It’s Time to Make Our Taxes Smarter

Sometimes, politics obscures the most obvious solutions to many problems. Replacing some of Washington state’s most unpopular taxes with a carbon tax is one such solution.

With oil prices down and huge reserves of cheap natural gas increasingly available, we have the opportunity today to make a relatively painless transition toward an economy less dependent on risky, pollution-generating oil and dirty coal to one that operates with a cleaner, more reliable and, ultimately, less expensive combination of natural gas and renewable energy.

The cap-and-trade system proposed by the Obama administration as well as by the Western Climate Initiative, a group of western states and provinces of which Washington state is a member, is one approach to making that same transition. But it’s a complex system that is susceptible to being gamed. And it could take years to put into place. 

A carbon tax would be far simpler. The new tax would be placed on all gasoline, natural gas and other sources of carbon emissions based on the emissions those fuels produce, perhaps the equivalent of 15-20 cents on a gallon of gasoline. But all revenues would be used to reduce real estate, B&O and sales taxes. The carbon tax would be easy to administer and hard to evade. It would create economic incentives for entrepreneurs to pursue clean renewable fuels, help reduce congestion and pollution by encouraging more carpooling and the use of public transportation, and encourage businesses to pursue energy saving measures more aggressively. Lower B&O taxes would also help attract more companies to the state, particularly those that want to be able to make growth driven by green energy part of their brand.

The carbon tax has supporters across the political spectrum. Steve Reynolds, CEO of Puget Sound Energy, recommended it in an interview with Seattle Business Magazine, and it has the endorsement of both the conservative Washington Policy Center and the environmental Sightline Institute think tanks. British Columbia liked it so much that it implemented the tax two years ago. 

So why doesn’t the concept get traction here? Conservative politicians don’t like anything that has the word “tax” in it. But this measure is revenue-neutral. Tax revenues raised in one area are offset by lowering other taxes. Liberals say the tax is regressive. Then we can follow British Columbia’s lead and use a small portion of the revenue, perhaps 10 percent, to provide a sales tax rebate to low-income families. Liberals also believe a cap-and-trade system has a better chance of passing. But that’s no reason to oppose a carbon tax. Indeed, the Western Climate Initiative allows British Columbia to meet some obligations through its existing carbon tax. Yoram Bauman, a lecturer on economics in the UW’s Program on the Environment, thinks that if the legislature doesn’t move on the idea then there should be a statewide initiative. We aren’t big fans of legislation by initiative. But the case for a carbon tax is too strong to ignore.

Leslie D. Helm, Editor

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