Washington state could find itself at the cutting edge of taxing carbon emissions with Initiative 732 heading for the ballot this fall. But opponents and budget analysts fear the bold plan goes a step too far.
The measure would create a new tax of $25 per metric ton of carbon burned in fossil fuels, including gasoline, natural gas and coal. It also would also shrink Washington’s sales tax rate by one percentage point and virtually eliminate the business and occupation tax for manufacturers.
If the initiative passes, Washington will become the first in the nation to tax carbon emissions as other states look on.
“I-732 encourages cleaner energy solutions by shifting the tax burden onto carbon pollution and away from regressive and burdensome taxes that hurt families and businesses,” says Carbon Washington, the group behind the initiative.
Sounds great. So, what’s the problem? Well, as always in the process of creating new taxes and changing the rates of old ones, you have to look at the broader picture. And the big question surrounding I-732 comes down to its fiscal impact, which thus far has been defined by polar opposite projections from either side of the initiative battle.
Carbon Washington argues the tax would ultimately be revenue-neutral, bringing in an estimated $1.7 billion a year while returning roughly that much to taxpayers by lowering the sales tax. State budget analysts with the Office of Financial Management, on the other hand, estimate the tax change would amount to about $915 million in lost revenue for Washington over a four-year period, a painful gut punch for a state where annual budget shortfalls have become the norm.
Yoram Bauman, the founder of Carbon Washington, fired back at the OFM in February, saying the agency miscalculated the fiscal impact of I-732. Bauman added that OFM analysts are not carbon tax experts.
However, the Department of Revenue and legislative budget analysts also project I-732 would create a net revenue loss for the state.
Several major state organizations have come out against the initiative, including the state Democratic Party, the Washington State Labor Council and the International Association of Machinists and Aerospace Workers. Ultimately, they argue that it’s the worst time to experiment with a change that could jeopardize so much tax revenue.
“At a time our state is struggling to fund basic services – including public schools, mental health facilities and many other essential services – I-732 would send Washington in the wrong direction and create more damaging austerity choices,” Labor Council President Jeff Johnson said.
Numerous environmental activist groups support I-732, but it's also drawing criticism from some environmentalists. Several factions of Democrats in the legislature and county-level Democratic organizations across the state also are lining up behind the initiative, which supporters tout as an economic stimulus that will do something concrete to address climate change without hurting the middle class.
Lowering the B&O tax for manufacturers would help keep living wage jobs in Washington, proponents argue. The group anticipates reducing the sales tax would save hundreds of dollars a year for the average household in Washington. The initiative would provide up to $1,500 a year in tax rebates for about 400,000 low-income households across the state, Carbon Washington says.
The legislature had a chance this winter to alter the carbon tax proposal and address revenue concerns. But in a short session ruled by more immediate budget woes and questions about adequate education funding, that simply didn’t happen. It also didn’t happen during the special session that ended March 29.
Now, it’s up to the voters to decide what to do. Given Washington voters’ recently muddled history on tax reform measures, it’s anyone’s bet as to how this one will turn out on Election Day.
Justin Runquist is CFM’s communications counsel. He is a former reporter for The Oregonian, The Columbian and The Spokesman-Review. Away from the office, he’s a baseball fanatic with foolhardy hopes that the Mariners will go to the World Series someday. You can reach Justin at firstname.lastname@example.org and you can follow him on Twitter at @_JustinRunquist.