equitable manner through the government provision of public goods and public services , others such as libertarians and anarcho-capitalists are anti-taxation and denounce taxation broadly or in its entirety, classifying taxation as theft or extortion through coercion along with the use of force . Within market economies, taxation

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5250-464: Is economically justified, as it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do. When real estate is held by a higher government unit or some other entity not subject to taxation by the local government, the taxing authority may receive a payment in lieu of taxes to compensate it for some or all of the foregone tax revenues. In many jurisdictions (including many American states), there

5375-495: Is generally a gain on sale of capital assets—that is, those assets not held for sale in the ordinary course of business. Capital assets include personal assets in many jurisdictions. Some jurisdictions provide preferential rates of tax or only partial taxation for capital gains. Some jurisdictions impose different rates or levels of capital-gains taxation based on the length of time the asset was held. Because tax rates are often much lower for capital gains than for ordinary income, there

5500-465: Is imported by a machine manufacturer. That manufacturer will pay the VAT on the purchase price, remitting that amount to the government. The manufacturer will then transform the steel into a machine, selling the machine for a higher price to a wholesale distributor. The manufacturer will collect the VAT on the higher price but will remit to the government only the excess related to the "value-added" (the price over

5625-506: Is levied according to the energy content of a fuel or the value of an energy product, which may or may not be consistent with the emitted greenhouse gas amounts and their respective global warming potentials . Studies indicate that to reduce emissions by a certain amount, ad valorem energy taxes would be more costly than carbon taxes. However, although greenhouse gas emissions are an externality, using energy services may result in other negative externalities, e.g., air pollution not covered by

5750-537: Is named FairTax . In Canada, the federal sales tax is called the Goods and Services Tax (GST) and now stands at 5%. The provinces of British Columbia, Saskatchewan, Manitoba, and Prince Edward Island also have a provincial sales tax [PST]. The provinces of Nova Scotia, New Brunswick, Newfoundland & Labrador, and Ontario have harmonized their provincial sales taxes with the GST—Harmonized Sales Tax [HST], and thus

5875-483: Is no consensus among the academic literature to designate if direct taxation is more efficient or not. Earlier works based on static models favour direct taxation whereas the recent literature, based on neoclassical growth models, shows that indirect taxation is more efficient. The conclusions of these debates are that the answers are mostly conjectural, depending on the economic structure. Contrary to indirect taxes such as value-added taxes, direct taxes can be adjusted to

6000-519: Is not a direct tax, reasoning that the tax is neither a tax on property, nor a capitation in that “it is triggered by specific circumstances” rather than levied “‘without regard to property, profession, or any other circumstance. ’” In the United States , the Constitution requires that direct taxes imposed by the national government be apportioned among the states on the basis of population. After

6125-528: Is often hypothecated to pay the government to maintain a navy or border police. The classic ways of cheating a tariff are smuggling or declaring a false value of goods. Tax, tariff and trade rules in modern times are usually set together because of their common impact on industrial policy , investment policy , and agricultural policy . A trade bloc is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other, and possibly to impose protective tariffs on imports from outside

6250-471: Is often imposed based on a deemed disposition of all the individual's property. One example is the United States under the American Jobs Creation Act , where any individual who has a net worth of $ 2 million or an average income-tax liability of $ 127,000 who renounces his or her citizenship and leaves the country is automatically assumed to have done so for tax avoidance reasons and is subject to

6375-486: Is sometimes called a net wealth tax . Recurrent property taxes may be imposed on immovable property (real property) and on some classes of movable property. In addition, recurrent taxes may be imposed on the net wealth of individuals or corporations. Many jurisdictions impose inheritance tax on property at time of inheritance or gift tax at the time of gift transfer. Some jurisdictions impose taxes on financial or capital transactions . A property tax (or millage tax)

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6500-403: Is taxed differently depending on their income. Another advantage of direct taxation is that the government and the taxpayer know the amount they will receive and they pay, even before the collection of the tax. Direct taxation and in particular income tax act as automatic stabilizers. Some direct taxes are easy to collect for the government and the fiscal administration because they are collected at

6625-567: Is that human-induced greenhouse gas emissions are the primary cause of climate change , and that carbon dioxide is the most important of the anthropogenic greenhouse gases. Worldwide, 27 billion tonnes of carbon dioxide are produced by human activity annually. The physical effect of CO 2 in the atmosphere can be measured as a change in the Earth-atmosphere system's energy balance – the radiative forcing of CO 2 . Different greenhouse gases have different physical properties:

6750-439: Is the value of a good, service, or property. Sales taxes, tariffs, property taxes, inheritance taxes, and value-added taxes are different types of ad valorem tax. An ad valorem tax is typically imposed at the time of a transaction (sales tax or value-added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). In contrast to ad valorem taxation

6875-399: Is to reduce the environmental impact by repricing . Economists describe environmental impacts as negative externalities . As early as 1920, Arthur Pigou suggested a tax to deal with externalities (see also the section on Increased economic welfare below). The proper implementation of environmental taxes has been the subject of a long-lasting debate. An important feature of tax systems is

7000-412: Is widespread controversy and dispute about the proper definition of capital. Corporate tax refers to income tax, capital tax, net-worth tax, or other taxes imposed on corporations. Rates of tax and the taxable base for corporations may differ from those for individuals or for other taxable persons. Many countries provide publicly funded retirement or healthcare systems. In connection with these systems,

7125-627: The United States Court of Appeals for the Sixth Circuit to be “in full accordance with Congressional authority under the Sixteenth Amendment to the Constitution to impose taxes on income without apportionment among the states”; taxpayer's argument that wages paid for labor are non-taxable was rejected by the Court, and ruled frivolous). Direct tax is a form of collecting taxes applicable on

7250-474: The United States Court of Appeals for the Third Circuit ; taxpayer's argument—that because of the Sixteenth Amendment, wages were not taxable—was rejected by the Court; taxpayer's argument that an income tax on wages is required to be apportioned by population also rejected); Perkins v. Commissioner , 746 F.2d 1187, 84-2 U.S. Tax Cas. (CCH) paragr. 9898 (6th Cir. 1984) ( 26 U.S.C.   § 61 ruled by

7375-472: The customs house , and revenue derived from that source is called excise revenue proper. The fundamental conception of the term is that of a tax on articles produced or manufactured in a country. In the taxation of such articles of luxury as spirits , beer, tobacco, and cigars, it has been the practice to place a certain duty on the importation of these articles (a customs duty ). Excises (or exemptions from them) are also used to modify consumption patterns of

7500-402: The elderly , unemployment benefits , transfer payments , subsidies and public transportation . Energy , water and waste management systems are also common public utilities . According to the proponents of the chartalist theory of money creation , taxes are not needed for government revenue, as long as the government in question is able to issue fiat money . According to this view,

7625-443: The global warming potential is an internationally accepted scale of equivalence for other greenhouse gases in units of tonnes of carbon dioxide equivalent . Carbon taxes are designed to reduce greenhouse gas emissions by increasing prices of the fossil fuels that emit them when burned. This both decreases demand for goods and services that produce high emissions and incentivizes making them less carbon-intensive . A carbon tax

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7750-466: The margin to reduce their emissions. This is an advantage over a tax that exempts or has reduced rates for certain sectors. Both carbon taxes and trading systems aim to reduce emissions by creating a price for emitting CO 2 . In the absence of uncertainty both systems will result in the efficient market quantity and price of CO 2 . When the environmental damage and therefore the appropriate tax of each unit of CO 2 cannot be accurately calculated,

7875-496: The 1895 Pollock ruling that taxes on income from property should be treated as direct taxes, this provision made it difficult for Congress to impose a national income tax that applied to all forms of income until the Sixteenth Amendment was ratified in 1913. Since then, Federal income taxes have been subject to the rule of uniformity but not the rule of apportionment. Before then, the principal sources of revenue for

8000-574: The District of Columbia Circuit has stated: “Only three taxes are definitely known to be direct: (1) a capitation [...], (2) a tax upon real property, and (3) a tax upon personal property.” In National Federation of Independent Business v. Sebelius , the Supreme Court held that the ObamaCare penalty imposed upon individuals for failure to possess health insurance, though a tax for constitutional purposes,

8125-582: The Netherlands, Norway, Slovenia, Sweden, Switzerland, and the UK. None of these countries have been able to introduce a uniform carbon tax for fuels in all sectors. Denmark is the first country to include livestock emissions in their carbon tax system. During the 1990s, a carbon/energy tax was proposed at the EU level but failed due to industrial lobbying. In 2010, the European Commission considered implementing

8250-452: The United States, the term “direct tax” has acquired specific meaning under constitutional law: a direct tax includes taxes on property by reason of ownership (such as an ordinary real estate property tax imposed on the person owning the property as of January 1 of each year) as well as capitations . Income taxes on income from personal services such as wages are indirect taxes in this sense. The United States Court of Appeals for

8375-473: The ability to pay of the taxpayer according to their status (income, age...). So, direct taxes can be progressive (the tax rate increases as the taxable amount increases), proportional (the tax rate is fixed, it does not change when the taxable base amount increases or decreases) or regressive (the tax rate decreases as the taxable amount increases) according to their structure. It differs from indirect taxes which are generally regressive because everyone pays

8500-489: The above states, only Alaska and New Hampshire do not levy a state sales tax. Additional information can be obtained at the Federation of Tax Administrators website. In the United States, there is a growing movement for the replacement of all federal payroll and income taxes (both corporate and personal) with a national retail sales tax and monthly tax rebate to households of citizens and legal resident aliens. The tax proposal

8625-557: The absence of an increase in social benefits and tax credits, a carbon tax would hit poor households harder than rich households. Gilbert E. Metcalf disputed that carbon taxes would be regressive in the US. Carbon taxes can increase electricity prices. There is a debate about the relation between carbon pricing (like carbon emission trading and carbon tax) and climate justice . Carbon pricing can be adjusted to some principles of climate justice like polluters pay . Many proponents of climate justice object to carbon pricing. To close

8750-485: The arts , public works , distribution , data collection and dissemination , public insurance , and the operation of government itself. A government's ability to raise taxes is called its fiscal capacity . When expenditures exceed tax revenue , a government accumulates government debt . A portion of taxes may be used to service past debts. Governments also use taxes to fund welfare and public services . These services can include education systems , pensions for

8875-422: The average tax rate increases also. This mechanism of progressive taxation participates to the stabilization of the economy, another function of the government in the works of Musgrave (stabilization branch of the government which prevents major fluctuations in real GDP). When incomes fall, tax revenues fall too (and in the case of progressive taxation, even tax rates drop also) reducing tax burden on taxpayers. In

9000-440: The basis of the person's very life or existence, or a property tax which is imposed upon the owner by virtue of ownership, rather than commercial use. Some commentators have argued that the distinction rests on whether the burden of taxation can be shifted from one legal person to another. Direct taxes are thought to be borne and paid by the same person. The person who pays the amount of direct tax does not recover all or part of

9125-710: The benefits of a U.S. carbon tax along with suggestions for how it could be developed. One recommendation is to return revenues generated by a tax to the general public. The statement was originally signed by 45 Nobel Prize winning economists, former chairs of the Federal Reserve , former chairs of the CEA , and former secretaries of the Treasury Department . It has been recognized as a historic example of consensus amongst economists. Ben Ho, professor of economics at Vassar College , has argued that "while carbon taxes are part of

9250-412: The bloc. A customs union has a common external tariff , and the participating countries share the revenues from tariffs on goods entering the customs union. In some societies, tariffs also could be imposed by local authorities on the movement of goods between regions (or via specific internal gateways). A notable example is the likin , which became an important revenue source for local governments in

9375-475: The carbon tax (such as ammonia or fine particles ). A combined carbon-energy tax may therefore be better at reducing air pollution than a carbon tax alone. Any of these taxes can be combined with a rebate , where the money collected by the tax is returned to qualifying parties, taxing heavy emitters and subsidizing those that emit less carbon. Because carbon taxes only target carbon dioxide, they do not target other greenhouse gasses, such as methane, which have

9500-570: The case of parent companies and subsidiaries of different member states (to avoid withholding tax when the dividend qualifies for application of the EC Parent-Subsidiary Directive, the financial transaction tax, interest and royalty payments made between associated companies and elimination of double taxation if the payment qualifies for application of the EC Interest and Royalties Directive. Regarding direct taxation for individuals,

9625-553: The coming years, including Singapore, Canada and South Africa. Current carbon price policies, including carbon taxes, are still considered insufficient to create the kinds of changes in emissions that would be consistent with Paris Agreement goals. The International Monetary Fund, OECD, and others have stated that current fossil fuel prices generally fail to reflect environmental impacts. In Europe, many countries have imposed energy taxes or energy taxes based partly on carbon content. These include Denmark, Finland, Germany, Ireland, Italy,

9750-404: The cost of the sheet steel). The wholesale distributor will then continue the process, charging the retail distributor the VAT on the entire price to the retailer, but remitting only the amount related to the distribution mark-up to the government. The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT. For a VAT and sales tax of identical rates,

9875-407: The country typically requires employers or employees to make compulsory payments. These payments are often computed by reference to wages or earnings from self-employment. Tax rates are generally fixed, but a different rate may be imposed on employers than on employees. Some systems provide an upper limit on earnings subject to the tax. A few systems provide that the tax is payable only on wages above

10000-469: The direct tax was a paramount concern of people in the 18th century seeking to escape tyrannical forms of government and to safeguard individual liberty. In The Wealth of Nations , Adam Smith was the first to extensively discuss in English the distinction between direct and indirect taxation by those names, as in the following passage : It is thus that a tax upon the necessaries of life operates exactly in

10125-422: The effect of discouraging speculative purchases of assets by decreasing liquidity. In the United States , transfer tax is often charged by the state or local government and (in the case of real property transfers) can be tied to the recording of the deed or other transfer documents. Some countries' governments will require a declaration of the taxpayers' balance sheet (assets and liabilities), and from that exact

10250-503: The efficiency gains. A 2018 survey of leading economists found that 58% of the surveyed economists agreed with the assertion, "Carbon taxes are a better way to implement climate policy than cap-and-trade," 31% stated that they had no opinion or that it was uncertain, but none of the respondents disagreed. In a review study in 1996 the authors concluded that the choice between an international quota (cap) system, or an international carbon tax, remained ambiguous. Another study in 2012 compared

10375-460: The estates of the deceased. In contrast with a tax on real estate (land and buildings), a land-value tax (or LVT) is levied only on the unimproved value of the land ("land" in this instance may mean either the economic term, i.e., all-natural resources, or the natural resources associated with specific areas of the Earth's surface: "lots" or "land parcels"). Proponents of the land-value tax argue that it

10500-675: The federal government were excise taxes and customs duties. Their importance thus decreased during the twentieth century and the main federal government's resources have become individual income taxes and payroll taxes. Other evolutions were observed at the local and state level with a decrease of importance of property taxes whereas income and sale taxes became more important. In the context of income taxes on wages, salaries and other forms of compensation for personal services, see, e.g., United States v. Connor , 898 F.2d 942, 90-1 U.S. Tax Cas. (CCH) paragr. 50,166 (3d Cir. 1990) (tax evasion conviction under 26 U.S.C.   § 7201 affirmed by

10625-473: The gap between the two concepts, carbon pricing could put a cap on emissions, remove pollution from underserved communities, and justly divide revenues. Since carbon taxation was first proposed, numerous economists have described its strengths as a means of reducing CO2 pollution. This tax has been praised as "a far better way to control pollution than the present method of specific regulation." It has also been lauded for its market based simplicity. This includes

10750-525: The general public by the means of their personal income and wealth generated and collected through formal channels and worthy government credentials such as Permanent account number and bank account details. Section 2(c) of the Central Boards of Revenue Act, 1963 of India defines "direct tax" as follows: Tax policy in the European Union (EU) consists of two components: direct taxation, which remains

10875-756: The government expenditure of taxes raised is often highly debated in politics and economics . Tax collection is performed by a government agency such as the Internal Revenue Service (IRS) in the United States , His Majesty's Revenue and Customs (HMRC) in the United Kingdom , the Canada Revenue Agency or the Australian Taxation Office . When taxes are not fully paid, the state may impose civil penalties (such as fines or forfeiture ) or criminal penalties (such as incarceration ) on

11000-425: The hardest and making their necessities more expensive (for instance, the tax might drive up prices for, say, petrol and electricity). Alternatively, the tax can be too conservative, making "comparatively small dents in overall emissions". To make carbon taxes fairer, policymakers can try to redistribute the revenue generated from carbon taxes to low-income groups by various fiscal means. Such a policy initiative becomes

11125-506: The household. Thus, tax collectors often monitor newspaper articles for stories about wealthy people who have lent art to museums for public display, because the artworks have then become subject to personal property tax. If an artwork had to be sent to another state for some touch-ups, it may have become subject to personal property tax in that state as well. Inheritance tax, also called estate tax, are taxes that arise for inheritance or inherited income. In United States tax law , there

11250-458: The individual characteristics of the taxpayer, whereas indirect taxes are levied on transactions irrespective of the circumstances of buyer or seller." According to this definition, for example, income tax is "direct", and sales tax is "indirect". Direct tax In general, a direct tax is one imposed upon an individual person ( juristic or natural ) or property (i.e. real and personal property, livestock, crops, wages, etc.) as distinct from

11375-461: The issue, economist Arthur Pigou proposed taxing the goods (in this case hydrocarbon fuels), that were the source of the externality ( CO 2 ) so as to accurately reflect the cost of the goods to society, thereby internalizing the production costs. A tax on a negative externality is called a Pigovian tax , which should equal the cost. Within Pigou's framework, the changes involved are marginal, and

11500-512: The jurisdiction, which tax-law principles in the jurisdiction may modify or replace. The incidence of taxation varies by system, and some systems may be viewed as progressive or regressive . Rates of tax may vary or be constant (flat) by income level. Many systems allow individuals certain personal allowances and other non-business reductions to taxable income, although business deductions tend to be favored over personal deductions. Tax-collection agencies often collect personal income tax on

11625-730: The land. Property taxes are usually charged on a recurrent basis (e.g., yearly). A common type of property tax is an annual charge on the ownership of real estate , where the tax base is the estimated value of the property. For a period of over 150 years from 1695, the government of England levied a window tax , with the result that one can still see listed buildings with windows bricked up in order to save their owner's money. A similar tax on hearths existed in France and elsewhere, with similar results. The two most common types of event-driven property taxes are stamp duty , charged upon change of ownership, and inheritance tax , which many countries impose on

11750-504: The late Qing China . Occupational taxes or license fees may be imposed on businesses or individuals engaged in certain businesses. Many jurisdictions impose a tax on vehicles. A poll tax, also called a per capita tax , or capitation tax , is a tax that levies a set amount per individual. It is an example of the concept of fixed tax . One of the earliest taxes mentioned in the Bible of a half-shekel per annum from each adult Jew (Ex. 30:11–16)

11875-475: The loss, such that business losses can only be deducted against business income tax by carrying forward the loss to later tax years. In economics, a negative income tax (abbreviated NIT) is a progressive income tax system where people earning below a certain amount receive supplemental payment from the government instead of paying taxes to the government. Most jurisdictions imposing an income tax treat capital gains as part of income subject to tax. Capital gain

12000-421: The most efficient (lowest cost) way to tackle climate change . As of 2019, carbon taxes have either been implemented or are scheduled for implementation in 25 countries. 46 countries have put some form of price on carbon , either through carbon taxes or carbon emission trading schemes. Some experts point out that a carbon tax can negatively affect public welfare, tending to hit low- and middle-income households

12125-411: The nature of despotism, that it has ever been a favorite under such governments. ... The power of direct taxation will further apply to every individual ... however oppressive, the people will have but this alternative, either to pay the tax, or let their property be taken for all resistance will be vain. Direct taxation can apply on income or on wealth (property tax; estate tax or wealth tax). Here below

12250-586: The non-paying entity or individual. The levying of taxes aims to raise revenue to fund governing , to alter prices in order to affect demand , or to regulate some form of cost or benefit . States and their functional equivalents throughout history have used the money provided by taxation to carry out many functions. Some of these include expenditures on economic infrastructure ( roads , public transportation , sanitation , legal systems , public security , public education , public health systems ), military , scientific research & development , culture and

12375-620: The optimal portfolio of policies to fight climate change, they are not the most important part." In some instances knowledge about how carbon tax revenues are used can affect public support. Dedicating revenues to climate projects and compensating low income housing have been found to be popular uses of revenue. However, providing information about specific revenue uses in countries that have implemented carbon taxes has been shown to have limited effectiveness in increasing public support. A 2021 poll conducted by GlobeScan on 31 countries and territories found that 62 percent on average are supportive of

12500-417: The percentage of the tax burden as it relates to income or consumption. The terms progressive, regressive, and proportional are used to describe the way the rate progresses from low to high, from high to low, or proportionally. The terms describe a distribution effect, which can be applied to any type of tax system (income or consumption) that meets the definition. The terms can also be used to apply meaning to

12625-441: The public in order to garner support. Citizens' Climate Lobby is an international organization with over 500 chapters. It advocates for carbon tax legislation in the form of a progressive fee and dividend structure. NASA climatologist James E. Hansen has also spoken in favor of a revenue neutral carbon fee. Since 2019 over 3,500 U.S. economists have signed The Economists' Statement on Carbon Dividends . This statement describes

12750-458: The public sector are comparable to prices. Examples include tuition at public universities and fees for utilities provided by local governments. Governments also obtain resources by "creating" money and coins (for example, by printing bills and by minting coins), through voluntary gifts (for example, contributions to public universities and museums), by imposing penalties (such as traffic fines ), by borrowing and confiscating criminal proceeds. From

12875-595: The purchase of any additional permits. This drove permit prices to nearly zero two years later, crashing the system and requiring reforms that would eventually appear in EUETS Phase 3. The distinction between carbon taxes and permit systems can get blurred when hybrid systems are allowed. A hybrid sets limits on price movements, potentially softening the cap. When the price gets too high, the issuing authority issues additional permits at that price. A price floor may be breached when emissions are so low that no one needs to buy

13000-440: The purpose of taxation is to maintain the stability of the currency, express public policy regarding the distribution of wealth, subsidizing certain industries or population groups or isolating the costs of certain benefits, such as highways or social security. The Organisation for Economic Co-operation and Development (OECD) publishes an analysis of the tax systems of member countries. As part of such analysis, OECD has developed

13125-509: The reduction of inequalities and correcting difference in living standards among the population. Another effect of a progressive direct taxation is that such tax structure act as automatic stabilizers when prices are stable. Indeed, when incomes (in the example of a progressive income tax) decrease, as a result of recession, the average tax rate is reduced – individuals have to face lower tax rates because their earnings and their incomes have been reduced. And similarly, when incomes are increasing,

13250-602: The regulation of emissions in one country/sector pushes those emissions to other places that with less regulation. Leakage effects can be both negative (i.e., increasing the effectiveness of reducing overall emissions) and positive (reducing the effectiveness of reducing overall emissions). Negative leakages, which are desirable, can be referred to as "spill-over". According to one study, short-term leakage effects need to be judged against long-term effects. A policy that, for example, establishes carbon taxes only in developed countries might leak emissions to developing countries. However,

13375-498: The review of the European Union's third carbon leakage list. Research shows that carbon taxes effectively reduce greenhouse gas emissions. Most economists assert that carbon taxes are the most efficient and effective way to curb climate change, with the least adverse economic effects. One study found that Sweden's carbon tax successfully reduced carbon dioxide emissions from transport by 11%. A 2015 British Columbia study found that

13500-484: The right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation occurred in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as labor equivalent. All countries have a tax system in place to pay for public, common societal, or agreed national needs and for the functions of government. Some countries levy

13625-427: The risk of being regressive , and sparking backlash among the public due to an increased cost of energy associated with such taxes. To avoid this and increase the popularity of a carbon tax, a government may make the carbon tax revenue-neutral. This can be done by reducing income tax proportionate to the level of the carbon tax, or by returning carbon tax revenues to citizens as a dividend. Carbon leakage happens when

13750-476: The same amount regardless of ability to pay (meaning the burden of the tax is greater for the poorer than for the richer). Moreover, direct taxation are transfers which can have a redistributive preoccupation (combined with the will of increasing tax revenue). Indeed, taxation is a main tool of the redistributive function of the government identified by Richard Musgrave in his The Theory of Public Finance (1959). A progressive direct taxation could participate in

13875-520: The same manner as a direct tax upon the wages of labour. ... if he is a manufacturer, will charge upon the price of his goods this rise of wages, together with a profit; so that the final payment of the tax, together with this overcharge, will fall upon the consumer. Justice William Paterson quotes Smith approvingly, noting that indirect taxes are “circuitous modes of reaching the revenue of individuals,” which implies that direct taxes are those which are not circuitous. The Pennsylvania Minority ,

14000-413: The size of the externality is assumed to be small enough not to distort the economy. Climate change is claimed to result in catastrophe (non-marginal) changes. "Non-marginal" means that the impact could significantly reduce the growth rate in income and welfare. The amount of resources that should be devoted to climate change mitigation is controversial. Policies designed to reduce carbon emissions could have

14125-426: The sole responsibility of member states, and indirect taxation , which affects free movement of goods and the freedom to provide services. With regard to European Union direct taxes , Member States have taken measures to prevent tax avoidance and double taxation. EU direct taxation covers, regarding companies, the following policies: the common consolidated corporate tax base, the common system of taxation applicable in

14250-411: The source. Yet, tax collection can be expensive depending on the efficiency of the fiscal administration. Running the tax collection office has some administrative costs (keeping the records of incomes of the population for example), in particular when different tax rates are applied. Moreover, direct taxes can be evaded (tax evasion affects mainly direct taxes) whereas indirect taxes cannot be evaded (when

14375-410: The supply of people is in fact not fixed over time: on average, couples will choose to have fewer children if a poll tax is imposed. The introduction of a poll tax in medieval England was the primary cause of the 1381 Peasants' Revolt . Scotland was the first to be used to test the new poll tax in 1989 with England and Wales in 1990. The change from progressive local taxation based on property values to

14500-402: The tax elsewhere. It is in this sense that direct taxation is opposed to indirect taxation. It is the notion of fiscal incidence which allows to analyse who ultimately, weights the burden of a tax, that determines whether the tax is direct or indirect. Direct taxation is generally declarative (established either by the person concerned or by a third party). The unconditional, inexorable aspect of

14625-407: The tax is implemented in combination with exemptions. Indirect carbon prices, such as fuel taxes, are much more common than carbon taxes . In 2021, OECD reported that 67 of the 71 countries it assessed had some form of fuel tax. Only 39 had carbon taxes or ETSs. However, the use of carbon taxes is growing more quickly. In addition, several countries plan to further strengthen existing carbon taxes in

14750-516: The taxation of select consumption, such as a tax on luxury goods and the exemption of basic necessities may be described as having progressive effects as it increases a tax burden on high end consumption and decreases a tax burden on low end consumption. Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of these terms can vary in different contexts, which can sometimes lead to confusion. An economic definition, by Atkinson, states that "...direct taxes may be adjusted to

14875-408: The taxed transaction occurs, it is not possible to avoid the burden of the tax). Direct taxes decrease the savings and earnings of individuals and firms. Indirect taxation however make goods and services more expensive (the burden of the tax is reflected in the prices). Contrary to indirect taxation which leads to inflation (increasing of the prices), direct taxes can help to reduce inflation. There

15000-700: The taxes reduced greenhouse gas emissions by 5–15% while having negligible overall economic effects. A 2017 British Columbia study found that industries on the whole benefited from the tax and "small but statistically significant 0.74 percent annual increases in employment" but that carbon-intensive and trade-sensitive industries were adversely affected. A 2020 study of carbon taxes in wealthy democracies showed that carbon taxes had not limited economic growth. Carbon taxes appear to not adversely affect employment or GDP growth in Europe. Their economic impact ranges from zero to modest positive. A number of studies have found that in

15125-405: The total payroll. These taxes may be imposed in both the country and sub-country levels. A wealth tax is levied on the total value of personal assets, including: bank deposits, real estate, assets in insurance and pension plans, ownership of unincorporated businesses , financial securities , and personal trusts. Liabilities (primarily mortgages and other loans) are typically deducted, hence it

15250-672: The total tax paid is the same, but it is paid at differing points in the process. VAT is usually administrated by requiring the company to complete a VAT return, giving details of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred to as output tax). The difference between output tax and input tax is payable to the Local Tax Authority. Many tax authorities have introduced automated VAT which has increased accountability and auditability , by utilizing computer systems, thereby also enabling anti-cybercrime offices as well. Sales taxes are levied when

15375-443: The view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the public sector , levied on a basis of predetermined criteria and without reference to specific benefits received. In modern taxation systems, governments levy taxes in money; but in-kind and corvée taxation are characteristic of traditional or pre- capitalist states and their functional equivalents. The method of taxation and

15500-509: The year 1643, as part of a scheme of revenue and taxation devised by parliamentarian John Pym and approved by the Long Parliament . These duties consisted of charges on beer, ale, cider, cherry wine, and tobacco, to which list were afterward added paper, soap, candles, malt, hops, and sweets. The basic principle of excise duties was that they were taxes on the production, manufacture, or distribution of articles which could not be taxed through

15625-443: Was a form of the poll tax. Poll taxes are administratively cheap because they are easy to compute and collect and difficult to cheat. Economists have considered poll taxes economically efficient because people are presumed to be in fixed supply and poll taxes, therefore, do not lead to economic distortions. However, poll taxes are very unpopular because poorer people pay a higher proportion of their income than richer people. In addition,

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