Question

Coal-fired power plants like Duke, Southern, and the Tennessee Valley Authority are charged a carbon tax for using coal as a fuel source. Coal emits the most greenhouse gases when it burns. Each household serviced by these plants is taxed an additional $1,400.

a) Calculate the percentage increase in energy cost, due to the carbon tax, for a family of four making $28,000 per year?

%__________________

b) Calculate the percentage increase in energy cost, due to the carbon tax, for a family of four making $56,000 per year?

%____________

c) Based on this, you conclude that the carbon tax is which type of tax?

• Progressive

• Aggressive

• Regressive

Answer 1

1) Due to the additional carbon tax of $1400 the percentage increase in energy cost will be 5%. Because initially the family was initially making $28,000 per year. So 5% of 28000 will be $1400.

Answer: 5%

2) In a family where the family was making$56,000 per year then this increase of $1400 as carbon tax will increase the energy cost by 2.5%. Because 2.5% of $56,000 will be $1400. So there will be 2.5% increase in energy cost.

Answer: 2.5%

3) Based on the above calculation we can see that as family of four making more they are paying less percentage of tax. It means higher the family making per year less percentage as tax they are giving. So it is regressive tax. Because in regressive tax the proportion of tax decreases with increase in family energy cost. Higher energy cost family is giving less proportion as additional tax. So it is a regressive tax. In progressive tax proportion of tax becomes low with low energy cost and high with high energy cost.