I’ve been dutifully reading the op-eds and campaign essays by people opposing I-732, Washington State’s carbon tax initiative, trying to understand what they’re missing. Obviously, emotions are running hotter because of the state’s budget crisis, ultimately a product of its horrible revenue system. And there is no question that 732 is flawed in fundamental respects, mainly because of its misguided attempt to return carbon revenues via tax cuts. But the issue opponents of 732 have seized on is not the inefficiency of using the tax system for returning carbon money, but the principle of revenue recycling itself. They view the carbon tax as a necessary and valuable new revenue source and accuse 732 supporters of being enemies of social justice for trying to return it. If their public statements are to be believed, returning carbon money is no more than a cynical play for the votes of pro-business conservatives and serves no other purpose. How to explain their inability to understand the case for recycling?
Well, I think I may have figured it out, or at least I have a hypothesis. It goes like this:
For PR purposes, environmentalists have sold carbon taxes on the basis of a moralistic interpretation of the “polluter pays” principle: companies that generate carbon emissions should pay for their sins. I can understand why they do this, and I’m sure it polls well and comes out favorably in focus groups. Nevertheless, it’s based on an incomplete representation of how the price mechanism operates. Yes, a tax on manufacturers or energy companies will initially be paid by them, but most of it will be passed along to consumers, as logic dictates it should be. After all, it is not just a few companies, but all of us whose economic choices need to be shifted. You can see this already in the taxes levied on various “sin” products. Cigarette taxes, for instance, are not paid out of reduced tobacco profits; they are passed along to smokers in the form of much higher prices on cigarettes. That’s exactly how the system ought to work, too.
Carbon taxes operate the same way. The general public will end up paying virtually all of it through higher prices, and the argument for recycling the revenues is that doing this protects our real income and living standards. The social justice dimension is about the progressivity of the recycling mechanism, especially since consumption taxes are intrinsically regressive. The true incidence of eco-taxes and the consequent role of recycling are not emphasized by green activists, however, for obvious political reasons. Nevertheless, I had thought that, being informed people, they would know how taxes function.
Maybe I was wrong. Absolutely nothing in the argumentation of the anti-732 crowd conveys an awareness of who will actually pay the carbon tax. These people claim to defend their communities, but their logic depends on ignoring the fact that their communities will pay the freight. Defending them, from their point of view, therefore does not include defraying their higher living expenses. Could this interpretation be correct? It’s believable if you think these “left” groups are uninformed about economics and actually believe the rhetoric that it is only the corporations that will pay carbon taxes. (I have noted this misconception in the writing of Naomi Klein, who has gone on record against 732.) Or, perhaps, it is more devious than this—perhaps the opponents of 732 understand their constituents will pay the tax but believe they will come out ahead by asserting a claim on the tax revenues generated from other communities in the state. Between not understanding and understanding but dishonestly manipulating, I prefer the first.
I could be wrong about all of this, of course. The easiest way for me to be proved wrong would be for committed “social justice” opponents of 732 to explain out loud why they are not concerned about the regressive payments imposed on their own communities by a carbon tax, and therefore why defraying them is not part of their agenda.