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How The Dividend Gets Distributed

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This training provides a detailed look at how carbon dividends can be returned that addresses questions about the carbon fund, distribution framework, and taxability.
TOC and Guide Section
Highlights of The Dividend Study
  • Delivering the Dividend to just about every American household is feasible.
  • Direct payment of the Dividend to households is simpler, more stable, and less burdensome than paying it indirectly through wages and/or Social Security benefits.
  • Important details, including forms to apply for the Dividend, specify tax withholding, and reconcile changes in status are fully worked out and explained.
  • More than 95 percent of Dividends can be paid by direct bank deposits or funds added to government-issued debit cards, keeping costs low.
  • Impacts of several variations to key policy provisions are analyzed for their pros and cons.
What Is The Carbon Fund?
  • Destination of all Carbon Fees
  • Established by statute as a standalone account
  • Cannot be raided for general revenue
  • Does not “grow” government
How much money will be collected in the fund?

The Carbon Fund is where all the money collected from the carbon fee goes into. After taking out administrative costs the remaining money will be sent out as dividends. Let's look at the projected numbers:

  • The first year is projected to have a $15 per metric ton fee and is estimated to collect about $78 billion dollars. Out of that - administrative costs are estimated to be about $5 billion, leaving $73 billion for households (a little over 93 percent of the gross amount collected).
  • Year two with a $25 carbon fee, leads to about $139 billion going into the Carbon Fund. Administrative costs are estimated to still only total $5 billion, so that leaves $134 billion for households (just over 96 percent).
  • As years go by, the amount of the collected fees that goes back to taxpayers increases, so that by even year five with the carbon fee at $55 a metric ton (plus inflation) the projections have the fund collecting $291 billion gross and the administrative costs still pegging at about $5 billion. So the net total that goes out to households is $286 billion, more than 98 percent of the total amount.
The Dividend Delivery Study

To understand more information about the dividend distribution details, CCL hired a top expert to research all the ins and outs, pros and cons, and land mines that lurk in every policy.  Our expert, Allen Lerman, wrote this 54-page report: “Paying Dividends to United States Residents with the Revenue from the Carbon Fee.”

Who Receives The Money?
  • For Americans who file income taxes, the person whose name is at the top of the return gets the money for the family, including dependent children and the filer’s spouse if it’s a joint return.
  • Married couples filing separately would get separate payments.
  • Any other adults in a household who files their own tax returns get their own dividends.
  • For people who DON’T file a return, they have to send in a special form, which Lerman denotes “CFD-1”, which provides the system with necessary information.
  • Eligibility determined by status on last day of month.
  • Dividend would be taxable for income tax purposes but would not be income for various means-tested programs. 
What information is needed?
  • Besides getting information from the income tax returns of tax filers, residents would use up to three new forms to supply information.

1.A withholding form for residents who file tax returns –which would usually submitted only once.
2.An information and withholding form for residents who do NOT file tax returns – which would be submitted annually.
3.And, an annual reconciliation form that both filers and non-filers would use when -- but only when -- their monthly Dividend payments did not equal the amount to which they were entitled.
It is probable that providers of tax preparation software would include these new forms in their annual packages.  That would greatly reduce form completion and filing burdens for residents.

Determining The Dividend Amount
  • The size of the per resident Dividend would be determined from advance estimates of Carbon Fee revenue and the number of eligible residents.
  • The Dividend per adult would be the estimated Fee revenue divided by the number of adult-equivalent eligible residents.
  • Any aggregate over- or under-payments in a year would be handled by adjusting the per resident Dividend in a future year. 
How large would the Dividend Be?
  • Initially, the Dividend would be about $22 per month per adult and $11/month per child.
  • The Dividend would increase each year as the Carbon Fee increased, but the increase would be mitigated by reductions in fossil fuel usage.
  • After about 20 years, the monthly Dividend would be about $130 per adult and $65 per eligible child.
Distributional Framework
  • Eligibility:
  • Adults (19 and up) get a full share
  • Dependent minors (up to age 19) get a half share
  • Any U.S. resident with a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) qualifies
Who Handles It?
  • Four options considered:
  1. Internal Revenue Service
  2. Social Security Administration
  3. A new agency within the Treasury Department
  4. Private contractors working with Treasury
  • The Dividend Delivery report concluded that Option 4 is probably the most efficient AND politically viable, given the heavy load already borne by the IRS and SSA, and the severe allergy in Congress to starting a new agency. The IRS would still play a key role.
How is the Dividend Administered?
  • Here is a quick look at the IRS process:
  1. In tax season, tax payers file and non-tax payers file a special form CFD-5 to get in the database.
  2. The dividend payment amounts are determined for each recipient; monthly payments are made from the Carbon Trust Fund.
  3. Reconciliation of over- and underpayments are made in the following tax season.
  4. Cost is about $6 billion the first year and is about 2% of revenues as program becomes routine. 
What Are The Costs?
  • Major one-time costs: developing systems and software, procedures, recruiting and hiring staff 
  • Major ongoing costs: employees, office space, communications equipment, record keeping
  • Transaction-related costs: handling inquiries and resolving errors (depends on complexity of the problem and employee time to resolve). Frequency of payments not closely associated with costs
Form Of The Payment
  • How is the dividend payment actually made? It could be a direct deposit via the same kind of EFT that is used to pay out tax refunds. People could also get a Federally issued debit card. And finally, there’s always a paper check.
  • In actuality, all three methods would probably be used. Over 92% of taxpayers have bank accounts and thus could receive an EFT. Most of the “unbanked” Americans could get a Federally issued debit card or get the dividend included on an existing card. And a small number of people who don’t fall in either group would get a paper check.  
  • 92.3% of households have bank accounts for EFT. Most remaining can be handled via debit cards, with paper check as backup.
Taxability of the Dividends
  • One more issue that Lerman’s report covered: does the dividend count as taxable income? Some of our experts disagree about whether the policy is still revenue-neutral in this case. But it raises another question that’s important to Congress about compliance with a law called the PayGo Act, which says a bill cannot increase the federal deficit without offsetting spending cuts -- normally assumed to be 25% of the revenue.
  • CCL proposal requires 100% of Carbon Fee revenue to be distributed as Dividends. That is, the program should be revenue neutral.
  • Under the Statutory Pay-As-You-Go Act of 2010 (“Pay Go”) proposals such as the CCL’s that would increase the budget deficit must include offsets to make the overall proposal revenue neutral.
  • The Congressional Budget Office (CBO) interpretation suggests that making the Dividends taxable would fulfill the offset requirement (and achieve budget neutrality).
  • Carbon Dividend enacting legislation could exempt it from Pay-Go.
  • Currently CCL does not envision exemption. Thus, Dividends would be subject to income taxes.  However Dividends would not be considered as income under most social programs.
  • For more information here is CCL’s Laser Talk on PAYGO.
  • Lerman concludes that, essentially, there is no ‘right’ answer to this question. There is still ‘tension’ between competing imperatives around our promise to return all proceeds to households and the need to pass a bill. CCL’s position is that the dividend should be counted as regular taxable income for income tax purposes, but not for means testing. We expect scoring of the bill by the Congressional Budget Office to really be the key on this issue. 
  • Note that the Household Impacts Study assumed that the dividend IS taxable income. AND it’s also worth noting that the Republican proposal from the Climate Leadership Council ALSO recognizes the need for an offset, but satisfies it by holding BACK 25% of the revenue rather than making the dividend taxable.
  • ‘Tension’ exists between our promise to maximize payments to households and the need to pass Congress. CBO scoring will be key. 
  • CCL’s own estimate: Administrative Cost Laser Talk
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Intro & Agenda
(from beginning)

Policy Review & Background

Distributing the Dividend

Comparing with H.R. 763

Rick Knight

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To skip ahead to a specific section go to the time indicated in parenthesis.

Intro & Agenda 
(from beginning)

Policy Review & Background

Distributing the Dividend

Comparing with H.R. 763 

Rick Knight
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