Carbon Tax Explained

Carbon Tax pic

Carbon Tax

Legal executive Michael Mundaca is the co-director of the National Tax Department at Ernst & Young (EY) in Washington, D.C. The former Assistant Secretary for Tax Policy at the U.S. Treasury Department, Michael Mundaca holds an LLM from the University of Miami and a JD from the University of California, Berkeley.

In recent years, the carbon tax has become an increasingly prominent discussion point among policymakers. Also known as the carbon dioxide tax or CO2 tax, the carbon tax is a fee levied on entities that use fossil fuels, and is generally based on the amount of carbon dioxide released into the atmosphere. Because the carbon content of a fuel is in general proportional to the amount of carbon released when the fuel is burned, carbon tax collectors generally tax the fuel itself.

Governments typically use carbon tax systems because they can be relatively simple to implement and can further important policy goals. However, a carbon tax provides no guarantee of emissions reductions, as companies that are willing to pay the tax need not cut back on their burning of fossil fuels. Nevertheless, even though this may be the case, a carbon tax provides a revenue stream for governments while creating an incentive for alternative fuels development.


Major Groups Affecting Tax Policy


World Trade Organization (WTO) Image:

World Trade Organization (WTO)

A legal professional and tax executive based in Washington, D.C., Michael Mundaca serves as co-director of the National Tax Department at Ernst & Young (EY). In his leadership role with the firm, Michael Mundaca draws upon his years of experience with tax policy formation to guide departmental strategy and in addition to advise clients.

Many factors contribute to the current political and economic climates that drive tax policy formation. In countries across the world, the recent focus on the economic effects of cross-border trading has exerted a major impact on tax and trade policy. Import taxes, also known as tariffs, are these days generally determined by agreements such as those administered by the World Trade Organization (WTO) and agreements such as the North American Free Trade Agreement (NAFTA) and the agreements among the member countries of the European Union (EU). Those agreements have recently been the subject of significant debate.

Governments establish tax and trade policy based on many different factors, ranging from efficiency and fairness to competitiveness and revenue needs. The media and members of the public advocate for various tax policies, while businesses often use trade organizations, lobbyists, and PACs to influence tax policy. Internationally, non-governmental organizations (NGOs) and supranational organizations have become increasingly involved in the tax and trade policy creation of governments around the world.

How Short-Term and Long-Term Capital Gains Taxes Are Levied

Michael Mundaca

Michael Mundaca

An experienced tax professional, Michael Mundaca is currently the co-director of the National Tax Department and the Americas Tax Center at Ernst & Young LLP. Previously the assistant secretary for tax policy at the U.S. Treasury, Michael Mundaca has taken part in the national debate on tax issues such as the capital gains tax.

The capital gains tax is the tax paid on profits from the sale of capital assets including shares, real estate, and artistic works. The profits are calculated as the difference between an asset’s selling price and its basis (in general, purchase price plus cost of improvement and commissions minus depreciation).

The tax is levied differently depending on whether the gains are considered long-term or short-term. The long-term capital gains tax is paid on assets sold at a profit after being held longer than one year. Short-term capital gains tax is paid on assets sold at a profit after being held for a year or less.

As of 2016, short-term capital gains do not benefit from any special tax rate; they are taxed the same as ordinary income. If, for example, a piece of land is sold at a profit after being held for one year, the profit generally will be treated as taxable income, and the applicable rate will depend on whether the seller falls into the 10-, 15-, 25-, 28-, 33-, 35-, or 39.6- percent tax range. A 3.8% tax on net investment income may also apply.

Long-term capital gains on most assets for tax payers in the 10 and 15 percent tax bracket are tax-free. Taxpayers in the 25 to 35 percent brackets will pay capital gains tax at a rate of 15 percent. For taxpayers in the 39.6 percent bracket, their capital gains rate is set at 20 percent. A 3.8% tax on net investment income may also apply.