The cost to households of raising $1 in carbon tax revenues is also much higher than $1. A carbon tax functions like a tax on labour and capital but is actually more distortionary since it is applied to the narrower base of carbon-intensive activities. As with taxes on personal and corporate income, the effect of a carbon tax is to cut capital investment, eliminate productive jobs, and reduce income growth — costs that, if they had been included in the PBO report, would have swamped the reported net gains to households.
By excluding these costs, the PBO report naturally describes an outcome in which most households benefit from the carbon tax-and-rebate system. Using the PBO’s methodology the most harmful and absurd taxes could be justified as creating net benefits for most households.