Replace state property tax with carbon tax for climate action

It has been a roller-coaster year for environmentalists concerned about climate change. The Western Climate Initiative is stalled and hopes for federal legislation are tied up in a 900-page bill with an uncertain future.

One sign of progress comes from right next door. Voters in British Columbia recently re-elected Premier Gordon Campbell, the driving force behind BC's carbon tax. By 2012, the tax will reach about $30 per ton of carbon dioxide, or about 30 cents per gallon of gasoline. Money from the tax is used to reduce other taxes in a "revenue-neutral tax shift," and voters showed their support by backing Campbell and his right-of-center party for a rare third consecutive term.

Could a similar proposal work in Washington? Absolutely.

Start by eliminating the state property tax, an idea floated a few years ago by the Washington State Tax Structure Committee chaired by Bill Gates Sr. The tax is unpopular and repealing it would ensure that it goes away for good. Control over property taxes then would be entirely in the hands of local voters in cities and counties, and the total burden on the state's property owners would immediately fall by 25 percent.

What about the state's public schools, which currently receive every dollar raised by the state property tax? That's where the carbon tax comes in. A tax on fossil fuels of $30 per ton of carbon dioxide — the same rate as in British Columbia — would be more than enough to backfill the lost revenue.

And that's not all. At $30 per ton of carbon dioxide, there would be enough revenue left after replacing the state property tax to provide a rebate to low-income households who spend a higher percentage of their income on energy. Raise the rate to $50 per ton of carbon dioxide — equivalent to about 50 cents per gallon of gasoline — and you could also cut the state business and occupations (B&O) tax on businesses by 50 percent across the board, spurring business expansion and job growth. Reducing the drag on the state economy created by the B&O tax was another priority of the Gates Committee.

Since the whole point of a carbon tax is to reduce harmful carbon emissions, some may be concerned that revenue from a carbon tax would decrease over time and fail to provide reliable funding for our schools. The truth is that by increasing the tax at a slow but steady rate, we can maintain a stable revenue stream even as carbon emissions fall.

For example, consider a "green dream" scenario in which the carbon tax and other measures have been successful in reducing the state's fossil-fuel emissions by 4 percent each year, so that by 2050 they are 80 percent below today's levels. Revenue stability could be maintained by increasing the carbon tax rate by about 5.5 percent plus inflation every year.

With an initial rate of $30 per ton of carbon dioxide, this increase would amount to a few pennies each year on each gallon of gasoline, and by 2050 the cumulative effect on gas prices would be less than the price volatility we've seen in the last year. With an initial rate of $50 per ton of carbon dioxide, our gas tax in 2050 would still be less than what Europeans pay today, and in return we would pay no state property tax and 50 percent less in business taxes.

Phasing in the carbon tax will give families and businesses time to adjust, and in the end they will have more control over the taxes they pay.

British Columbia has shown the way forward with a revenue-neutral carbon tax. Now it's our turn. We can reform our state tax system and cut carbon emissions at the same time.

Bruce Flory is an economist in Seattle. Todd Myers is environmental director at the Washington Policy Center.