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.
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.”
Greg, NPI announced its opposition to I‑732 nearly a year ago, while the signature drive for the initiative was still ongoing.
We have published several posts since then reaffirming our position.
While we respect the folks over at Sightline, we disagree with their assessment of I‑732. We’re disappointed both in CarbonWA for not listening to feedback and in the Alliance for Jobs & Clean Energy for failing to honor its 2015 pledge to introduce an alternative to I‑732.
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
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:
https://www.irs.gov/individuals/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.
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.
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.)
See http://www.seattletimes.com/seattle-news/transportation/heres-what-youd-pay-to-build-bigger-sound-transit-network/
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.
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.
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.
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.