Editorial: I-732’s carbon tax creates uncertainty for state budget

By The Herald Editorial Board

The proposal is intriguing because it offers to take a notable bite out of carbon emissions and lower the state’s portion of the sales tax rate.

The first contributes to climate change and poor air quality, while the second is largely responsible for creating what many view as the most regressive state tax system in the nation.

Who wouldn’t vote for Initiative 732? Regrettably, you shouldn’t.

I-732, would establish a tax on carbon emissions, taxing industries, such as petroleum refineries, utilities and other industries, $25 for each ton of carbon they produce, increasing 3.5 percent plus the rate of inflation until reaching $100 a ton. But the revenue it would generate is intended to offset the reductions in the state sales tax and the state business and occupation tax for manufacturers. The state’s portion of the sales tax would be cut by a penny to 5.5 cents per dollar from its current 6.5 cents. The B&O tax for manufacturers also would be significantly reduced.

The revenue also would go toward an increase in funding of the state’s earned income tax credit for low-income working families as added assistance in paying more for gas and consumer goods. Some estimates have put the increase to fuel costs at 22 cents a gallon.

Proponents contend that the trade-off between a lower sales and B&O tax and an increase in the cost of gasoline and consumer goods would be a wash for many, though some might pay $100 to $200 more a year, while others could see a little extra in their pocket.

But it’s likely that the state would see a lot less in its General Fund pocket.

A financial impact statement by the state Office of Financial Management has estimated that in the first six fiscal years, if I-732 is adopted, the state’s General Fund would decrease by a net amount of $797 million.

Absorbing more than $265 million in revenue losses each biennium would only add to a difficult budgeting job ahead; the state will need to fund an estimated $3.5 billion in additional education spending to satisfy a state Supreme Court mandate to amply fund K-12 education.

Yoram Bauman, who as part of Carbon Washington proposed and has led the campaign for the initiative, disputes those numbers, pointing out that even the OFM analysts admit they are not “carbon tax experts.” Bauman believes OFM failed to account for the tax revenue that will be generated by exported power, fossil fuels burned within the state for electricity exported outside the state.

Even so, when Bauman met with The Herald Editorial Board, he admitted that the swap of revenue sources won’t be exact and estimated that the difference to the General Fund could be plus or minus $200 million a biennium.

Revenue forecasting is difficult enough now, without having to estimate what would come from a carbon tax.

And while it won’t generate any revenue for the state, we now have a carbon cap being put into place. At the direction of Gov. Jay Inslee, the state Department of Ecology in September announced its Clean Air Rule, which sets a limit on carbon for industrial producers. Phased in over the next 20 years the cap will reduce carbon dioxide emissions by 1.7 percent each year.

Assuming the cap survives challenges by industry and others, we will have the reductions in carbon that I-732 offers without the uncertainty it would bring to the state budget.

Fixing our regressive tax system will have to be left to another initiative or state lawmakers who can find the courage.