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CarbonWA’s tax: Bold, compelling policy but not revenue neutral

December 29, 2015

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CarbonWA, a group of passionate and engaged volunteer citizen activists, has been collecting signatures to place a revenue neutral carbon tax before the 2016 Legislature and potentially the voters.  It now appears they have reached the required number of signatures.  The group’s impressive, fierce resolve to elevate the dialogue in our state about carbon pricing is admirable, timely and meaningful.  They have effectively and forcefully altered the discussion about how to reduce global carbon while improving our state’s quality of life in compelling ways for real people living real lives.  They have moved the dialogue further politically than anything else and deserve credit for it.

The problem, as indicated in the Seattle Times, is that despite their impassioned and responsible work, the fiscal details of their plan are struggling to match the public narrative.  My personal and professional hope is that the broader environmental community can unite with CarbonWA behind a stronger, more coordinated approach that harnesses the power of a carbon pricing mechanism economically with the political imperative to move forward successfully.

An independent staff fiscal analysis, prepared at my request in my most recent role as Finance chair, of the implications of CarbonWA’s proposal on the operating budget of the state shows that it is not, in fact, revenue neutral.  The plan would amount to a reduction in overall state revenues of $675.4 million over four years.  This is broken down into the 2017-2019 biennium at $94.5 million and the 2019-2021 biennium of $580.9 million.

The three parts of the carbon tax proposal (business and occupation, retail sales tax and Working Families Tax Credit) are listed here in detail.

The plan is not neutral on fiscal policy.  The choice of spending $250 million a year on Working Family Tax Credit is a big policy move, as is deduction in sales tax and preferential B&O taxes that may struggle to work effectively.  I do not criticize the moves but I do think we need to more rigorously analyze the options for systemic reform, and to incorporate the ideas into a broader framework.  This is one more reason why I appreciate CarbonWA’s approach to submit the plan to the Legislature despite the uncertainty that it entails.  Given the lack of passion for climate action from Olympia overall, it could easily take a turn for the worse not just the better.  It’s a gamble but no more so than allowing silence to define our political inaction on climate change.

Through all the noise the Legislature has the ability to modify the proposal or send this specific plan forward to the voters in 2016.

Pricing carbon is good policy not merely because it reduces climate impacts, but because it reduces the taxpayer’s subsidy of fossil fuels that hides the true cost to society.  In straight economic terms, economists on the left and right are coming to see the importance of ensuring fossil fuel products realize the true externalities of their own impacts.

We can honor the work of the CarbonWA team that successfully pushed the agenda forward while uniting behind a broader coalition to pass meaningful policy in our state.  But we can only do so together.

There will come a time when young people of the world push, prod and agitate for meaningful change of our environmental policies.  That time is now.  We can do better.  Together.  Our failure in this area isn’t merely political or policy.  It’s moral.

Your partner in service,

Reuven.

NOTE:  The masthead of this blog reads “State Senator” although at present I am a member of the House of Representatives.  It has been updated logistically prior to Jan. 7, 2016 when I am expected to be appointed to the state Senate.  Please accept my apologies for any confusion or offense at the inaccurate title.

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7 Comments leave one →
  1. Cliff Mass permalink
    December 30, 2015 6:45 am

    Reuven,
    CarbonWa numbers show a situation far closer to neutrality—apparently the staff analysis has some errors. In any case, no proposal can be exactly neutral considering changes in the state budget but the differences are small compared to the total budget. Revenue neutrality is critical to make a carbon tax bipartisan and that is critical. Society’s response to climate change must be bipartisan or it will inevitably fail. Too many “climate advocates” want revenue positive plans that fund energy projects and social justice issues–not only is this bad policy, but it undermines cooperation across parties. We need leaders in the state legislature that understand the above and provide leadership towards a new direction….cliff mass

  2. December 30, 2015 9:06 am

    Cliff, I strongly support a price on carbon. The fiscal analysis is, however, accurate on the spending side. (i.e. the cost of the sales tax cut, B&O cut, Working Family investment). CarbonWA team disagrees with the Department of Commerce’s view of the revenue model and, upon review of the data from my team, has continued to raise the projected level of revenue that would be required to make it revenue neutral. I appreciate their position but if a fiscal note is submitted by the state agencies, unless something material changes, this is what it is most likely to report.

    The broader, dividing issue is that there is a strategic difference of opinion on the question of revenue neutral vs raising of revenue and CarbonWA seems fiercely protective of the narrative. It seems to have a bit of religious fervency for that position. In my view, in a political judgement, I think the view of voters is what matters not political prognosticators. Many economists believe the use of proceeds from a carbon fee–how the dollars are allocated–matters a great deal. Here’s a good article on the point: http://harvardmagazine.com/2014/09/time-to-tax-carbon

    We are a sales tax state. Reducing the sales tax at the state level (6.5% to 5.5%) sets up a scenario where local governments will likely work to fill the gap and raise it back does not accomplish the objective. I think we need to build a modern, 21st Century economy with clean energy at the forefront and I’m not certain this is the pathway to structural tax reform. Finally, eliminating the B&O tax on aerospace and other sectors entirely would have substantial unintended consequences, in my view.

    I hope a broad coalition can come together to build an approach that can pass the voters’ test for authenticity and effectiveness.

  3. Cliff Mass permalink
    December 30, 2015 9:23 am

    Reuven,
    This is not “religious fervency” on the part of CarbonWa. If you talk to folks on the other side of the aisle (as you have certainly done), it is quite clear that they will not support a revenue positive carbon tax. I give talks across the State and that message was made very clear to me at many venues. And I have talked to your Republican colleagues that confirmed it. A number of Republicans are concerned about climate change. Thus, there is an opening: a revenue-neutral carbon tax might get bipartisan support and serve as an example to the nation. Furthermore, I am not confident in the wisdom of the legislature or state government to wisely spend the revenue-positive proceeds. How much money has been wasted on poorly conceived ideas, such as biofuels (which turned out to result in increases of carbon pollution in the atmosphere). Finally, revenue positive carbon taxes are highly regressive and hurt the underprivileged in our society. They pay for fuel and generally don’t enjoy the benefits (more electric car plugs, more biofuels, etc.) In short, folks like yourself have a choice: you can go along with the failed approaches of the climate advocacy groups such as the Alliance, Climate Solutions, and the like, or you can work to create a new bipartisan effort to deal with carbon pollution. One offers proven failure, the other, a chance to move forwards…..cliff

  4. Todd Myers - WPC permalink
    December 30, 2015 11:41 am

    If tax preferences are equivalent to expenditures, what is the difference between the many climate subsidies and expenditures we have now (many of which produce zero carbon reduction) and a tax reduction? If we aren’t willing to take action on climate if it means a tax cut, doesn’t that mean we are more afraid of tax cuts than climate change?

  5. Jeff Berner permalink
    December 30, 2015 3:56 pm

    For many committed climate and environmental activists like myself, the support for the CarbonWA initiative is based upon a history of over-promise and under-performance of our legislators and state executive on issues both of tax reform and of global warming. Governor Gregoire was not able to turn the Western Climate Initiative into policy. Governor Inslee is currently promoting a cap-and-trade policy that has not been able to garner support in the Democratic caucus. I would also fault legislators such as yourself who have promised and failed time and again in similar tax reform efforts, e.g. income tax, capital gains tax, sunset clauses, etc.

    I admire the goals and objectives of the Alliance, especially with their calls for equity and addressing climate justice, but share the opinion of Cliff Mass that such broadly framed legislation will not be able to harness sufficient support for passage outside of the core urban areas in King County. Yes, these issues need to be addressed, but I’d suggest that they might be better addressed through separate and more narrowly defined legislative action.

    With that being said, I don’t see any leadership from the business community or the Republican side of the aisle on this matter. Cliff Mass states that Republicans are willing to support but there are no endorsements to-date other than former Senate majority leader, Bill Finkbeiner. Similarly, Todd Myers from WPC asserts that business would be philosophically aligned with a carbon-tax but by all appearances seems to be speaking only for himself. As I’ve said before to Todd Myers, everyone is in agreement that eventually carbon will be taxed, so Republicans and business leaders should be bringing forward proposals that they can accept rather than waiting for the other side to set the agenda.

    It cannot be over-stated the importance of immediate action to put a price on carbon in Washington state. Should California, Washington, Oregon and British Columbia join in pricing carbon, it would represent a a combined economy that is the fifth largest in the world. The symbolism of such a combined effort and the timing of such effort would greatly serve to move national policy forward in the absence of Congressional action.

    So as I see the situation, Washington state legislators have a choice to make on how to put a price on carbon–pursue a cap-and-trade type agreement in alignment with California, or install a carbon tax in alignment with British Columbia. Either approach can be successful from a policy perspective. In my view though, a more persuasive argument can be made to align with BC as it has proven its success in reducing carbon emissions without significant dislocation of the economy. Cap-and-trade may be the best policy for California, but a carbon tax is better policy for the Pacific Northwest and Washington state.

  6. Connie Voget permalink
    January 9, 2016 3:14 pm

    Dear Sen. Carlyle:

    I appreciate that you and many others in our legislature are committed to action on climate. As a close observer, I see that but for the deniers and obstructionists in control of our Senate we probably would have a price on carbon pollution by now.

    Thank you for call to a more rigorous assessment of our options for systemic tax reform. I share your concerns about I-732’s tax reduction methods.

    Thank you for educating us about I-732 being revenue negative. As a keen student of climate policy, I follow B. C.’s carbon tax, the model for I-732, looking for the lessons to be learned. I am concerned that the loss of revenue caused by B. C.’s tax – revenue negative since 2012 – is leading to reduced public services, according to Canadian economist Marc Lee. Here in Washington we lack adequate funds for education and other vital services and can’t afford more loss of revenue.

    B. C.’s tax may have other lessons for us:

    • The tax is becoming increasingly complex due to exemptions and rebates to regions and industries. More “horse trading” is likely, according to Mark Jaccard of Simon Fraser University.
    • In 2013 B. C. Prime Minister Clark froze the tax at the 2012 level, threatening effectiveness. She recently announced that the freeze will continue.
    • B. C. remains the only adopter of this kind of policy. Yet Quebec, California, and nine eastern states (CT, DE, MA, MD, ME, NH, RI, NY, VT) have moved forward with other carbon pricing policies. Ontario, and Manitoba have stated they will soon follow and link with California and Quebec. Alberta has also stated its plans to act. All of these policies raise revenue for green investment.

    Thank you for your call to unite behind a broader coalition for meaningful climate policy. As a first step we could support the Governor’s effort through the Department of Ecology to put a cap on the largest carbon emitters. We would need to push for the most comprehensive coverage possible and work alongside those representing the most impacted communities.

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