How “revenue neutral” is the Initiative 732 carbon tax? Opinions vary.

A new state analysis of the I-732 carbon tax initiative to the Legislature estimates the measure would reduce state revenues by some $675 million over four years, reports the Seattle Times. We wrote here of the decision of I-732 supporters to go ahead with their proposal after negotiations with backers of another carbon measure failed to produce agreement on an alternative.

The Seattle Times reports that I-732 proponents maintain the initiative is revenue neutral. The dispute, however, has clear political ramifications.

…it could give ammunition to environmental and progressive critics who have pushed for an alternative that would bring in more money for the state while still fighting climate change.

Here’s the Times account of the disagreement.

Carbon WA says I-732 would raise about $1.7 billion annually in carbon taxes but give away an almost identical amount with its tax cuts. Backers estimate it would add a net total of $44 million to state coffers between fiscal years 2018 and 2021.

But the legislative staff disagrees. The biggest dispute is over how much electric utilities would wind up paying under the carbon tax.

From the Carbon WA website

  • A one-percentage-point reduction in the state sales tax will save taxpayers about $1.3 billion annually; funding the Working Families rebate at a 25% level will provide tax rebate of about $200m annually; eliminating the B&O tax for manufacturing will save taxpayers about $200m annually. This all adds up to $1.7 billion in annual taxpayer benefits.
  • CO2 emissions from fossil fuels total about 83m metric tons per year, so with coverage of 90% of those emissions and an expected immediate reduction of about 10% as a result of the carbon tax you get $1.7 billion in carbon tax revenue annually.
  • For context, $1.7 billion is about 10% of the tax revenue generated by the state of Washington annually.


For additional context, the $675 million over four years amounts to less than $170 million a year, about $340 million a biennium. As the Washington Research Council writes, the Economic and Revenue Forecast Council estimates revenue collections for the 2017-2019 biennium to be $40,567.5 million ($40.6 billion). The state-estimated revenue hit, then, is less than 1 percent of anticipated revenue.

These calculations are inherently imprecise. (“Prediction is very difficult, especially about the future.”) Economist Yoram Bauman, a prominent I-732 supporter, tells the Times,

“I continue to be confident our policy is approximately revenue-neutral,” he said.

This estimate won’t be the last analysis of the fiscal impacts of I-732. As the Times reports,

If I-732 does end up on next November’s ballot, the state will develop an official revenue-impact statement, as it does for all ballot measures. The legislative staff analysis can be seen as a first draft of that, but [state Rep. Reuven] Carlyle and Bauman agreed more rigorous study is warranted.