Carbon tax hurts the economy --- brings down wages, hurts labor, and increases prices of goods and services

(Congressional Budget Office, “Effects of a Carbon Tax on the Economy and the Environment,” pg online @ https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/Carbon_One-Column.pdf //um-ef)

The primary costs of a carbon tax would consist mainly of two types of economic consequences: output effects and substitution effects. Output effects would occur when higher fossil-fuel prices reduced real wages and the profits on investment, causing the economy’s total output to be lower than it would be otherwise. Substitution effects would occur when shifts in the mix of goods and services consumed, and in the way those goods and services were produced, changed the relative demand for labor and for physical capital (such as factories and heavy equipment used to produce electricity). Those changes would further affect real wages and profits on investment. Output Effects. A carbon tax would reduce the economy’s output by decreasing two things necessary to produce goods and services: the supply of labor and the amount of investment (see Figure1).10 In the case of labor, increases in fossil-fuel prices, and resulting increases in prices of goods and services, would diminish the purchasing power of people’s earnings—that is, real wages would fall. The decline in real wages would have the net effect of causing people to work less, thus reducing the overall supply of labor. The impact of lower real wages on the supply of labor is the net result of two countervailing forces: On the one hand, lower wages provide an incentive for people to work less and spend more time on activities that do not generate earnings—for example, one parent might choose to stay home with children rather than work outside the home because lower earnings would no longer make outside employment worthwhile. On the other hand, because lower wages reduce people’s after-tax income, they create an incentive for people to work more to maintain the same standard of living. Research studies indicate that the first effect generally outweighs the second effect and that, overall, taxes that reduce real wages also reduce the labor supply.