By Ryan Ellis
In a presidential election year, state and local measures often take a backseat to the eye candy at the top of the ticket. That’s a grave mistake as some of the most interesting action happens in state initiatives and referenda.
One such interesting test case for taxpayers is happening in Washington State, where a new carbon tax is on the ballot. Initiative 732 would create a brand new carbon tax in the Evergreen State, in addition to all the other taxes that families and businesses there have to pay.
Supporters of the initiative claim that it is tax revenue neutral, but they are wrong. The carbon tax revenue would be plowed into three offsetting items:
A one percentage point reduction in the state sales tax (Washington State has no income tax)
An elimination of the state’s gross receipts tax (on manufacturers only)
Funding a state version of the federal earned income tax credit (EITC)
Only the first two of those three are tax relief. The third is pure spending, plain and simple. Because Washington State has no income tax, there is no income tax to credit low income households for paying. As a result, any check from the state to them is plainly and simply welfare spending. You can’t give a tax cut to a person who didn’t pay taxes.
The “Working Families Rebate” (as this state EITC is being called) would rise as high as $1500 for up to 400,000 families. It’s notionally tied to the amount of state sales tax paid, but there’s no actual nexus there except in theory. It’s as if I went to someone on the street, gave him $20 because he must have bought Twinkies at some point in his life, and then claimed I was a donor to the Twinkie industry. It’s a non sequitur and is not tax relief. It’s a spending program, plain and simple.
As a result, the carbon tax plan isn’t tax revenue neutral. It’s a net tax increase, to the tune of $200 million per year according to the initiative’s own supporters. The carbon tax raises $1.7 billion per year in revenue, but this is only offset by $1.5 billion in actual tax relief (i.e., the sales tax cut and the gross receipts tax repeal for manufacturers).
So, we’re talking about a carbon tax increase for families and businesses here. Is it a good idea policy-wise, putting the hidden tax increase aside?
The answer is no. It’s never a good idea to introduce a brand new kind of tax where one didn’t exist before. All taxes rise over time to their highest politically-sustainable level. The more taxes you have, the higher your overall tax burden will be. The Washington State carbon tax proposal doesn’t even purport to eliminate other taxes entirely (the gross receipts tax is only repealed for manufacturers). Other carbon tax proposals aren’t good ideas either, but at least they do things like fully eliminate the corporate income tax.
Why is introducing a brand new type of tax politically imprudent? Think of it like drawing blood out of your arm. One tube draws some blood. A second tube draws yet more. What do you think poking a third tube into your vein is going to do? Taxpayers should be looking to take tubes out of their arm, not looking for ways to stick another one in.
Washington State has a key advantage that four-fifths of her sister states do not: it has no income tax. As a result, it’s a more attractive place to earn income than high tax California or nearby Oregon. The non-partisan Tax Foundation ranks Washington State 17th in its “2017 State Business Tax Climate Index,” but a bullish 6th place in the individual income tax metric. Notably, the state ranks toward the bottom of the country on both the corporate tax and sales tax metrics, so there’s clearly some work to be done there. Introducing a carbon tax will no doubt cause Washington State to become a worse place to open a business and create jobs.
In other words, Washington State, don’t screw it up. You’re in a decent place tax wise, with some work to do in a couple of areas. Slapping a carbon tax on top of your otherwise pretty healthy tax situation is simply suicidal. Taxpayers should reject Initiative 732 with extreme prejudice.
Learn more here.