The federal budget deficit has exceeded $1 trillion annually in each fiscal year since 2009, and deficits are projected to continue. Over time, unsustainable deficits can lead to reduced savings for investment, higher interest rates, and higher levels of inflation. Restoring fiscal balance would require spending reductions, revenue increases, or some combination of the two. Policymakers have considered a number of options for raising additional federal revenues, including a carbon tax. A carbon tax could apply directly to carbon dioxide (CO2) and other greenhouse gas (GHG) emissions, or to the inputs (e.g., fossil fuels) that lead to the emissions. Unlike a tax on the energy content of each fuel (e.g., Btu tax), a carbon tax would vary with a fuel's carbon content, as there is a direct correlation between a fuel's carbon content and its CO2 emissions. Carbon taxes have been proposed for many years by economists and some Members of Congress, including in the 112th Congress. If Congress were to establish a carbon tax, policymakers would face several implementation decisions, including the point and rate of taxation. Although the point of taxation does not necessarily reveal who bears the cost of the tax, this decision involves trade-offs, such as comprehensiveness versus administrative complexity. Several economic approaches could inform the debate over the tax rate. Congress could set a tax rate designed to accrue a specific amount of revenues. Some would recommend setting the tax rate based on estimated benefits associated with avoiding climate change impacts. Alternatively, Congress could set a tax rate based on the carbon prices estimated to meet a specific GHG emissions target. Carbon tax revenues would vary greatly depending on the design features of the tax, as well as market factors that are difficult to predict. One study estimated that a tax rate of $20 per metric ton of CO2 would generate approximately $88 billion in 2012, rising to $144 billion by 2020. The impact such an amount would have on budget deficits depends on which budget deficit projection is used. For example, this estimated revenue source would reduce the 10-year budget deficit by 50%, using the 2012 baseline projection of the Congressional Budget Office (CBO). However, under CBO's alternative fiscal scenario, the same carbon tax would reduce the 10-year budget deficit by about 12%. When deciding how to allocate revenues, policymakers would encounter key trade-offs: minimizing the costs of the carbon tax to "society" overall versus alleviating the costs borne by subgroups in the U.S. population or specific domestic industries. Economic studies indicate that using carbon tax revenues to offset reductions in existing taxes-labor, income, and investment-could yield the greatest benefit to the economy overall. However, the approaches that yield the largest overall benefit often impose disproportionate costs on lower-income households. In addition, carbon-intensive, trade-exposed industries may face a disproportionate impact within a unilateral carbon tax system. Policymakers could alleviate this burden through carbon tax revenue distribution or through a border adjustment mechanism. Both approaches may entail trade concerns.