How A Carbon Tax Can Win Bipartisan Support

The advocacy group Carbon Washington is attempting to add a carbon tax to the 2016 Washington state ballot. The initiative would tax fossil fuels at $25 per metric ton of carbon dioxide. That’s 25 cents per gallon of gas (3.78 liters).

There’s been unexpected backlash though ... from environmentalists. Shocking, I know. Dems and their allies have long argued that we need to curb carbon emissions by taxing carbon. So, what gives?

The rub occurs when deciding what to do with the revenue from the carbon tax. Should it go to government programs, or be given back to companies and people as a rebate?

The Washington state bill says most of the revenue generated would go toward reducing the sales tax by 1 percent. A smaller part would lower taxes on manufacturing companies. Some of the revenue would also fund a tax rebate up to $1,500 for low-income working families.

The end result of this particular carbon tax would be revenue-neutral. In other words, the government wouldn’t get a dime. All the money gets refunded to companies and people. This makes Republicans cheer but some Dems cough and sputter.

Why? Dems think money from a pollution tax should be spent on environmental and other government programs.

However, environmentalists desperately need Republicans to agree to a carbon tax. So, should they really require a carbon tax to be married to more dollars for Uncle Sam? An article in the New York Times says no.

The author of the article, N. Gregory Mankiw, professor of economics at Harvard, says: “There is no good reason to marry these policies. If the goal is to build a political consensus to tackle climate change, there is good reason not to.

“The size of government is an issue that divides the political right and the political left, and it will most likely always do so. The same need not be true of climate change.”

Environmental economist Yorman Bauman is one of the Washington state leaders trying to pass a carbon tax. He has a warning for environmental activists: “I am increasingly convinced that the path to climate action is through the Republican Party. Yes, there are challenges on the right — skepticism about climate science and about tax reform — but those are surmountable with time and effort. The same cannot be said of the challenges on the left: an unyielding desire to tie everything to bigger government …”

It's valid to argue that a carbon tax should be revenue-neutral to get Republicans on board. However, the income distribution in Washington state seems like it might not actually lower emissions. Using the revenue to reduce the sales tax seems like it would increase consumerism, which is bad for the environment. Similarly, giving manufacturers a rebate could also increase consumerism if manufacturers lowered prices. Rebates like these are potentially self-defeating.

A better revenue-neutral plan would give tax breaks to companies and individuals who are taking other green initiatives. Alternatively, the revenue could be given as grants to environmental nonprofits.

Image credit: Flickr/Rob Pongsajapan