SEC. 2. REDUCTION OF SOCIAL SECURITY TAXES; TAX ON 
COMBUSTIBLE FOSSIL FUELS. 
(a) IN GENERAL.—Chapter 38 of the Internal Rev-
enue Code of 1986 (relating to environmental taxes) is 
amended by adding at the end thereof the following new 
subchapter: 
‘‘Subchapter E—Reduction of Social Security 
Taxes; Tax on Combustible Fossil Fuels 
‘‘PART I. CARBON TAX REVENUES TO OFFSET SOCIAL SECURITY TAXES. 
‘‘PART II. TAX ON COMBUSTIBLE FOSSIL FUELS. 
‘‘PART III. TAX ON CERTAIN ADDITIONAL IMPORTED SUBSTANCES. 
‘‘PART IV. SUPERMAJORITY REQUIRED TO CHANGE REVENUE NEUTRALITY 
‘‘PART I—CARBON TAX REVENUES TO OFFSET 
SOCIAL SECURITY TAXES 
‘‘Sec. 4691. Disposition of revenues. 
‘‘SEC. 4691. DISPOSITION OF REVENUES. 
‘‘(a) AMOUNTS APPROPRIATED TO SOCIAL SECURITY 
TRUST FUNDS.— 
‘‘(1) IN GENERAL.—There are hereby appro-
priated to the social security trust funds an amount 
equal to the net revenues received in the Treasury 
from the taxes imposed by parts II and III. 
‘‘(2) ALLOCATION
AMONG
FUNDS.—Amounts 
shall be appropriated to such funds under paragraph 
(1) in the same proportions as amounts would (but 
for this subchapter) be appropriated to such funds 
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under the Social Security Act and the Railroad Re-
tirement Act of 1974. 
‘‘(b) REDUCTION IN SOCIAL SECURITY TAXES.— 
‘‘(1) IN GENERAL.—The rate of each social se-
curity tax for each calendar year (determined with-
out regard to this section) shall be reduced by the 
number of percentage points equal to— 
‘‘(A) such rate, multiplied by 
‘‘(B) the reduction percentage determined 
by the Secretary for such year. 
‘‘(2) REDUCTION PERCENTAGE.—The reduction 
percentage determined by the Secretary under para-
graph (1) for any calendar year shall be the highest 
percentage which the Secretary estimates will result 
in deposits into each trust fund equal to the amount 
which would (without regard to this section) be ap-
propriated to each trust fund for such year on ac-
count of social security taxes. 
‘‘(c) INCREASE IN PAYMENTS TO SOCIAL SECURITY 
RECIPIENTS FOR 2010 TO OFFSET COST OF CARBON TAX 
BEFORE TAX REFLECTED IN COST-OF-LIVING ADJUST-
MENTS.—The Secretary shall notify the Managing Trust-
ee of the Federal Old-Age and Survivors Insurance Trust 
Fund established under section 201 of the Social Security 
Act to increase the payments to which an individual is en-
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titled under section 205(i) of such Act for 2010 by the 
average cost of the taxes imposed by parts II and III 
which is borne by individuals who are so entitled by reason 
of price increases in the costs of products and services. 
‘‘(d) DEFINITIONS.—For purposes of this sub-
chapter— 
‘‘(1) SOCIAL SECURITY TAX.—The term ‘social 
security tax’ means— 
‘‘(A) the tax imposed by section 3101(a) 
(and so much of the tax imposed by section 
3201(a) as is determined by reference to the 
tax imposed by section 3101(a)), 
‘‘(B) the tax imposed by section 3111(a) 
(and so much of the tax imposed by section 
3221(a) as is determined by reference to the 
tax imposed by section 3111(a)), and 
‘‘(C) the tax imposed by section 1401(a) 
(and so much of the tax imposed by section 
3211(a) as is determined by reference to the 
taxes 
imposed 
by 
sections 
3101(a) 
and 
3111(a)). 
‘‘(2) SOCIAL
SECURITY
TRUST
FUND.—The 
term ‘social security trust fund’ means— 
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‘‘(A) the Federal Old-Age and Survivors 
Insurance Trust Fund established by section 
202 of the Social Security Act, and 
‘‘(B) the Social Security Equivalent Ben-
efit Account established under section 15A of 
the Railroad Retirement Act of 1974. 
‘‘(e) DETERMINATION BASED ON ESTIMATES.—De-
termination under subsections (a) and (b) shall be made 
on the basis of estimates by the Secretary. Proper adjust-
ments shall be made to the extent prior estimates were 
in excess of or less than more accurate amounts. 
‘‘(f) PUBLICATION OF RATE REDUCTIONS.—Any ad-
justment under this section of social security tax rates for 
any calendar year shall be published in the Federal Reg-
ister on or before November 1 of the preceding calendar 
year. 
‘‘PART II—TAX ON COMBUSTIBLE FOSSIL FUELS 
‘‘Sec. 4692. Imposition of tax. 
‘‘Sec. 4693. Refunds or credits. 
‘‘Sec. 4694. Other definitions and special rules. 
‘‘SEC. 4692. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—There is hereby imposed a tax 
on any taxable carbon substance sold by the manufacturer, 
producer, or importer thereof. 
‘‘(b) AMOUNT OF TAX.— 
‘‘(1) IN GENERAL.—The amount of tax imposed 
by subsection (a) on any taxable carbon substance 
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shall be the applicable amount per ton of the carbon 
dioxide emissions potential of such substance, as de-
termined by the Secretary in consultation with the 
Secretary of Energy. 
‘‘(2) FRACTIONAL PART OF TON.—In the case 
of a fraction of a ton, the tax imposed by subsection 
(a) shall be the same fraction of the amount of such 
tax imposed on a whole ton. 
‘‘(3) APPLICABLE AMOUNT.—For purposes of 
paragraph (1)— 
‘‘(A) 
IN
GENERAL.—The 
applicable 
amount for any calendar year is the amount de-
termined under the following table for such 
year, as adjusted under subparagraph (B): 
‘‘In the case of calendar year— 
The applicable 
amount is—
2010 ..........................................................................
$ 15.00
2011 ..........................................................................
15.98
2012 ..........................................................................
17.02
2013 ..........................................................................
18.13
2014 ..........................................................................
19.32
2015 ..........................................................................
20.58
2016 ..........................................................................
21.92
2017 ..........................................................................
23.35
2018 ..........................................................................
24.88
2019 ..........................................................................
26.50
2020 ..........................................................................
28.23
2021 ..........................................................................
30.07
2022 ..........................................................................
32.04
2023 ..........................................................................
34.13
2024 ..........................................................................
36.36
2025 ..........................................................................
38.73
2026 ..........................................................................
41.26
2027 ..........................................................................
43.95
2028 ..........................................................................
46.82
2029 ..........................................................................
49.88
2030 ..........................................................................
53.13
2031 ..........................................................................
56.60
2032 ..........................................................................
60.30
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2033 ..........................................................................
64.23
2034 ..........................................................................
68.43
2035 ..........................................................................
72.89
2036 ..........................................................................
77.65
2037 ..........................................................................
82.72
2038 ..........................................................................
88.12
2039 ..........................................................................
93.87
2040 or thereafter ....................................................
100.00. 
‘‘(B) INFLATION ADJUSTMENT.— 
‘‘(i) IN
GENERAL.—The applicable 
amount contained in the table under sub-
paragraph (A) for any calendar year after 
2010 shall be increased by an amount 
equal to— 
‘‘(I) such applicable amount, 
multiplied by 
‘‘(II) the cost-of-living adjust-
ment determined under section 1(f)(3) 
for such calendar year, determined by 
substituting ‘calendar year 2009’ for 
‘calendar year 1992’ in subparagraph 
(B) thereof. 
‘‘(ii) ROUNDING.—Any increase deter-
mined under clause (i) shall be rounded to 
the nearest cent. 
‘‘(c) TAXABLE CARBON SUBSTANCE.—For purposes 
of this subchapter, the term ‘taxable carbon substance’ 
means— 
‘‘(1) coal (including lignite and peat), 
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‘‘(2) petroleum and any petroleum product (as 
defined in section 4612(a)(3)), and 
‘‘(3) natural gas, 
which is extracted, manufactured, or produced in the 
United States or entered into the United States for con-
sumption, use, or warehousing. 
‘‘(d) SUBSTANCE TAXED ONLY ONCE.—No tax shall 
be imposed by subsection (a) with respect to a taxable car-
bon substance if the person who would be liable for such 
tax establishes that a prior tax imposed by such section 
has been imposed with respect to such substance. 
‘‘SEC. 4693. REFUNDS OR CREDITS. 
‘‘(a) SEQUESTERED CARBON.—Under regulations 
prescribed by the Secretary, if a person uses a taxable car-
bon substance so that the carbon associated with such sub-
stance will not be emitted, then an amount equal to the 
amount of tax in effect under section 4692(b) with respect 
to such substance for the calendar year in which such use 
begins shall be allowed as a credit or refund (without in-
terest) to such person in the same manner as if it were 
an overpayment of tax imposed by section 4692. 
‘‘(b) PREVIOUSLY
TAXED
CARBON
SUBSTANCES 
USED TO MAKE ANOTHER TAXABLE CARBON SUB-
STANCE.—Under regulations prescribed by the Secretary, 
if— 
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‘‘(1) a tax under section 4692 was paid with re-
spect to any taxable carbon substance, and 
‘‘(2) such substance was used by any person in 
the manufacture or production of any other sub-
stance which is a taxable carbon substance, 
then an amount equal to the tax so paid shall be allowed 
as a credit or refund (without interest) to such person in 
the same manner as if it were an overpayment of tax im-
posed by section 4692. In any case to which this sub-
section applies, the amount of any such credit or refund 
shall not exceed the amount of tax imposed by section 
4692 on the other taxable fuel manufactured or produced 
(or which would have been imposed by such subsection on 
such other fuel but for section 4692(d)). 
‘‘(c) EXEMPTION FOR EXPORTS.— 
‘‘(1) TAX-FREE SALES.— 
‘‘(A) IN GENERAL.—No tax shall be im-
posed under subsection (a) on the sale by the 
manufacturer or producer of any taxable carbon 
substance for export or for resale by the pur-
chaser to a second purchaser for export. 
‘‘(B) PROOF
OF
EXPORT
REQUIRED.— 
Rules similar to the rules of section 4221(b) 
shall apply for purposes of subparagraph (A). 
‘‘(2) CREDIT OR REFUND.—If— 
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‘‘(A) any person exports— 
‘‘(i) a taxable carbon substance, or 
‘‘(ii) any other product any portion of 
the cost of which is attributable to the use 
of any taxable carbon substance as an en-
ergy source for the manufacture or produc-
tion of such product, and 
‘‘(B) such person establishes to the satis-
faction of the Secretary the portion of such cost 
which is attributable to the tax under section 
4692, 
credit or refund (without interest) of such tax shall 
be allowed or made to such person. 
‘‘(3) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary to carry 
out the purposes of this subsection. 
‘‘SEC. 4694. OTHER DEFINITIONS AND SPECIAL RULES. 
‘‘(a) DEFINITIONS.—For purposes of this sub-
chapter— 
‘‘(1) UNITED
STATES.—The term ‘United 
States’ has the meaning given such term by section 
4612(a)(4). 
‘‘(2) IMPORTER.—The term ‘importer’ means 
the person entering the article for consumption, use, 
or warehousing. 
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‘‘(3) TON.—The term ‘ton’ means 2,000 
pounds. In the case of any taxable carbon substance 
which is a gas, the term ‘ton’ means the amount of 
such gas in cubic feet which is the equivalent of 
2,000 pounds on a molecular weight basis. 
‘‘(b) USE TREATED AS SALE.—If any person manu-
factures, produces, or imports any taxable carbon sub-
stance and uses such substance, then such person shall 
be liable for tax under section 4692 in the same manner 
as if such substance were sold by such person. 
‘‘(c) 
SPECIAL
RULES
FOR
INVENTORY
EX-
CHANGES.— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), in any case in which a manufacturer, pro-
ducer, or importer of a taxable carbon substance ex-
changes such substance as part of an inventory ex-
change with another person— 
‘‘(A) such exchange shall not be treated as 
a sale, and 
‘‘(B) such other person shall, for purposes 
of section 4692, be treated as the manufac-
turer, producer, or importer of such substance. 
‘‘(2) 
REGISTRATION
REQUIREMENT.—Para-
graph (1) shall not apply to any inventory exchange 
unless— 
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‘‘(A) both parties are registered with the 
Secretary as manufacturers, producers, or im-
porters of taxable carbon substances, and 
‘‘(B) the person receiving the taxable car-
bon substance has, at such time as the Sec-
retary may prescribe, notified the manufac-
turer, producer, or importer of such person’s 
registration number and the internal revenue 
district in which such person is registered. 
‘‘(3) INVENTORY EXCHANGE.—For purposes of 
this subsection, the term ‘inventory exchange’ means 
any exchange in which 2 persons exchange property 
which is, in the hands of each person, property de-
scribed in section 1221(a)(1). 
‘‘PART III—TAX ON CERTAIN ADDITIONAL 
IMPORTED PRODUCTS 
‘‘Sec. 4695. Imposition of tax. 
‘‘Sec. 4696. Imported taxable product. 
‘‘SEC. 4695. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—There is hereby imposed a tax 
on any imported taxable product sold or used by the im-
porter thereof. 
‘‘(b) AMOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) with respect to any imported tax-
able product shall be the applicable amount under section 
4692 per ton on the lesser of— 
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‘‘(1) the taxable carbon substances used in the 
manufacture or production of such product, or 
‘‘(2) the carbon dioxide emissions attributable 
to the manufacture or production of such product. 
‘‘(c) PROCEDURE TO CHALLENGE INFORMATION 
PROVIDED BY IMPORTER.—The Secretary shall establish 
a procedure under which interested persons may examine 
the information provided by an importer for purposes of 
this section, and bring to the attention of the Secretary 
any suspected errors in such information. 
‘‘SEC. 4696. IMPORTED TAXABLE PRODUCT. 
‘‘(a) IN GENERAL.—For purposes of this part, the 
term ‘imported taxable product’ means any article which, 
at the time of such article’s sale or use by the importer, 
is described in the same heading of the Harmonized Tariff 
Schedule of the United States as a like article produced 
in a listed industry. 
‘‘(b) LISTED INDUSTRY.—For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘listed industry’ means any in-
dustry listed by the Administrator as being among 
the industries which, in the aggregate, account for 
95 percent of the taxable carbon substances used in 
the United States. An industry may not be omitted 
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‘United States’ have the respective meanings given such 
terms by part II. 
‘‘PART IV—SUPERMAJORITY REQUIRED TO 
CHANGE REVENUE NEUTRALITY 
‘‘SEC. 4697. SUPERMAJORITY REQUIRED. 
‘‘A bill, joint resolution, amendment to a bill or joint 
resolution, or conference report that increases aggregate 
revenues under parts II and III greater than the aggre-
gate reduction in revenues under part I may not be consid-
ered as passed or agreed to by the House of Representa-
tives or the Senate unless so determined by a vote of not 
less than two-thirds of the Members of the House of Rep-
resentatives or the Senate (as the case may be) voting, 
a quorum being present.’’. 
(b) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 38 of such Code is amended by add-
ing at the end the following new item: 
‘‘SUBCHAPTER F. REDUCTION OF SOCIAL SECURITY TAXES; TAX ON 
COMBUSTIBLE FOSSIL FUELS’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1, 2010. 
Æ 
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