It’s time for environmentalists to back revenue-neutral carbon tax
Earlier this year, Inslee failed to get his own carbon-tax proposal out of the state Senate, even though the upper house is controlled by his own Democratic Party. And in 2016, when Washington voters supported Hillary Clinton by a 54 percent to 38 percent margin, they also rejected a similar carbon-tax proposal by a 59 percent to 41 percent margin. The resulting hand-wringing and blame-casting from tax supporters has been entirely predictable, but it also misses the most important explanation for tax-supporters’ continued failures.
The obvious target was Big Oil’s big-spending “no” campaign. “The Western States Petroleum Association raised $31.2 million from oil companies and business groups to oppose the measure, the most spent in the state to defeat a ballot initiative …,” reported Reuters. “That fueled months of television and digital ads, along with flyers and mailers in the state that argued the fee would drive up energy costs for consumers, small businesses and farms.”
It’s not surprising when an industry that would feel the brunt of new tax hikes would invest heavily in defeating the measure at the ballot box. But the real problem is how this measure – as well as the governor’s legislative proposal – was designed. These carbon-tax proposals would have raised prices on gasoline and other products and created billions of dollars in additional state revenue. The money would have been earmarked for a variety of programs and projects that were meant for environmental improvement. Inslee’s proposal would have backfilled general-fund dollars that were diverted to K-12 education spending following a court decision.
As the latest initiative’s fiscal impact statement explained, “Twelve state agencies and two higher education institutions are estimated to expend $27,178,592. The remaining expenditures cannot be estimated until the public board approves investment plans. Local government expenditures are estimated to be $158,623,072.” It’s no wonder supporters had a tough political sell. Voters, even in liberal states, tend to be wary of tax increases. And the measure would have created something of a slush fund to spend on various and sundry programs.
Such spending undermined the fundamental purpose of a carbon tax: to create a disincentive for companies to emit carbon emissions as a means to combat climate change. That’s a perfectly sensible idea designed to put a higher price on industrial emissions. Imposing a cost on such emissions provides an incentive for companies to produce fewer of them, which should be the sole purpose for such taxes. If the climate truly is in danger, then the goal should be to reduce the danger – not to create a new means to bolster a state government’s budget.
In other words, supporters of a carbon tax should propose a measure that is revenue neutral. That means other taxes should be reduced on companies and consumers so that no one is left worse off financially. Such an approach would reduce the political opposition, bolster public support and keep the purpose of the carbon tax in focus. Unfortunately, Washington activists just can’t seem to help themselves from using such proposals to ramp up spending rather than merely reducing emissions.
The 2016 ballot initiative actually came closer to this goal than this year’s initiative or the Inslee proposal. As Initiative 732’s ballot summary explained, “It would reduce the sales tax rate by one percentage point over two years, increase a low-income sales tax exemption, and reduce certain manufacturing taxes.” That bipartisan initiative fared more poorly at the polls than Initiative 1631, but it was defeated in large part because of opposition from labor officials, the state Democratic Party and environmental activists who claimed that it was “revenue negative.” They opposed it precisely because of the corresponding tax reductions. Had these groups supported it, it’s far more likely that the effort would have been successful.
Now that that the latest carbon tax proposal hasn’t panned out, supporters should realize that a carbon tax needs support from both right and left, and should go back to the revenue-neutral idea.
Carbon tax supporters are going to have to make a choice. Are they interested primarily in reducing carbon emissions to battle climate change or are they mainly interested in raising taxes to create a new source of government revenue? If it’s the latter, then I’m left wondering whether they are as serious about climate change as they claim.
