How Washington state's carbon tax initiative was defeated
Last Tuesday, Washington State voters聽聽that would have created the first carbon tax in the United States. It was no surprise that the fossil fuel industry worked hard to defeat Initiative 732 (I-732). 聽But the measure was also opposed by several progressive advocacy groups and even聽. In the end, the measure received only 42 percent of the vote.
A national carbon tax has recently gained popularity as a potential bipartisan solution to climate change, with progressives like聽聽(I-VT) and the libertarian-leaning聽聽backing the idea. British Columbia has recorded promising聽聽since implementing its own carbon tax in 2008. And Canadian Prime Minister Justin Trudeau is pushing other provinces to adopt their own versions.聽聽 聽
So, why did Washington progressives fight the proposal? It wasn鈥檛 primarily the idea of such a tax, which is something of a holy grail of climate change policy. Rather, they objected to how the state proposed to use the $2.2 billion in revenues the plan was projected to generate.
Much has been written about聽聽formed in opposition to the initiative. Environmental justice groups聽聽that the I-732 campaign did not include communities of color or social justice coalitions when formulating the initiative and said that the policy didn鈥檛 do enough to address equity in Washington State.
Initiative 732 aimed to create a revenue neutral 鈥渢ax swap,鈥� mostly with a one percent reduction in state sales tax. It would also have raised money for the Working Families Tax Rebate for low-income households and cut taxes for manufacturers that would pay the tax 鈥� an incentive to prevent them from leaving the state.
However, state budget officials聽聽that the initiative would actually reduce revenues by $797 million over the first six years. Progressives objected to the tax cut since Washington is already聽necessary services like public education. They also wanted the state to invest some of the new revenues in communities most vulnerable to the effects of climate change. These deficiencies, they argued, made the proposal聽.
My Tax Policy Center colleagues Donald Marron and Adele Morris describe options for using carbon tax revenues in a recent report聽. They suggested four different goals: Offsetting the new burdens that a carbon tax places on consumers, producers, communities, and the broader economy; supporting further efforts to reduce greenhouse gas emissions; assisting communities most harmed by climate change; and funding unrelated public priorities.
But while these are all appropriate uses, the details matter when dividing up the revenue pie. Using money for one goal often means less for another. This is what turned some progressives against I-732. 聽
Yet, contrary to how they鈥檝e been characterized in the public discourse, tax swaps are a good way to mitigate the inherent regressivity of consumption-based levies such as carbon taxes. Marron and Morris recommend using at least a portion of carbon tax revenue to reduce other regressive taxes that hit low-income consumers hardest, like the sales tax, and that鈥檚 just what the Washington initiative would have done.
聽shows that a national carbon tax would聽聽consumers, for whom energy costs comprise a larger share of their household budget. Even if companies directly pay the tax, they pass at least a portion on to consumers in the form of higher prices. Returning some of these revenues to low-income consumers through a sales tax break or expansion of low-income tax credit programs can discourage carbon consumption while mitigating regressivity.
Even if a state funnels new carbon tax revenues toward progressive priorities like schools or green energy programs, the money would still be disproportionately drawn from lower-income households. And earmarking new revenues for green energy or other favorite community-based programs would still leave other priorities like k-12 education underfunded, unless the state considered adopting alternative revenue sources. Washington State is聽聽without an income tax and currently聽聽in the country. Environmental groups say they will聽聽to fund investment in clean energy and promote equity. But they鈥檒l need to remember that a carbon tax without tax relief for low-income households will ultimately be regressive.
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