NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's uplifting perspective on world, national, and local politics.

Monday, August 22nd, 2016

Why say NO to I‑732? It’s about justice — environmental and social justice

Edi­tor’s Note: The team at NPI is pleased to wel­come Robin Barnes to the Cas­ca­dia Advo­cate. Robin holds a Ph.D. in Physics from Rut­gers, The State Uni­ver­si­ty of New Jer­sey. She cur­rent­ly works on inter­na­tion­al non-prof­it projects that pro­mote gen­der equi­ty, human devel­op­ment, and envi­ron­men­tal jus­tice. In this spe­cial guest post, she explains why vot­ers should reject Car­bon­WA’s I‑732.

The warm­ing effects of Earth­’s atmos­phere were first dis­cov­ered in the year 1820 by Joseph Fouri­er. It was well under­stood and quan­ti­fied by Svante Arrhe­nious at the turn of the twen­ti­eth cen­tu­ry. It is sci­en­tif­i­cal­ly well estab­lished that our plan­et has a fever, and there is no dis­pute about its cause. Our world’s cli­mate has been dam­aged by burn­ing fos­sil fuels on a mas­sive scale, which has sig­nif­i­cant­ly increased the amount of pol­lu­tion in our atmos­phere. To address this envi­ron­men­tal cri­sis, we need to change our behav­ior — and we know this.

While the sci­ence is indis­putable, human­i­ty can’t seem to agree on solu­tions to pro­tect our­selves and the Earth, the only inhab­it­able plan­et we’ve got.

Pro­po­nents of Ini­tia­tive 732, which will appear on Wash­ing­ton State’s Novem­ber bal­lot, say Wash­ing­ton’s response to the cri­sis should be to start levy­ing a car­bon tax on emis­sions of air pol­lu­tants like car­bon diox­ide and methane — and use the rev­enue from that tax to low­er oth­er regres­sive taxes.

But this approach is fatal­ly flawed. Here’s why.

Let’s begin by estab­lish­ing the fol­low­ing root prin­ci­ple: A car­bon tax, by itself, does not curb con­sump­tion of fos­sil fuels, the main dri­ver of air pol­lu­tion. Peo­ple chang­ing their behav­ior to avoid pay­ing the tax is what low­ers emis­sions. A car­bon tax can reduce emis­sions if and only if it will tax peo­ple who are able to mit­i­gate their con­sump­tion of fos­sil fuels, there­by avoid­ing the tax.

If the pur­pose of a car­bon tax is to low­er emis­sions, impos­ing it on peo­ple or enti­ties who lack the means to aggres­sive­ly reduce their emis­sions is sim­ply inef­fec­tive. Impos­ing this tax on peo­ple who are not in an eco­nom­ic posi­tion to low­er their car­bon con­sump­tion is mis­di­rect­ed and unjust.

Corol­lary: If a car­bon tax actu­al­ly low­ers emis­sions, it will low­er its own rev­enue gen­er­at­ing pow­er as well. A car­bon tax that effec­tive­ly low­ers emis­sions will min­i­mize or elim­i­nate itself by design – if emis­sions fall, so does rev­enue. As peo­ple avoid pay­ing the tax, the rev­enue from the car­bon tax dimin­ish­es. That is, unless the tax is set to be rev­enue neu­tral. If it suc­ceeds in low­er­ing car­bon emis­sions, we will have to con­tin­u­ous­ly raise the car­bon tax rate to make up for rev­enue loss.

What does I‑732 do?

  • It sig­nif­i­cant­ly low­ers the Busi­ness and Occu­pa­tion (B&O) Tax, and replaces it with a car­bon tax of $25 per ton min­i­mum, increas­ing up to $100 per ton max in four years to main­tain rev­enue neutrality;
  • It low­ers the retail sales tax by 1%;
  • It funds the Work­ing Fam­i­lies Rebate (an attempt to cre­ate a state-lev­el earned income tax cred­it) so qual­i­fy­ing fam­i­lies see their oblig­a­tions reduced. This is $1500 per fam­i­ly annu­al­ly for up to 400,000 families.

Pro­po­nents of I‑732 are mar­ket­ing the ini­tia­tive as a high­ly pro­gres­sive change to our tax code, pri­mar­i­ly because it funds the Work­ing Fam­i­lies Tax Rebate and gives earned income cred­it to qual­i­fy­ing low income fam­i­lies. This is a nice fea­ture, but what does this tax swap do to fam­i­lies that can­not qual­i­fy for earned income credit?

I‑732 redis­trib­utes B&O tax oblig­a­tions to all Wash­ing­ton State res­i­dents by impos­ing a car­bon tax. Shift­ing tax oblig­a­tions from busi­ness­es and trans­fer­ring them to low and mid­dle income fam­i­lies is not a pro­gres­sive tax maneu­ver. It is true that busi­ness­es will pay a car­bon tax, as well, but that is also a regres­sive choice.

Busi­ness­es and cit­i­zens who have the means to aggres­sive­ly able to low­er their car­bon emis­sions are the ones who will pay the least tax.

Who are those peo­ple? They are the wealthy who can afford to solar­ize, replace their win­dows, insu­late their walls, and buy effi­cient appli­ances and elec­tric cars. Those who can­not choose to make these changes are trapped pay­ing an ever-increas­ing tax. And they con­tin­ue to pay that tax, even though they can­not con­tribute to low­er­ing emis­sions in a sig­nif­i­cant way.

There is noth­ing in I‑732 that helps low and mid­dle income fam­i­lies improve their ener­gy effi­cien­cy or decrease their depen­dence on fos­sil fuels.

What’s more, Wash­ing­ton State’s “big pol­luters” are most­ly ener­gy sec­tor com­pa­nies. What does it mean to impose a car­bon tax on a com­pa­ny that runs on, or sells, fos­sil fuels? We know that some­times, big cor­po­ra­tions make emp­ty threats about pass­ing costs onto their cus­tomers. But I‑732’s own pro­po­nents have acknowl­edged that Wash­ing­ton fam­i­lies will be direct­ly impact­ed.

What does I‑732 look like from a 20,000 foot view? Well, after two years of phas­ing in, it starts at $25 per ton and can grow to $100 per ton. As acknowl­edged by pro­po­nents, this is 25 cents per gal­lon at the pump that can grow to $1 per gal­lon, plus the rel­e­vant tax­es on util­i­ties. Details about the tax rate vary from house­hold to house­hold, depend­ing on the fuel mix that it uses.

Car­bon­WA claims that at around 25 cents per ton, elec­tric­i­ty will be taxed around 1 cent per kwh, and nat­ur­al gas at around 13 cents per therm.

That is a mod­est 8% to 10% increase at my house. When the rate increas­es by a fac­tor of four, though, it’s blis­ter­ing. And because it is tied to non-dis­cre­tionary pub­lic sec­tor bud­gets, it will nev­er go away.

Car­bon­WA claims that a 1% sales tax decrease will off­set this tax for most fam­i­lies. That might be true for wealthy house­holds that have a lot of dis­cre­tionary income. Low and mid­dle income house­holds spend much more mon­ey on food, trans­porta­tion, hous­ing, and util­i­ties as a per­cent­age of their bud­get – all expens­es that are not sub­ject to sales tax. The cor­re­spond­ing decrease in the sales tax would­n’t amount to much more than a hun­dred bucks a year.

A fam­i­ly of four in Wood­inville that makes $50,000 to $60,000 per year can deduct $813 in state sales tax on their fed­er­al income tax return. The 1% state sales tax reduc­tion for this tax­pay­er amounts to about $125 annu­al­ly. Car­bon­WA tells us that this off­sets this family’s car­bon tax expenditures.

Sup­pose that this is true for the aver­age house­hold at the intro­duc­to­ry rate. If the ini­tia­tive expects to low­er emis­sions of CO2, methane, and oth­er air pol­lu­tants at all, that rate will have to increase sharply. At a rate of $100 per ton, that off­set is not even close. And con­sid­er that I‑732 pays up to $1,500 per year into the Work­ing Fam­i­lies Tax Rebate to off­set the car­bon tax for one low income household.

This rais­es the ques­tion: is I‑732 actu­al­ly about low­er­ing emis­sions? Can we expect car­bon emis­sions to drop and pain­less­ly main­tain rev­enue neu­tral­i­ty over time? Who is it pain­less for? Or is the goal of the ini­tia­tive to replace a statewide pro­duc­tion tax with a con­sump­tion tax?

Pro­po­nents of I‑732 like to point to British Columbi­a’s expe­ri­ence, cit­ing our north­ern neigh­bor as a role mod­el. But as Jens Wiet­ing of the Sier­ra Club of B.C. point­ed out in a post for The Huff­in­g­ton Post last year, the province is no cli­mate action leader. It has a car­bon tax, but its emis­sions are going up, not down!

If you live in British Colum­bia you might think that our province is a cli­mate cham­pi­on, because you heard it from our government.

Last month, for exam­ple, the provin­cial gov­ern­ment sent out a bold press release tout­ing B.C. as a world leader in cli­mate action. The release high­light­ed B.C.’s car­bon tax and the accom­plish­ment of “meet­ing our 2012 GHG reduc­tion target.”

How­ev­er, just a few days lat­er, the Cana­di­an gov­ern­ment released its lat­est green­house gas emis­sions data show­ing that B.C.’s emis­sions actu­al­ly increased by 2.4 per cent in 2013 (to 63 mil­lion tons of green­house gas­es, from 61.5 in 2012. This is a big deal, because the threat of glob­al warm­ing has reached a point at which we can­not afford our annu­al emis­sions to con­tin­ue to increase.

What about envi­ron­men­tal and social jus­tice? Many peo­ple get by on fixed or lim­it­ed incomes. They are not in a posi­tion to low­er their emis­sions much.

Geo­graph­i­cal­ly speak­ing, Cen­tral and East­ern Wash­ing­to­ni­ans could be more affect­ed by I‑732 than their fel­low cit­i­zens on the west­ern side of the Cas­cades because their cli­mate fea­tures more extreme tem­per­a­tures (cold­er win­ters mean high­er heat­ing bills, hot­ter sum­mers neces­si­tate air con­di­tion­ing for com­fort) and their trans­porta­tion expens­es can be high­er due to liv­ing fur­ther away from places of busi­ness like the gro­cery store or doc­tor’s office.

If the rev­enue from I‑732 were going to invest­ments that would speed our tran­si­tion to a clean ener­gy econ­o­my, that’d be one thing.

But that’s not the case. Pro­po­nents of I‑732 delib­er­ate­ly cre­at­ed a pro­pos­al that would­n’t result in any fund­ing for envi­ron­men­tal­ly friend­ly infra­struc­ture, whether that be light rail, weath­er­ized schools, or any­thing else.

Walk through a neigh­bor­hood in any city, and start mak­ing a men­tal inven­to­ry of the infra­struc­ture changes that need to take place in order to sub­stan­tial­ly reduce the air pol­lu­tion that is dam­ag­ing our cli­mate. It is daunt­ing – espe­cial­ly in neigh­bor­hoods where low and mid­dle income peo­ple live. Upgrad­ing the infra­struc­ture is often cost prohibitive.

What would an envi­ron­men­tal­ly just pol­lu­tion tax look like? Ide­al­ly, it would be tied to projects that low­er pol­lu­tion. It would tax only peo­ple and enti­ties that have the means to low­er their emis­sions in a mean­ing­ful way. It would be able to man­age a reduc­tion in rev­enue (as car­bon diox­ide and methane emis­sions fell) with­out hav­ing to raise rates to main­tain rev­enue neutrality.

We do need to put a price on pol­lu­tion. But the rev­enue we raise should go to pri­or­i­ties like solar­iz­ing neigh­bor­hoods, mak­ing renew­able ener­gy more acces­si­ble to low and mid­dle income fam­i­lies, pro­vid­ing zero emis­sions infra­struc­ture to city gov­ern­ments, and so forth. If we insti­tute a pol­lu­tion tax, then we have to make sure the peo­ple pay­ing the tax can reduce their depen­dence on fos­sil fuels, or that the projects we embark upon enable them to do so.

I‑732 does none of these things. It pro­pos­es to change the tax code in a vast­ly com­pli­cat­ed way – and one that ben­e­fits wealth­i­er peo­ple and wealth­i­er busi­ness­es over time. It tax­es peo­ple who are not in a posi­tion to change their emis­sions, and that will do noth­ing to address our pol­lu­tion problem.

To recap:

  • I‑732 is a regres­sive tax shift from busi­ness­es to fam­i­lies and indi­vid­u­als. Wealth­i­er fam­i­lies will be in a posi­tion to avoid the tax, while mid­dle and low income fam­i­lies will not. They’ll be trapped, because I‑732 does­n’t put the rev­enue it rais­es to work for the pub­lic goods need­ed to allow us to low­er our emis­sions on a mas­sive scale, nor will its off­sets be enough to allow most Wash­ing­to­ni­ans to light­en their envi­ron­men­tal foot­print on their own.
  • There is no rea­son to believe that I‑732 will reduce emis­sions sig­nif­i­cant­ly over time. Because its lever­age is exert­ed on peo­ple who do not have the means to change their behav­ior, there is a hard lim­it to its effect.

We can put a price on pol­lu­tion in a way that is both fair and effec­tive at low­er­ing emis­sions. To do that, though, we must first vote NO on I‑732 this November.

Adjacent posts

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  1. Is it just me or is NPI increas­ing­ly encour­ag­ing all of us pro­gres­sives to form a cir­cu­lar fir­ing line and pull the trig­ger. I‑732 is a fan­tas­tic pol­i­cy and we all need to be vot­ing yes in November.

    Don’t take my word on it — Read the most com­pre­hen­sive three part analy­sis of this pol­i­cy com­plet­ed by the Sight­line Insti­tute.

    “I‑732 would be the biggest improve­ment in the pro­gres­siv­i­ty of Wash­ing­ton’s state tax sys­tem in 40 years — an enor­mous gain for 460,000 low-income work­ing fam­i­lies” and “I‑732 would give Wash­ing­ton the continent’s, if not the world’s, most potent, per­sis­tent, and com­pre­hen­sive incen­tive to move swift­ly beyond dirty fos­sil fuels and to a car­bon-free future.”

    # by Greg Rock :: August 22nd, 2016 at 7:16 PM
  2. There also appear to be some major errors in this analy­sis — Take for exam­ple the claim that a house­hold earn­ing $50,000 – $60,000 would only see $125 in tax rebates from the 1% sales tax reduc­tion. There is a very rep­utable source out there called, The Uni­ver­si­ty of Wash­ing­ton, who pro­duced a tax swap cal­cu­la­tor to ana­lyze I‑732. They esti­mate the tax rebate for that range is between $200->$230 – Learn the facts about how this would affect you and oth­er fam­i­lies using this tax swap cal­cu­la­tor.

    Check out how it affects low-income house­holds earn­ing $25k with 2 kids first. Low-income house­holds are the only dis­pro­por­tion­ate win­ners under this tax swap. The B&O tax reduc­tion match­es busi­ness­es’ added car­bon tax lia­bil­i­ty, and every­one else up and down the income spec­trum basi­cal­ly have a break even propo­si­tion because both ener­gy con­sump­tion and sales tax expen­di­tures grow in par­al­lel with growth in house­hold income.

    The excep­tion is Low income house­holds who get hun­dreds even thou­sands of extra dol­lars each year as a result of pass­ing I‑732. They are the only clear win­ners in this tax swap – except of course all of us who win by reduc­ing car­bon pol­lu­tion expect­ed to cost our state $3.8Billion/year by 2020.

    I am hap­py to engage in the dis­cus­sion about car­bon tax­es being an effec­tive pol­i­cy to reduce emis­sions, even with­out tar­get­ed invest­ments, any­time. I have a master’s degree in Sus­tain­able Ener­gy Engi­neer­ing and stud­ied car­bon poli­cies around the world for 15 years. Price alone absolute­ly reduces emis­sions – it’s worth not­ing 81% of experts agree that price is the most effi­cient car­bon reduc­tion mech­a­nism, and only 13% think tar­get­ed sub­sidy pro­grams like NPI is advo­cat­ing for here are more effective.

    It is true: When we get into adap­ta­tion, not car­bon reduc­tions, we will need to raise rev­enue – but don’t shoot the most effec­tive car­bon reduc­tion pol­i­cy down because it is only tak­ing a huge step in the right direc­tion not jump­ing all the way to the fin­ish line. “Per­fect ene­my of the good” much?

    Out­side of cli­mate adap­ta­tion there are lots of oth­er good rea­sons why we need to raise new rev­enue in our state. A great leader in this state Rep. Sharon Wylie said in her I‑732 endorse­ment quote “Like many in Wash­ing­ton I have polit­i­cal con­cerns about how we will raise the new rev­enue our State needs; but that is a sep­a­rate bat­tle. We can’t let the pol­i­tics of mon­ey pre­vent us from act­ing on climate”

    Luck­i­ly this year come Novem­ber we get to do both – Get a pro­gres­sive change to our tax code that makes pol­luters pay for the car­bon they emit while simul­ta­ne­ous­ly vot­ing to increase tax­es to fund a major infra­struc­ture invest­ment in Sound Tran­sit 3.

    Noth­ing, absolute­ly no part, of I‑732 pre­vents us from rais­ing tax­es for tar­get­ed invest­ments for any of the pro­grams our state needs. What it does do is put us on a nation lead­ing path towards reduc­ing our car­bon pollution.

    If you don’t believe car­bon pric­ing is work­ing in BC and around the world just google it – This isn’t just eco­nom­ic the­o­ry the empir­i­cal evi­dence on the ground in mul­ti­ple coun­tries ful­ly sup­port what lead­ing car­bon reduc­tion sci­en­tist advo­cate for. You can’t just take a sim­ple look at emis­sions and say how a pol­i­cy is effect­ing a com­plex econ­o­my. You need to use com­pa­ra­ble met­rics that can com­pare sim­i­lar juris­dic­tions and mit­i­gate mul­ti­ple effects simul­ta­ne­ous­ly to see how a pol­i­cy is effect­ing emis­sions. All the detailed stud­ies of BC come to the same con­clu­sion — BC would be pro­duc­ing sig­nif­i­cant­ly more CO2 emis­sions today if it didn’t have its rev­enue neu­tral car­bon tax in place. Car­bon prices change behav­ior, effi­cien­cy of new pur­chas­es, and strong­ly pro­mote new innovation. 

    Wash­ing­ton needs a car­bon tax and as you cor­rect­ly point out Andrew the Alliance did­n’t move for­ward with any pro­pos­al mean­ing the only way we get one right now is by Vot­ing Yes on 732. We can’t wait 4 more years to act on this issue that is destroy­ing the future of our chil­dren and future generations

    # by Greg Rock :: August 22nd, 2016 at 8:09 PM
  3. First — it would be bad prac­tice to use your tax swap cal­cu­la­tor to check you for errors. I used the Fed­er­al Sales Tax Deduc­tion Calculator:

    For para­me­ters, I entered I chose year 2015, at least $50,000 but less than $60,000, 4 exemp­tions, $0 in spe­cif­ic sales tax, 98072 for zip code, Wood­inville, King, Wa,did not move to a new res­i­dence in 2015

    The state tax amount is $813. This is the fig­ure that is affect­ed by I‑732. It gets dropped from 6.5% to 5.5%.

    $813(1-(5.5/6.5)) = $125. Not $230.

    And please under­stand that I am not argu­ing against a car­bon tax. I am argu­ing against I‑732 par­tic­u­lar­ly. It is regres­sive and unjust, and deflect­ing the con­ver­sa­tion only to fam­i­lies that qual­i­fy for earned income cred­it is mis­lead­ing by delib­er­ate omis­sion. We are talk­ing about peo­ple who do not qual­i­fy for the Work­ing Fam­i­lies Tax Credit.

    Last­ly, “we must pass this now, or the sky will fall on our chil­dren” is a log­i­cal fal­la­cy. We must do what is effec­tive and just if we want to pre­serve a future for our children.

    # by Robin Barnes :: August 22nd, 2016 at 9:06 PM
  4. Thanks for your com­ment, Robin, and article.

    One cor­rec­tion — the UW Tax Swap cal­cu­la­tor is not my mod­el — It is pro­duced by the Uni­ver­si­ty of Wash­ing­ton. Not sure exact­ly who but sus­pect it is the eco­nom­ics depart­ment. They pub­lish their method­ol­o­gy which is on the page I linked to. I think the rel­e­vant excerpt is below. 

    “These per­cent­ages are for all sales tax­es (state plus local) and the Depart­ment of Rev­enue reports that the aver­age total sales tax rate in Wash­ing­ton State is 8.95 per­cent. Our pro­pos­al would reduce this by 1 per­cent­age point, i.e., to 7.95 per­cent, so we can com­bine all this infor­ma­tion to esti­mate the sales tax sav­ings for any giv­en house­hold. (Exam­ple: If your house­hold income is $55,000 then you pay an esti­mat­ed 3.7 per­cent of your income in sales tax­es, i.e., $2,035. So a one per­cent­age point reduc­tion would save you $2,035(1/8.95)=$227.) Final­ly, we smooth out the 2002 Tax Study esti­mates (see red line below) by using a pow­er series esti­mate (black line below) from Microsoft Excel. This smooths out the dis­con­tin­u­ous jumps evi­dent in (for exam­ple) going from an income of $19,999 to an income of $20,001. See Fig­ure 1 for more details.”

    As an ener­gy engi­neer, not an econ­o­mist, I am no expert on this aspect of the pol­i­cy. This is why it is so great to see the deep dive into fis­cal impacts of this pol­i­cy that was recent­ly pub­lished by the Sight­line Insti­tute in its 2nd arti­cle on 732. You being a physi­cist I’m sure rec­og­nize that com­plex ele­ments enter into any esti­ma­tion. I sus­pect the Uni­ver­si­ty of Washington’s approach may be more robust, up and down the income spec­trum, and more spe­cif­ic to our region rely­ing on DOR data rather than grab­bing a sin­gle data-point from the fed­er­al dataset. But I must yield to the experts at UW on this one.

    I am glad to know that you sup­port car­bon tax­es as we all should. Inter­nal­iz­ing exter­nal costs is the num­ber one way we can tran­si­tion our entire econ­o­my simul­ta­ne­ous­ly away from numer­ous pol­lu­tants. Inter­nal­iz­ing exter­nal­i­ties is one of the ten­ants of a per­fect mar­ket­place and can be used to off­set many of the direct and indi­rect sub­si­dies fos­sil fuels cur­rent­ly enjoy which is what got us into this cli­mate mess.

    As Sight­line points out in their third arti­cle, Cli­mate Jus­tice is a com­pli­cat­ed and polit­i­cal­ly charged issue. There are dif­fer­ent approach­es to over­com­ing it and all that have their pro’s and con’s. I will try to wade cau­tious­ly into this top­ic and encour­age oth­ers to cor­rect me where I am wrong. These are com­plex top­ics and so many peo­ple are suf­fer­ing so might­i­ly right now which makes this a very dif­fi­cult top­ic. I ful­ly under­stand and appre­ci­ate your desire for tar­get­ed invest­ments in dis­ad­van­taged com­mu­ni­ties to ease that suf­fer­ing. Done prop­er­ly I am sup­port­ive of these approach­es, and it is true I‑732 doesn’t do every­thing our State needs to do with­in a sin­gle policy. 

    In no way how­ev­er does I‑732 pre­vent tar­get­ed invest­ments from occur­ring in our State. It sim­ply doesn’t fund them because it is a tax swap, that doesn’t fund any­thing, it just shifts our exist­ing tax bur­den away from fam­i­lies and onto pol­lu­tion. The state is in no worse a posi­tion, arguably a bet­ter one, to raise tax­es for tar­get­ed invest­ments post I‑732’s pas­sage due to the cre­ation of a new tax stream, and the reduc­tion of the state sales tax which relieves pres­sure on cities that are reach­ing a 10% psy­cho­log­i­cal cap. Per­son­al­ly I think tar­get­ed invest­ments may be bet­ter achieved by local city and coun­ty tax increas­es and pro­grams as they are more in touch with their com­mu­ni­ties. All par­ties (OFM, Sight­line & Car­bon­WA) agree I‑732 will increase local rev­enue across the state due to increased retail sales and man­u­fac­tur­ing trans­ac­tions mak­ing them an inter­est­ing place to start those tar­get­ed infra­struc­ture invest­ment dis­cus­sions as soon as 732 pass­es. Local pro­grams of course come with their own pro’s and con’s but there is expect­ed to be about $156M in new local rev­enue over four years.

    How­ev­er I must protest. Just because I‑732 doesn’t com­plete­ly solve cli­mate jus­tice and the greater equi­ty and racial injus­tices in our state doesn’t mean that it is unjust and shouldn’t be passed. For many, name­ly the 460,000 fam­i­lies that qual­i­fy for the work­ing fam­i­ly tax rebate, pass­ing I‑732 will make their lives much, much, bet­ter. I sus­pect we agree that the WFTE is one of “the most effec­tive tool we have for lift­ing chil­dren and fam­i­lies out of pover­ty” and a 25% match of the Fed­er­al EITC is very good thing for this state. I‑732 offers Wash­ing­ton a huge pro­gres­sive change to our tax code in Novem­ber while reduc­ing the pol­lu­tion that effects low-income com­mu­ni­ties the most.

    For every­one else the finan­cial impact is fair­ly neu­tral. I rec­og­nize, and feel great empa­thy, sur­round­ing the crit­i­cism that it is a hurt­ful pri­or­i­ti­za­tion to pro­mote a pol­i­cy that helps lift 460,000 low-income fam­i­lies out of pover­ty but leaves 340,000 in the same ter­ri­ble sit­u­a­tion as they are cur­rent­ly in. I would argue it is more hurt­ful to pro­mote doing noth­ing to help those 460,000 fam­i­lies which is the only choic­es we have before us when we vote Yes or No on 732 in November.

    It is impor­tant to empha­size that the oth­er 340,000 fam­i­lies are not made worse off by I‑732 they are just left neu­tral as a result of swap­ping a regres­sive ener­gy tax for a regres­sive sales tax. Reduc­ing the most regres­sive part of our exist­ing tax code on every­one is a huge­ly impor­tant aspect of this pol­i­cy as it can be very dif­fi­cult to get a rev­enue gen­er­at­ing car­bon tax to avoid a net neg­a­tive impact for almost all low-income house­holds — espe­cial­ly undoc­u­ment­ed workers.

    Obvi­ous­ly there are sit­u­a­tions where an unem­ployed moth­er rid­ing the bus to inter­views is a low ener­gy user and will come out ahead. And there are sit­u­a­tions where fam­i­lies will end up pay­ing slight­ly more ener­gy tax­es than they see in sales tax reduc­tions. But these vari­a­tions are small +/- $10’s of dol­lars per year accord­ing to Sightline’s first arti­cle.

    I real­ly hope we can unite togeth­er to take a step in the right direc­tion in Novem­ber. It pains me to see pro­gres­sives pro­mot­ing that Wash­ing­ton should sit idle on car­bon pric­ing and pro­gres­sive improve­ments to our tax code in the hopes of get­ting fur­ther down this impor­tant path in the future.

    # by Greg Rock :: August 22nd, 2016 at 11:39 PM
  5. Well, a recent Seat­tle Times arti­cle about their ST3 tax cal­cu­la­tor esti­mates that a fam­i­ly mak­ing $45,000 to $55,000 a year spends an aver­age of $1,988 for state and local sales tax­es. This is actu­al­ly a lit­tle more than the $1,821 that Car­bon Wa’s cal­cu­la­tor esti­mates for a house­hold mak­ing $50,000 a year, and it’s near­ly twice the $1,076 esti­mate that the IRS cal­cu­la­tor Robin relies on here produces.

    The Times arti­cle also says: “If that seems high, these state fig­ures indeed far exceed what’s spit out by the fed­er­al IRS deduc­tion cal­cu­la­tor, because the feds ignore your spo­radic major pur­chas­es, unless you report those.” (You report the sales tax on major pur­chas­es, like buy­ing a car or build­ing mate­ri­als for a ren­o­va­tion, in the box that the IRS pro­vides for “sales tax paid on spec­i­fied items,” where Robin entered $0.)


    # by Thad Curtz :: August 24th, 2016 at 10:35 PM
  6. Thank for your com­ment, Thad.

    The $813 I cite in the post is the state sales tax amount, which is sub­ject to 6.5% state sales tax. The full (state plus local) amount from the Feds is $1131.95 for this income bracket.

    The rea­son I chose this fig­ure is that I think it is fair­ly accu­rate — and using it didn’t require me to make hid­den assump­tions. I also chose to roll back the state sales tax from 6.5% to 5.5%, and we don’t have to think about local retail taxes. 

    To your com­ment, though:

    Let’s assume that total sales tax is 9.6% every­where. Let’s also assume that this family’s tax­able income is $60,000, and that they pay about $10,000 in Fed­er­al Income Tax — so their net income is $50,000. It’s approx­i­mate and makes the num­bers sim­ple. If we low­er the state sales tax from 9.6% to 8.6%:

    · The IRS cal­cu­la­tor amount, $1131.95, gives a break of $118 annually.

    · Seat­tle Times amount, $1988, gives a break of $222 annually.

    · The Car­bon­Wa amount, $1821, gives a break of $203

    It’s clear­er to think of the total amounts spent on sales tax­able items, though. At 9.6%:

    · If this fam­i­ly pays $1131.95 in sales tax, they spent $11,791.15 in sales tax­able items. That’s 24% of their net income.

    · If this fam­i­ly pays $1988 in sales tax, they spent $20,708.33 on sales tax­able items. That’s 41% if their net income.

    · Car­bon­Wa’s esti­mate assumes they spend 38% of their net income on sales tax­able items — $18,968.75. I think that’s unrealistic.

    This fam­i­ly pays rent, buys gro­ceries and gas, pays util­i­ties, insur­ance, med­ical care…none of which are sub­ject to sales tax. They might be buy­ing a new car or lum­ber and pay a lot of sales tax once or twice in a decade, but they aren’t doing this year after year. I think both Car­bon­Wa and ST3 are unre­al­is­ti­cal­ly high estimates.

    But my larg­er point — reduc­ing a rel­a­tive­ly small amount by a small amount gives an excru­ci­at­ing­ly small amount. I‑732 will cost this fam­i­ly more than $17 per month.

    The 1% sales tax might be “a wash” for wealthy peo­ple who have a lot of mon­ey to spend on retail sales tax­able items. For mod­er­ate income peo­ple, that isn’t the case. 

    To repeat — I agree that sales tax is regres­sive. Because of the exemp­tions, rolling that tax back a lit­tle bit is not, a pri­ori, progressive.

    # by Robin Barnes :: September 3rd, 2016 at 12:52 PM
  7. Thanks for your com­ment, Greg, and for the oppor­tu­ni­ty to respond to a num­ber of points.

    My objec­tion to using the tax cal­cu­la­tor for the pur­pose of this dis­cus­sion is that it doesn’t make sense to use your cal­cu­la­tor to check the results of your cal­cu­la­tor, so to speak. If we’re test­ing the result, we need to use some­thing oth­er than CarbonWa’s tax cal­cu­la­tor to get the result. “Check our tax cal­cu­la­tor” isn’t a crit­i­cal approach.

    But no mat­ter – let’s use your num­bers: Net house­hold income $55,000 that pays $2035 in sales tax per year at 8.95%. This fam­i­ly spent $22,737 on sales tax­able items. That’s 41% of their income. I don’t think that’s pos­si­ble. Maybe occa­sion­al­ly, but not year after year. Rent, util­i­ties, gro­ceries, insur­ance, med­ical expens­es, gaso­line – Wash­ing­ton State fam­i­lies don’t pay sales tax on these pri­ma­ry bud­get items. 

    That, and the ben­e­fit of $227 is about $19 per month. Do real­ly you think that approach­es what I‑732 will cost this family? 

    GR: “As an ener­gy engi­neer, not an econ­o­mist, I am no expert on this aspect of the pol­i­cy. This is why it is so great to see the deep dive into fis­cal impacts of this pol­i­cy that was recent­ly pub­lished by the Sight­line Insti­tute in its 2nd arti­cle on 732. You being a physi­cist I’m sure rec­og­nize that com­plex ele­ments enter into any esti­ma­tion. I sus­pect the Uni­ver­si­ty of Washington’s approach may be more robust, up and down the income spec­trum, and more spe­cif­ic to our region rely­ing on DOR data rather than grab­bing a sin­gle data-point from the fed­er­al dataset. But I must yield to the experts at UW on this one.”

    Since you are an ener­gy engi­neer, I’m glad we can have this dis­cus­sion – and hope there are many in the future. And I’m being respect­ful when I point out that you’ve just dis­missed me by say­ing “it’s com­pli­cat­ed” and that I should trust the big boys at Uni­ver­si­ty of Wash­ing­ton to get it right. 

    Please revis­it why I chose a fam­i­ly mak­ing $60k per year for this func­tion­al analysis:
    •It’s real­ly hard to find a sce­nario where this fam­i­ly will qual­i­fy for the Work­ing Fam­i­lies Tax Rebate,
    •it’s greater than the
    per capi­ta per­son­al income in Wash­ing­ton State,
    •it’s greater than the aver­age income in Wash­ing­ton State,
    •it meets or exceeds Wash­ing­ton State’s aver­age cri­te­ria for qual­i­fy for two-bed­room hous­ing, which is around $46k state wide and $60k in King and Sno­homish counties,
    •it rep­re­sents Wash­ing­to­ni­ans from many walks, includ­ing retired peo­ple, young fam­i­lies, and work­ers in a vari­ety of eco­nom­ic sectors.

    This exam­ple encom­pass­es a lot of data. I chose to tell the sto­ry of one rep­re­sen­ta­tive fam­i­ly because it makes the sto­ry clear­er, and makes it hard­er to sweep unfor­tu­nate facts under the rug by say­ing, “it’s complicated.” 

    The $60k fam­i­ly choice is more rel­e­vant than you’re sug­gest­ing – it is not just a sin­gle data point. And yield­ing to the experts is appeal­ing to author­i­ty. This one you can do with pen­cil and paper.

    To your ref­er­ences about the Sight­line series on I‑732: I have a healthy mea­sure of respect for Sight­line, but in this case I dis­agree with their ulti­mate con­clu­sions. I agree with some of their analy­sis, though – and I nev­er require I‑732 to do every­thing our state needs in a sin­gle pol­i­cy, as you sug­gest. The only thing I require here is that I‑732 is fair and that it is effec­tive at low­er­ing car­bon emissions.

    Sight­line is, for exam­ple, high­ly crit­i­cal of I‑732 for dis­pro­por­tion­ate­ly impact­ing com­mu­ni­ties, includ­ing some 340,000 low income fam­i­lies that do not qual­i­fy for earned income cred­it. These aren’t the mod­er­ate income peo­ple I’m talk­ing about in the orig­i­nal post – they are gen­uine poor peo­ple – many who live on fixed incomes.

    Con­sid­er Sightline’s “right price” for meet­ing the 2050 goal:

    ”I‑732 near­ly hits the mark. The I‑732 tax starts at $15 per ton in 2017, goes up to $25 in 2018, then increas­es at 3.5 per­cent plus infla­tion every year until 2059, when it hits our mid-cen­tu­ry tar­get of $100 and flat­tens out, increas­ing each year only at the rate of infla­tion. (Assum­ing 2 per­cent annu­al infla­tion, the price will be $225 in nom­i­nal dol­lars in 2059.)”

    At $100 per ton, this is cer­tain­ly not a neu­tral tax swap for poor peo­ple who do not qual­i­fy for your tax rebate. It also isn’t neu­tral for mod­er­ate income people. 

    Like Sight­line, I think it is nec­es­sary to put a price on car­bon. A well-exe­cut­ed car­bon tax is a great idea. How it is done mat­ters a lot, though, so I dis­agree with their con­clu­sions about I‑732. The orig­i­nal post isn’t about Sight­line, though, so maybe we can have that dis­cus­sion offline or NPI will enter­tain a post on the matter.

    Pro­po­nents of I‑732 treat the inverse rela­tion­ship between tax­a­tion and con­sump­tion as if it’s axiomat­ic. That assump­tion would work well if we were talk­ing about a tax on soda. If you levy a tax on soda, peo­ple will drink less of it. The rela­tion­ship is sim­ple because soda is not nec­es­sary for sur­vival or for keep­ing the econ­o­my afloat.

    The rela­tion­ship is not so direct when you tax neces­si­ties. The prob­lem a car­bon tax faces – the prob­lem we both face because we are ulti­mate­ly allies on the long road to putting a price on car­bon – is that car­bon is an eco­nom­ic neces­si­ty. Some peo­ple will con­tin­ue to use it because their cur­rent real­i­ty gives them no choice. That impos­es a hard lim­it to the tax’s effectiveness.

    This is a pri­ma­ry rea­son why infra­struc­ture improve­ments must be a com­pul­so­ry part of a car­bon tax. Some infra­struc­ture changes will hap­pen – in wealthy house­holds and com­mu­ni­ties. This is cost pro­hib­i­tive in low­er income com­mu­ni­ties, though. That is why we must invest in infra­struc­ture as part of the tax sys­tem – or we won’t low­er car­bon emis­sions enough. Peo­ple have to do more than sim­ply decide that they aren’t going to use fos­sil fuels any­more in order to give them up.

    We know how hard it is to get any envi­ron­men­tal pol­i­cy or reg­u­la­tion passed – and when­ev­er the debate comes up in our leg­is­la­ture, there is a clear risk that what reg­u­la­tions we have will get rolled back. The assump­tion that we can expect to pass envi­ron­men­tal­ly sound laws as we go (and I promise that I have a lot of sym­pa­thy for this idea) is not a polit­i­cal real­i­ty in Wash­ing­ton State. 

    Take, for exam­ple, the fact that Repub­li­cans are already using I‑732 as an excuse to roll back envi­ron­men­tal reg­u­la­tions in Wash­ing­ton State. Joe Ryan’s hope for the leg­is­la­ture to pass an I‑732B that fix­es CarbonWa’s over­sight grant­i­ng near­ly $1B in tax breaks to Boe­ing over four years met with such opposition:

    “Sen. Doug Erick­sen, R‑Ferndale, who chairs the Sen­ate Ener­gy, Envi­ron­ment and Telecom­mu­ni­ca­tions Com­mit­tee, said any alter­na­tive I‑732 ver­sion he’d back would have to bal­ance its car­bon tax with roll­backs of oth­er envi­ron­men­tal reg­u­la­tions — includ­ing a pro­hi­bi­tion on a car­bon-emis­sions cap under devel­op­ment by Gov. Jay Inslee’s administration.

    “It def­i­nite­ly would be a heavy lift,” Erick­sen said.”

    GR: “In no way how­ev­er does I‑732 pre­vent tar­get­ed invest­ments from occur­ring in our State. It sim­ply doesn’t fund them because it is a tax swap, that doesn’t fund any­thing, it just shifts our exist­ing tax bur­den away from fam­i­lies and onto pollution…” 

    Nobody here said that I‑732 pre­vents tar­get­ed invest­ments from occur­ring. I stat­ed in the orig­i­nal post that invest­ments in infra­struc­ture will occur for the wealthy, and not so much for mod­er­ate and low income peo­ple. That is the basis of how this tax swap becomes painful­ly regres­sive. The abil­i­ty to mit­i­gate car­bon con­sump­tion by upgrad­ing infra­struc­ture is a func­tion of wealth. Wealthy peo­ple and com­mu­ni­ties can build infra­struc­ture and avoid pay­ing the car­bon tax – poor peo­ple and com­mu­ni­ties can’t. Over time, the poor folks are stuck pay­ing the tax while the wealthy get a break.

    And again – because of the exemp­tions that already exist in the Wash­ing­ton State sales tax, the 1% roll­back doesn’t help poor folks much. It does give a nice lit­tle some­thing to wealthy peo­ple who have dis­cre­tionary income to spend on sales tax­able items, though.

    GR: It is impor­tant to empha­size that the oth­er 340,000 fam­i­lies are not made worse off by I‑732 they are just left neu­tral as a result of swap­ping a regres­sive ener­gy tax for a regres­sive sales tax. 

    I‑732 pro­po­nents make great hay about incor­po­rat­ing a nec­es­sary tax break to 460,000 qual­i­fy­ing fam­i­lies so they do not feel the effects of the car­bon tax – they shout it from the rooftops as a basis for their claims that their pol­i­cy is pro­gres­sive. But you say that the 340,000 fam­i­lies in the same income brack­et who don’t qual­i­fy are only going to expe­ri­ence a neu­tral tax swap. These things can­not be simul­ta­ne­ous­ly true. 

    What is the pur­pose of this tax break? Does it actu­al­ly have any­thing to do with car­bon emis­sions, or is it just a shiny object that Car­bon­Wa can dan­gle in front of pro­gres­sives? Does it even qual­i­fy as pro­gres­sive if it leaves more than 40% of poor folks behind? 

    To be clear, I am not crit­i­ciz­ing the con­cept of pay­ing into the Work­ing Fam­i­lies Tax Cred­it. I just object to your def­i­n­i­tion of “pro­gres­sive” and the lack of fair­ness it creates.

    And I dis­agree that the effects on the 340,000 are neu­tral. Sight­line tells you why, even. Their con­clu­sion to sup­port I‑732 “because the price is right” sug­gests that the price might need to be $150 per ton to hit pro­ject­ed tar­gets at mid-cen­tu­ry:

    “To achieve Washington’s state statu­to­ry goal of cut­ting green­house gas emis­sions 50 per­cent below 1990 lev­els by 2050, US eco­nom­ic mod­els sug­gest the pol­lu­tion price on the trans­porta­tion and elec­tric sec­tors prob­a­bly needs to reach $100 to $150 per ton [2016 dol­lars] by 2050.”

    Once again – because of the exemp­tions inher­ent in the Wash­ing­ton State sales tax, poor peo­ple pay very lit­tle in sales tax. Most of their income is spent on gro­ceries and things that aren’t sub­ject to sales tax. The 1% roll­back does not help them. Yet, they are pay­ing up to $100 per ton in car­bon tax­es under I‑732. This is a text­book exam­ple of “worse off.”

    GR: “Reduc­ing the most regres­sive part of our exist­ing tax code on every­one is a huge­ly impor­tant aspect of this pol­i­cy as it can be very dif­fi­cult to get a rev­enue gen­er­at­ing car­bon tax to avoid a net neg­a­tive impact for almost all low-income house­holds – espe­cial­ly undoc­u­ment­ed workers.”

    Again – I agree that sales tax is regres­sive. But because of the tax exemp­tions already inher­ent in Wash­ing­ton State’s tax code, it does not fol­low that sim­ply rolling it back by 10% is pro­gres­sive. Com­bined with the car­bon tax swap, I‑732 is a blis­ter­ing­ly regres­sive pol­i­cy – that becomes increas­ing­ly regres­sive as time pass­es because poor peo­ple and com­mu­ni­ties can­not invest in low-car­bon infra­struc­ture at the rate that wealthy ones can. And don’t for­get that poor peo­ple spend most of their income on things that are not sub­ject to sales tax – while wealthy peo­ple can see some real ben­e­fit from that 1% rollback.

    GR: “I real­ly hope we can unite togeth­er to take a step in the right direc­tion in Novem­ber. It pains me to see pro­gres­sives pro­mot­ing that Wash­ing­ton should sit idle on car­bon pric­ing and pro­gres­sive improve­ments to our tax code in the hopes of get­ting fur­ther down this impor­tant path in the future.”

    Respect­ful­ly, this is false equiv­a­lence. Vot­ing NO on I‑732 is not the same thing as sit­ting idle about car­bon pric­ing and pro­gres­sive improve­ments to our tax code.

    # by Robin Barnes :: September 4th, 2016 at 9:05 PM
  8. The Seat­tle Times arti­cle says that their cal­cu­la­tor is based on actu­al data — “fed­er­al stud­ies of con­sumer spend­ing pat­terns, plugged into a Wash­ing­ton state gov­ern­ment tax mod­el, rough­ly bro­ken out by income brack­et.” As Robin says, she “thinks” that the num­ber from the IRS cal­cu­la­tor is “fair­ly accu­rate,” with­out includ­ing the tax on any spe­cial items like buy­ing a car, and that she “thinks” the Times esti­mate is “unre­al­is­ti­cal­ly high.” I think it’s more rea­son­able to assume that the Fed­er­al stud­ies and the Wash­ing­ton Depart­ment of Rev­enue have a pret­ty good idea of how much of our incomes peo­ple in Wash­ing­ton pay sales tax on than to rely on our intu­itions about what’s “real­is­tic”.

    The pro­gres­sive part of I‑732 is not real­ly the 1% cut in the sales tax. That will leave peo­ple rough­ly even over­all, though there will be vari­a­tion depend­ing on all sorts of fac­tors. For exam­ple, Rebec­ca­’s hypo­thet­i­cal fam­i­ly gets their elec­tric­i­ty from Puget Sound Ener­gy — half of PSE’s pow­er comes from coal and nat­ur­al gas, and they’ll pay car­bon tax on that. If Rebec­ca­’s fam­i­ly lived eight miles east, in Seat­tle, or in a pub­lic util­i­ty dis­trict, almost all their pow­er would come from hydro, and they would­n’t be pay­ing any addi­tion­al tax on it. (If you care, you can get some sense of how dif­fer­ent fac­tors change the out­come with the UW calculator.)

    The pro­gres­sive effects of I‑732 will come from fund­ing the Work­ing Fam­i­ly rebate at 25% of the Fed­er­al Earned Income Cred­it. By acci­dent or design, Rebec­ca­’s fam­i­ly makes just a lit­tle too much to ben­e­fit from that. If they made $50,000 a year instead of the $60,000 in her exam­ple, they’d be get­ting an addi­tion­al $170 a year as a tax rebate.

    # by Thad Curtz :: September 4th, 2016 at 11:14 PM
  9. Thad,

    Sure­ly you can appre­ci­ate that the road to hell was paved with inten­tions based on “data”. It is a fair guess that a fam­i­ly on a $60k income does not buy a car every year. If they buy a car this year, what will they buy next year? So, yes, I think the ST3 cal­cu­la­tor gives esti­ma­tions that are unre­al­is­ti­cal­ly high – and I think the Car­bon­Wa cal­cu­la­tor acts similarly.

    Do you “think” the IRS uses data in their estimations?

    The ST3 cal­cu­la­tor doesn’t actu­al­ly use data, by the way. It uses the sales tax cal­cu­la­tor cre­at­ed by the State of Wash­ing­ton. I still think its esti­ma­tions are unre­al­is­ti­cal­ly high. I think the IRS esti­ma­tion is better. 

    But this point you’re mak­ing is real­ly a red her­ring. My argu­ment would be exact­ly the same, even if I’d cit­ed num­bers from the ST3 cal­cu­la­tor in the orig­i­nal arti­cle. The point is that a small amount of a rel­a­tive­ly small amount is an extreme­ly small amount.

    # by Robin Barnes :: September 5th, 2016 at 5:58 AM
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