All About Initiative 732

1.What is Initiative 732?

I-732 encourages clean energy solutions by shifting the tax burden onto carbon pollution and away from regressive and burdensome taxes that hurt families and businesses:

  • A $25 per ton tax on the carbon pollution from fossil fuels.
  • A one percentage point reduction in the state sales tax — saving hundreds of dollars per year for an average household in Washington.
  • Funding the Working Families Tax Rebate to provide up to $1,500 a year for 460,000 low-income households.
  • Keeping living-wage jobs in our state by lowering the Business & Occupation tax on manufacturing from as much as 0.484 percent to 0.001 percent of gross receipts, effectively eliminating the tax.

 

For more details about the policy, please read our plain-language version.

2.Why do we need Initiative 732?

We have a moral responsibility to our children and future generations to protect them from global warming and climate disruption. That means tackling climate change now and leaving them a cleaner, healthier, safer world. I-732 reduces emissions by taxing carbon dioxide, the main form of global warming pollution. And it makes the tax system fairer and more sustainable by using the carbon tax revenue to reduce the sales tax and other regressive and burdensome taxes that hurt families and businesses.

3.How much does climate change cost Washington State?

The Washington Dept. of Ecology reported that “costs to Washington from climate change impacts are projected to reach nearly $10 billion per year by 2020 and $16 billion per year by 2040. These totals reflect increased coastal and storm damage costs, increased energy-related costs (reduced hydropower production and increased demand), increased wildfire costs, increased health-related costs, costs associated with reduced water availability, and other impacts.” Climate action can’t wait. I-732 provides an effective way to begin curbing the environmental impacts and costs associated with climate change.

4.Will a carbon tax cost Washington citizens more money?

No. I-732 lowers taxes on things we want more of (like jobs and purchasing power) and raises them on things we want less of (carbon emissions). This won’t increase taxes overall, but it will encourage individuals and businesses to reduce their use of fossil fuels. It will also make Washington’s tax code more fair by reducing a tax that hurts lower-income people the most — the sales tax. Many people will be better off, the climate and our air quality will be much better off, and we will be acting on our moral obligation to tackle climate change.

5.How will I-732 affect me and my family?

See for yourself using the UW carbon tax swap calculator. We estimate that an average family will save a few hundred dollars a year in reduced sales taxes and pay a few hundred dollars a year more in carbon taxes. Because of the sales tax reduction and the Working Families Tax Rebate, many working families in the bottom 20 percent (by income) will pay less than half the taxes they do now.

6.How will the carbon tax be calculated and implemented?

A carbon tax is a tax on fossil fuels based on the amount of carbon dioxide produced when those fossil fuels are burned. A $25 carbon tax would raise the price of gasoline by about 25 cents per gallon and the price of coal-fired electricity by about 2.5 cents per kilowatt-hour. Electricity from natural gas is cleaner by half and so would face a tax rate only half as large. Renewables like hydro, wind, and solar are carbon-free and would pay no tax. This will help make clean energy even more appealing than it is today.

The carbon tax will be paid “upstream” by power plants and fuel importers. They are likely to pass cost increases along, so consumers are likely to see price increases for purchases like gasoline and coal-fired power. Consumers will also see price reductions on other items they buy because of the sales tax cut.

7.Has this approach worked elsewhere?

In 2008, British Columbia passed a carbon tax that many economists consider to be the best climate policy in the world, and it has been highly effective. Carbon emissions are down as much as 16% and the economy of British Columbia is doing as well if not better than Canada as a whole. I-732 is patterned after the B.C. tax swap. The Canadian province of Alberta is also introducing a carbon tax, and carbon tax proposals are under consideration in a number of U.S. states. But the vote on I-732 in Washington State will be the first in the nation. To quote the Carbon Tax Center, “Washington State is the epicenter of state-level carbon tax action in 2016.”

8.How does I-732 affect low-income households?

Washington State’s tax system is considered the most regressive in the nation, meaning it is the least fair to lower-income people. Thanks to the sales tax reduction and the Working Families Tax Rebate (described below), passing Initiative 732 will be the biggest improvement in the progressivity of Washington’s tax system since 1977 (that’s when a ballot measure exempted groceries from the sales tax). Many working families in the bottom 20% (by income) will pay less than half the taxes they do now.

For more information, see our posts on How CarbonWA Advances Social Justice and Carbon Taxes Are Even Better than You Think (Part III: Social Justice).

About the Working Families Tax Rebate: I-732 takes a critical first step in reducing taxes for people not earning enough to cover basic needs. A 25 percent match of the federal Earned Income Tax Credit, the Working Families Tax Rebate under I-732 would provide up to $1,500 a year for low-income working families. For Washingtonians living paycheck to paycheck, this rebate not only keeps their families afloat, it’s usually spent locally – on things like groceries and car repairs. That benefits both struggling families and our local economy. Twenty-six states and the District of Columbia have built on the success of the federal Earned Income Tax Credit and offer a match of their own. By passing I-732, Washington can join them and provide this vital support for 460,000 low-wage workers and their families.

9.How does I-732 impact businesses?

Most businesses will pay a bit less in sales taxes and a bit more in carbon taxes. The carbon tax will encourage companies to work harder to reduce their consumption of fossil fuels, and the sales tax reduction will encourage them to shift their purchases towards low-carbon goods. Energy-intensive businesses like manufacturers will pay considerably more in carbon taxes, but effectively eliminating the B&O business tax for manufacturers will help to offset those impacts.

Business owners can estimate the effect of I-732 using the UW carbon tax swap calculator.

10.Who’s behind I-732?

Carbon Washington is a non-partisan grassroots group of scientists, economists, former elected officials, business owners and concerned citizens who believe that we have a moral obligation to take action on climate change. Since the legislature did not act in 2015 — and since other groups have been unable to bring about meaningful change — we wrote Initiative 732. Our intent is to encourage clean energy and discourage fossil-fuel pollution, while promoting economic growth for families and businesses in Washington. We believe it is the fairest approach to climate action, and the most likely to be supported by everyday Washingtonians.

11.Who supports I-732?

I-732 is endorsed by citizens, business leaders, scientists, economists, public officials, and social and environmental leaders on both sides of the political aisle. You can see the individuals and organizations who support the measure on our Endorsements page. I-732 has the support of hundreds of thousands of citizens across the state and is certified to appear on the November 2016 ballot.

 

12.If this is good for the environment, what is taking major environmental groups so long to come out strongly in support?

Initiative 732 is an important first step to reducing pollution, making our tax code more fair, protecting low- and middle-income families, and enabling our state to prosper in a low-carbon future.

I-732 is based on a proven approach to reducing carbon emissions. Similar policies have been implemented successfully in British Columbia and elsewhere around the world. With I-732, we have an opportunity to pass the most effective climate policy anywhere in the country. At the same time, we’ll be implementing what may be the biggest anti-poverty measure in the state since the sales tax exemption for grocery store food was approved in 1977. If we don’t pass I-732 now, we may wait years before our state takes any action on climate change.

With the risk of dangerous climate impacts growing by the day and Washington currently projected to miss even its modest 2020 greenhouse gas reduction target continued inaction is unacceptable. Fossil fuel pollution imperils the health and economic prosperity of all Washingtonians. If no action is taken to reduce these damaging emissions, potential costs to our state from climate change impacts are projected to reach $3.8–$10.9 billion per year by 2020 due to increased wildfire, storm, food, energy, and public health costs as well as reduced salmon runs, agricultural production, and recreational business.

The decision of a number of environmental groups in our area not to support I-732 is disappointing and puzzling. We have a moral obligation to protect our children and future generations, leaving them a world that’s cleaner, healthier and safer. It is our sincere hope that these groups will change course, support I-732, and help us lead the fight against climate change, promote clean energy and achieve social justice now.

Read more.

13.The state’s Office of Financial Management says I-732 will not be revenue neutral, but will in fact result in a loss of revenue. How will this affect the state’s ability to fund other important programs?

I-732 aims to be revenue-neutral, with revenue from the carbon tax offset by reductions in existing taxes. And I-732 will in fact be very close to revenue-neutral, as illustrated by the following graphic, which shows that I-732 is projected to be slightly negative according to the state Office of Financial Management (OFM) and slightly positive according to our own calculations. 120billion.graphic If you are interested in the difference between the (slightly negative) OFM numbers and the (slightly positive) numbers from our own estimates, here is what we think the OFM analysis gets wrong:

  1. It does not account for the taxing of “exported power” (electricity that is generated in Washington and sold elsewhere).
  2. Utilities report some of their electricity as “unspecified,” which I-732 taxes at a higher rate than OFM assumed.
  3. OFM incorrectly “double counts” the Working Families Tax Rebate in fiscal year 2018.
  4. OFM ignores that Washington State is growing faster than California. (This is relevant because OFM uses a West Coast average to estimate future carbon emissions in Washington State.)

You can read a more complete explanation here. Making these four corrections is the difference between the (slightly negative) OFM numbers and the (slightly positive) numbers from our own estimates. Because Washington State is large, the numbers involved are also large: the (slightly negative) OFM number is about -$800 million over six years, and the (slightly positive) number from our own estimates is about +$800 million over six years. But to keep these numbers in perspective note that the state’s Economic and Revenue Forecast Council described a $442 million decline in projected revenue for the next 2-year period as “relatively small, amounting to a reduction of just over one percent.” 

For additional perspective, consider that the state’s tax revenue divided among the 2.8 million households in Washington State amounts to about $7,000 per household per year. According to the (slightly negative) OFM numbers, that amount will decline to $6,958. The bottom line is that the fiscal analyses of I-732 are within the usual margin of error for state tax estimates. Furthermore, the legislature will be required to reauthorize the Working Families Tax Rebate after two years, at which point they can easily “fine tune” the numbers with a simple majority vote. Two final points are worth making:

  1. The OFM analysis also included good news, in particular the projection that I-732 will increase total sales — meaning more jobs and a net increase in local tax revenue of $156 million over 6 years.
  2. Remember that the cost of doing nothing greatly outweighs any cost of implementing I-732. The state’s own estimates show that climate change will cost billions of dollars by 2020 due to increased heat waves, droughts, wildfires, flooding, insect infestations and health-care costs — as well as reduced food production, smaller salmon populations, fewer shellfish, and lost recreation.
14.Is this really the best way to reduce CO2 emissions?

Yes. Fossil fuels account for about 85% of the state’s greenhouse gas emissions. As I-732 is phased in, it will put into action the highest price on carbon implemented anywhere in the U.S.

Economists across the political spectrum agree that putting a price on carbon is the best way reduce fossil fuel use. On the left, there’s Nobel Prize winner Paul Krugman: “Emissions taxes are the Economics 101 solution to pollution problems; every economist I know would start cheering wildly if Congress voted in a clean, across-the-board carbon tax.” On the right, there’s Harvard economist Greg Mankiw: “Among economists, the issue [of a carbon tax] is largely a no-brainer.” To summarize, here’s Yale economist Bill Nordhaus, president of the American Economic Association: “Raising the price of carbon is a necessary and sufficient step for tackling global warming.”

15.What about biofuels, methane from cows, coal and oil trains, etc.?

The tax only applies to carbon emissions from burning fossil fuels, which account for about 85% of all greenhouse gas emissions in Washington State. Biofuels, methane from cows, and industrial-process emissions will not be subject to the tax. Fuels that are a mix of fossil fuels and biofuels will be subject to the tax based on only their fossil-fuel content. Fuels from coal and oil trains will be taxed if they are burned in Washington, but not if they are in transit to other jurisdictions because that would violate the Commerce Clause of the U.S. Constitution.

16.How can I help?

This campaign hinges on getting the word out to voters across the state about I-732 before ballots drop this fall. Our data shows that if voters hear a simple explanation about I-732, how it works, and what it does, the support for climate action skyrockets. Can you help us deliver our message to voters across the state so we can pass the best climate policy in the U.S.?

 

17.Where I can learn more?

We suggest you start with our Media Highlights page, which includes sections on I-732, carbon pricing in general, the carbon tax in British Columbia, and climate change. We’ve posted a plain-language version that walks you through I-732. And you’ll find helpful background at the Carbon Tax Center. If you have questions, please use our contact form. Please sign up for our weekly email blast and connect with us on Facebook and Twitter.