Washington State Carbon Tax Initiative?
Source Peter Dorman
Date 16/10/30/14:04

FIRST, THE WHOLE "revenue neutral" framing is a problem. It clearly reaches out to the Right: we are not the "big government" ogres you're afraid of; we'll price carbon and then go home. But, other than ideological conservatives, who actually cares about revenue neutrality? The better framing, as everyone who has studied this confirms, is one of protecting and supporting the people. Money is returned not because we are anti-government, but because, if carbon pricing works, it will take a bite out of our incomes, and we want to sustain living standards.

Second, by channeling rebates through the tax system, Bauman opened up his proposal to a number of valid criticisms. (1) It's too opaque. (2) As state revenues rise and fall the fiscal impact of 732 becomes positive or negative. If the state could borrow money it would be anticyclical, but since it must balance its budget, it has the opposite effect. The murky fiscal impact has been a big issue in the debate, especially since the voter information packet carries an assessment by the state dept of revenue that it is fiscally negative to a substantial degree. (3) The attempt to counter the regressivity of carbon pricing through the tax system results in benefits to the poorest households (some of them), but not to the bulk of the lower and middle class. Bulking up the EITC is not a bad thing (Bauman points out that it is one of the demands of BLM), but it falls far short of a general program to offset the regressivity of the carbon tax. Politically it is divisive. (At the risk of pissing off a lot of people, I'll add that it reflects the tendency of much of the left to substitute guilt for solidarity as the underlying motive for fighting inequality. If people making $40,000 a year ask why they aren't getting reimbursed for higher energy costs while those who make $20,000 are, does this mean they fail to understand their privilege?)

Third, regarding jobs, two points need to be made. (1) Making people pay higher prices for fossil energy reduces real incomes and, in itself, lowers demand and employment. Of course, the carbon revenue doesn't disappear, and by recycling it in some way that contractionary effect is offset. Whether more demand and employment is created by returning the money to households or having the government spend it requires a detailed analysis. The difference is likely to be small. To really get a boost from public investment, of course, it needs to be deficit-financed. This can and should happen at the federal level, but states have limited freedom to do this. (They have more freedom than they are using, however.) (2) The jobs metric is tricky. The goal in society is not to maximize the amount of work people need to do but to improve their quality of life. If there are unmet needs and unemployed people, then obviously that has to be addressed. But the proper metric is not how many jobs we create, but how well we are meeting our needs. This is Econ 101 stuff, but it always seems to get lost in debates about spending policies. I mention it because, when you get down to the project level, it can be a damaging sort of confusion.

Fourth, I am very concerned that much of the organizational infrastructure of the left takes an "interest group" form. Community organizations lobby for public funding for their communities -- good -- but much of the funding, when it's there, is channeled through these same organizations or their partners. I hope I'm wrong, but my reading of much of the "left" opposition to 732 is tainted by this. As for the State Labor Council, I worry that they are strongly motivated to provide jobs for their members, which can be problematic when the labor movement represents only a tenth of the workforce. Again, money taken regressively from households and not returned to them means jobs lost in the economy, most of them of course nonunion. I'm all for organizing the unorganized, but I don't agree that economic policy should be designed around whether currently organized workers are the ones getting the jobs we create. What bothers me even more is that, if self-dealing is a problem, it is being folded into a fuzzy concept of "just transition". And I think activist groups misunderstand their place in the process. They (and we, because most of us are activists) are fighting for what we believe in. But we weren't elected by the communities we fight for, and we aren't accountable to them either. There are no structures for that. It is disingenuous, to say the least, for activist groups opposing 732 to claim that "their communities" weren't at the table. Communities aren't at the table at all in this system. All they have a right to say is that *they* (the activists) were not at the table -- but then it's not a matter of justice but plain ol' politics. Yes, politics matters, but let's get off the high horse.

Fifth, what makes the whole debate so crazy is that no one on either side seems to understand how drastic an economic upheaval will result from really dealing with the climate threat. Keeping global temperature increases to 2 degrees C may not even be possible at all; if it is possible it will require a massive replacement of much of the capital stock, big changes in land use, patterns of consumption, etc. in a relatively short time (about 30 years). This will all be discussed in detail in my book next year (Alligators in the Arctic and How to Avoid Them), so I'll just announce the claims here. Carbon pricing will be massive, more than a trillion dollars in the US alone. A lot of existing wealth -- and not just in fossil fuels -- will have to be written down. Sustaining living standards over such a transition utterly swamps the sorts of distributional squabbles that have consumed politics over 732. We will simply have to return most carbon revenues, because otherwise most households won't be able to make it, and the effort would be politically unviable. We will have to have targeted equity programs for those especially vulnerable to the disruption. There will need to be massive infrastructure investments. My hunch, which I don't develop in the book, is that the deflationary effects of so much wealth destruction will make it possible to jack up public debt to wartime levels, so there won't be any need to dip into carbon revenues for this. We need all of the above. The only reason the 732 debates seem so urgent to those party to them is that the scale and scope are so small relative to the need.

Finally, it's all happening in the context of a state fiscal crisis. That makes everyone more desperate, but we've had a fiscal logjam at the federal level too. It's not as crazy in DC as in WA state, but it will play a political role.

It's important to get the analysis right in this state-level battle: de te fabula narratur.

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