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The Progressive Economics Forum

BC’s carbon tax turns two

With all of the attention focused on the HST implementation on July 1, most people seemed to miss the next increment of that other much-hated tax, BC’s carbon tax. As of July 1, the carbon tax is now $20 per tonne of CO2, or about 4.6 cents on a litre of gasoline. And like any two-year old, this toddling tax increase is set to wreak some havoc on the household.

What the carbon tax shares with the HST is a bigger hit to the bottom of the income distribution. When it was introduced back in 2008, the carbon tax dedicated about one-third of revenues to a low-income credit (the remainder going to personal and corporate income tax cuts). This was a big positive with  households in the bottom 40% of the distribution slightly better off on average, with credits exceeding taxes paid.

Alas, last year’s increase to $15 a tonne wiped out that gain because the low income credit barely increase in value (from $100 per adult to $105), while the carbon tax grew by 50%.

The new 2010 increment to the carbon tax will make the whole regime regressive – meaning a bigger hit to low-income families relative to their income; they will be absolutely worse off even after considering the credits. For the bottom 40%, the numbers are not huge – about a $30 per year loss, but pile that on top of the HST and you get the picture. That said, it could have been worse: the2010 budget increased the credit another ten bucks to $115.50 per adult.

One might argue that the whole point is to get all households to change their behaviour in response to the carbon tax. But it is the lowest income families that have the hardest time making the capital investments needed to get ahead of the curve, and who are most locked into carbon necessities (like heat) that are difficult to reduce easily. High income families have a much easier time reducing their consumption and upgrading their homes for energy efficiency.

Like the HST, the carbon tax brings a windfall to business, with a large chunk of this year’s revenue going to corporate income tax cuts. Back in 2008, the projected recycling to business tax cuts in 2010/11 was estimated at $333 million. In the 2010/11 budget that amount has been souped up to $412 million – more than half of the anticipated $796 million in carbon tax revenues – to add onto savings coming from the HST.

Since all taxes are ultimately attributable to households, corporate tax cuts are essentially upper income tax cuts. On this basis, the top 20% of households (who own the vast majority of shares in businesses) are actually huge beneficiaries of the carbon tax regime. Not counting the corporate tax cuts, the top 20% of households would pay about $536 more on average in carbon taxes than they receive in personal income tax cuts, but if we include the corporate tax cuts they receive a net benefit (tax cuts less carbon taxes) of $291.

The remaining carbon tax revenues are recycled into personal income tax cuts. In 2008, this was supposed to be $410 million in personal income tax cuts. By the 2010/11 budget that number had been almost halved to $211 million (there is also $20 million in benefits to northern and rural households in addition to this).

Don’t get me wrong: carbon taxes are still an important policy tool in battle against global warming. In fact, at $20 per tonne we are only now just getting into the range of carbon prices that will start to change behaviour. Currently scheduled increases go to $30 per tonne in July 2012, but after that we do not know where the BC government will go with the tax. A study for the David Suzuki Foundation and Pembina Institute by Mark Jaccard and Associates concluded that carbon taxes needed to hit $200 per tonne by 2020 if we are going to achieve our GHG emission reduction targets.

That’s a steep price increase, and that is why we need to get the details right around how the proceeds of the tax are redistributed. Given the need of lower-income households to adapt, there is a compelling case to be made to significantly increase the share of revenues going to a refundable credit — like half of the carbon tax revenues, with more households in the middle-income range benefitting as well. (In fact, pooling the carbon tax credit with the HST/GST credits into a consolidated credit and greatly increasing their values would be a nice step towards a guaranteed income, but I digress.)

The other half of carbon tax revenues should not go into further personal and corporate income tax cuts, and instead should be used for major improvements in public transit, energy efficiency retrofits, and green jobs training programs. In 2010/11, the carbon tax is estimated to bring in almost $800 million in revenue, rising to $1 billion next year. That is some serious cash that would greatly accelerate climate action in BC.

*Note: Figures cited are based on my 2008 report with Toby Sanger, Is BC’s Carbon Tax Fair? Numbers have been updated based on information in Budget 2010.

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Comments

Comment from Travis Fast
Time: July 5, 2010, 5:23 pm

“Don’t get me wrong: carbon taxes are still an important policy tool in battle against global warming. In fact, at $20 per tonne we are only now just getting into the range of carbon prices that will start to change behaviour. Currently scheduled increases go to $30 per tonne in July 2012, but after that we do not know where the BC government will go with the tax. A study for the David Suzuki Foundation and Pembina Institute by Mark Jaccard and Associates concluded that carbon taxes needed to hit $200 per tonne by 2020 if we are going to achieve our GHG emission reduction targets.”

So you say at 20$ behaviour starts to change and Suzuki says 200$ for meaningful change. At 15$ the system already went regressive.

As I have argued here time and again on taxes, IF there is no political will for redistribution there is no political will for redistribution. Arguments in favour of any kind of flat tax–consumption taxes–in this political environment are arguments for regressive taxation. Progressive economists need to smell the coffee here and just quit their tepid support for switching the tax mix towards consumption based taxes. 30 years of experience argues strongly in favour of the proposition that they are a trojan horse for increasing inequality.

It reminds me Krugman’s inelegant defence of free trade when he argued, to paraphrase, that free trade increases total income and thus should be supported as some economically non distorting redistribution scheme could compensate the losers.

The losers of course were never compensated. Come to think of it maybe that is why they are called losers.

Comment from Marc Lee
Time: July 6, 2010, 9:22 am

I think you’re missing the point, Travis. We do need some broad based mechanism to signal that the atmosphere is not a free dumping ground. And if there was a clear path to $200 in 2020, today’s $20 would be much more meaningful when people make decisions about upgrading their appliances, vehicles, etc.

On balance, public spending in Canada, through services and transfers is already highly redistributive. So it just takes a moderately more progressive government to make the shift with a growing source of revenue like a carbon tax.

Comment from Travis Fast
Time: July 6, 2010, 12:38 pm

I am not missing the point I am denying its efficacy on two fronts: one behavioural and one political.

Taxes on cigarettes might have changed some behaviour at the margin. What really seems to have turned the behavioural tide was an outright ban on smoking from bars to restaurants to public spaces and so on coupled with a relentless campaign against smoking and smokers. Now that is one heck of a signalling system.

“On balance, public spending in Canada, through services and transfers is already highly redistributive.”

What has been the tendency over the last 30 years? You are making the classic mistake of optimists: things can in fact get worse.

“So it just takes a moderately more progressive government to make the shift with a growing source of revenue like a carbon tax.”

Actually it takes a permanently more progressive government. Get back to me on the carbon tax after you have the political will to both tax at 200$ and redistribute that magnitude.

Comment from Marc Lee
Time: July 6, 2010, 2:09 pm

Tobacco is an interesting comparison — a mix of regulations, taxes and education — precisely what is needed for GHG reductions. But it is worth noting that regulation does impose costs that would be passed along to consumers, so it too is regressive in impact. The advantage of carbon taxes is that there is a revenue source that can be used to do something about it, government willing.

Comment from Paul Tulloch
Time: July 6, 2010, 6:04 pm

Here is what you do- tax at the source. You drive a big car you pay more, you want to use 64 air conditioners for you bachelor apartment- you pay, you want to drive a Hummer, you pay. You want to take the bus, you save, you want to ride your bike, you save and it is made more safer and accessible, you want to take a trip in an ariplane, you pay.

These are far less regressive and most likely a whole lot more progressive than a carbon tax. Use a carbon tax but not in a flat tax means- I agree 2000% with Travis- there is no such thing as a non-regressive tax.

The problem is, their is no political will to touch those with the money as it was pointed out numerous times now, it is those with the cash and the toys and the over-man lifestyles that suck up all the energy.

A carbon tax under the BC method is tax will meet a wall of resistance the minute it starts being effective, and hell, who blames people. The ones who will be complaining will be the ones that food is being taken from their fridge. I really wish you would change tactics Marc, as it is just so non-progressive to support a carbon tax in such a manner. In fact it is not progressive at all.

There are alternatives, my question is why are you so stuck on flag waving for such a unfair tax that will never be effective. Why are you wasting your time???

paul

Comment from Travis Fast
Time: July 6, 2010, 6:35 pm

To echo Paul’s point. I am sitting in the middle of a forest with a bunch of people who will gladly pay for perfectly clear water in a swimming pool in the middke of the forest and who have all arrived in sports cars and SUVs. And they will gladly pay another 200$ in carbon taxes for the privilege. In fact it will increase their tales of extravagance.

The NDP really got the environmental question all wrong. A society based on inequality will always punish the least capable of defending their interests. Make them an enemy of of the environment via flat carbon taxes and they will vote in reactionary manner. I saw this in the logging industry back in the late eighties and early nineties. All the NDP did was turn nominally fair minded citizens into reactionary reformers. Given we have already viewed that film maybe we could get it right this time.

No taxation without redistribution!

Ps Marc I notice you avoided my two questions.

Comment from Marc Lee
Time: July 6, 2010, 9:01 pm

Travis and Paul, you seem to be bending over backwards to disagree with me, when you really don’t.

Travis says “no taxation without redistribution” which is pretty much what’s in my post.

Paul says “Here is what you do- tax at the source. You drive a big car you pay more, you want to use 64 air conditioners for you bachelor apartment- you pay, you want to drive a Hummer, you pay. You want to take the bus, you save, you want to ride your bike, you save and it is made more safer and accessible, you want to take a trip in an ariplane, you pay.”

Re-read my post; I say pretty much the same thing.

Whether a tax is regressive or not depends on the tax AND what you spend it on. That’s why the Nordic model works with regressive consumption taxes that finance high quality public services.

Comment from Paul Tulloch
Time: July 6, 2010, 10:22 pm

You say

“Don’t get me wrong: carbon taxes are still an important policy tool in battle against global warming. ”

and I do understand that you also qualify it by

“we need to get the details right around how the proceeds of the tax are redistributed. Given the need of lower-income households to adapt, there is a compelling case to be made to significantly increase the share of revenues going to a refundable credit — like half of the carbon tax revenues”

However it still to me is a flat tax, albeit with some redistribution- depending on how it all is calculated.

However Marc, the point you are missing is the marginal utility of money in terms of taxes. People with cash will pay not matter what and will not change their behaviour, and for many as was displayed when fuel prices reached $140 a barrel, the demand is pretty much inelastic. So you will have trade offs.

I still say though forget about a carbon tax the way it is being implemented as I do believe Travis is right, it will become a socially unsellable policy as people at the lower end, even with the transfers, it becomes a timing and transaction cost collection issue that is difficult to resolve. I just do not see how all this will work out in terms of being fully socially audited and in the end not regressive.

Why not just build a tax on other say energy luxury items. Potentially still partially regressive, but at least it is a bit more democratic and less invasive into ones life.

I walked by a huge 3/4 ton pick up truck today, that had every piece of extra you could think of on it and the size was unbelievable. I thought about carbon taxes and thought about how that would have influenced this person’s behaviour. Sure they have a right to own such hardware, but at whose cost. Is a carbon tax going to solve this rationing problem- ie, the need to display some culturally defined wealth signpost, versus the person who drives in from the far off burbs and drives a small fuel efficient car because the transit system is unreliable, and in the end, because of income, (say the have the same income) they get penalized at the same rate.

That does not work for me. There needs to be some kind of luxury energy tax in place as a first step towards policy and changing behaviour.

It is not an easy fix I know but it to me is a better start. It has got to be focused on energy consumption and not based on income straight out. If you are rich and you take a bus, hey great, you should not be penalized either.

However I do realize this is not without problems either, I heard a fairly crack pot report the other day attacking dog owners, saying that dogs leave a huge carbon footprint. So do we start taxing dog owners.

That is getting a bit out there, but how about we start with simple things like, huge energy users, and how about expanding that into industrial world. Lets start focusing the mainstream on the corporate sector. There are undoubtedly just as many abusers within the industrial sector so lets relax a bit on the carbon tax and start getting the industrial transformation required into gear.

Carbon trading again I say, in the end will probably just be another carbon tax passed on, at least within the oligopoly norm. So we need to regulate with much stricter measures, like hard caps, with incentives.

pt

Comment from Marc Lee
Time: July 6, 2010, 10:51 pm

Your energy tax sounds like a carbon tax to me. Regulate with hard caps? OK but that cost will be passed on so how do you propose to deal with the regressive impact?

I’m calling for plausible policy changes to BC’s tax that would flow half a billion dollars to low to moderate income families next year and another half a billion into public transit and other good stuff. And those amounts would grow over time — all in exchange for a tax on an activity that is rendering the planet uninhabitable for humans, and even better, a tax that is disproportionately paid for by the highest emitters.

And yet you disagree, seemingly because of perceptions about politics and public opinion.

Anyway, some consistency, please. If you oppose carbon taxes for being regressive, then logically all federal and provincial gas taxes should also be revoked, ie gas prices should be a third or so of their current levels. Is that really progressive?

Comment from Purple Library Guy
Time: July 6, 2010, 10:54 pm

The moment anyone says “Would be passed along to consumers” I get out some salt to put with what they’re saying. This is with respect to how regulation would also be regressive because its costs “would be passed along to consumers”.
Any time anyone proposes any kind of progressive measure those who want to resist going progressive at all costs (I don’t mean to say this is you, Mr. Lee, I just think in the heat of discussion you’re absentmindedly reaching for a bad tool) start to swear up and down that it wouldn’t *really* be progressive because the costs “would be passed along to consumers”, and any time anyone puts forward a regressive measure like dropping corporate taxes or taxes on investment, capital gains or whatnot, they are bound to claim that the savings will be “passed along to consumers”–apparently due to the magic of competition. Apparently in theory it doesn’t matter what the taxation structure is at all, markets will instantly adjust to any and all changes.

Of course that isn’t how things actually work, which is why regressive changes in taxation over the last couple of decades have been a major factor in vastly increased wealth for the wealthiest. Regulate the behaviour of corporations and the costs will largely fall on the corporations–that’s why they hate being regulated so much. If costs were *really* passed on to the consumer they wouldn’t care.

As to the carbon tax itself–I have serious reservations about ’em, although even bigger ones about cap-and-trade. I back regulation, yes. Education, certainly. Carefully thought out subsidies. Also direct positive government action. Back a few years when Layton was first NDP leader, he proposed a program where government would go to people’s homes (and probably small businesses), assess them, propose efficiency retrofitting that could be done, arrange the contracting, and offer a low- or no-interest loan whose payment cost the same as or less than the energy saved, and tell the resident basically “Sign here and we will make it happen”. Cost to the homeowners etc., less than zero especially in the long run. Cost to government, low–you’re losing some money on the loans, but not like if they were grants. Creates jobs. With programs of that nature you bypass the whole mess of trying to calculate what kinds of clever nudges to markets will theoretically make them cough up what you want and instead just do it. Many important measures can only be done through direct government action anyway–transit infrastructure, redesigning urban spaces to reduce travel distances and so forth.

Comment from Purple Library Guy
Time: July 6, 2010, 11:12 pm

Oh, yeah–the Nordic model probably wouldn’t work with our income distribution. It works in part because of very high union densities, and because that and other political factors drive a much flatter income distribution than we have here. Redistribution is less of an issue if there’s less inequality to redistribute.

Comment from Paul Tulloch
Time: July 7, 2010, 6:40 am

“Your energy tax sounds like a carbon tax to me. Regulate with hard caps? OK but that cost will be passed on so how do you propose to deal with the regressive impact?”

I agree with PLG that it is not a case of just assuming it is always passed on. There is such a thing as regulation. If the oligopoly does not want to eat the costs or make the changes to become more energy efficient, they go bankrupt,. Bring somebody in that will do the job given the constraints. If you leave it to carbon trading, it is basically a hard cap in the longer run. Regulate instead, to ensure the appropriate changes take place, as leaving it up to the current oligarchical non-compete is not producing results.

’m calling for plausible policy changes to BC’s tax that would flow half a billion dollars to low to moderate income families next year and another half a billion into public transit and other good stuff. And those amounts would grow over time — all in exchange for a tax on an activity that is rendering the planet uninhabitable for humans, and even better, a tax that is disproportionately paid for by the highest emitters.

How about scrapping the whole tax and starting again. This time leave out the bottomend, and those that are already making the energy savings efforts. That is the problem with what you propose, it is all somehow going to be solved bu some tax policy that does not work until it hits a wall that finally the inelasticity is overcome, and when that happens, people will be on the streets and the tax is thrown out.

In the build up to the inelastic wall, it is nothing but a cash grab, which if pointed to wards energy saving, then fine- great, but at whose expense? It is your disproportionate, proportions that I have the problem with.

Your decision variable is where all the injustice hits me and more importantly lower income regressive nature of all flat taxes. You are letting those on the top make no sacrifice, in comparable terms to those on the lower end.

Those on the top end will have to make small decisions, like maybe by a smaller sized giant SUV, (and that is assuming his is a huge carbon tax) whereas on th bottom end you have people making decisions over the content of their fridge (if they have one). You can talk about redistribution and such but it is still a regressive decision making decision.

Leave the taxes out and tax the high end energy users, is a whole lot different than what you are claiming with carbon taxes.

I still say focus on the industry and leave the consumers alone. Start with the industry and the high end energy users on the consumption side, and use plenty of positive incentives.

Here is a complicated idea, how about we halves the cost of public transit, right now, this very instant. Instead what do we see, local governments across the land continually using the public transit system as a revenue stream. How about starting just with that and see if we can at least have a policy that means something.

As it stands the carbon tax is a joke and it always will be a side show, that somehow, which I really do not understand, has occupied progressive economists minds.

Scrap the tax.

Comment from Paul Tulloch
Time: July 7, 2010, 7:43 am

I know these forums are fairly informal, but let me clarify my thoughts on this issue, so that I can maybe get a little closer to resolution.

What I propose is, a targeted high energy user tax. Not an across the board carbon tax that effectively does little but make the green buy-in within it highly negative cultural conveyor belts running through everyones pay cheques.

Focus is the key to a sellable and hence useful carbon solution.

Targeted high energy user taxes and low energy user incentives on the consumer side, and hard caps with plenty of targeted incentives, and very strict regulation on the industrial side.

That and a whole lot more education of the facts***** which there seems to be a whole lot of confusion over.

I think the carbon tax was a total neo-con idea that was merely a stalling tactic to pretend something is being done.

Comment from Marc Lee
Time: July 7, 2010, 8:09 am

Paul, energy is, for the most part, fossil fuels, which is carbon. We need to move to a system where our energy is essentially all cleanly generated electricity, perhaps a little biofuel and hydrogen too. So your energy tax is a carbon tax — perhaps a slightly different base than BC’s carbon tax (which is combustion of fossil fuels) — but essentially the same thing.

If you think corporations won’t pass along cost increases you are dreaming. Especially given the costs involved in rapidly reducing emissions — otherwise they would go out of business. Even if only a fraction of the costs are passed on, you still need to figure how to alleviate the regressive impact.

My proposal is highly progressive; yours is not. But as I’ve said before, this is not just about a carbon tax as the only tool. Regulations, standards, public investments and education are are part of the package too. Nice thing about a carbon tax is that it can fund those things.

I’m open to hearing ideas about an alternative program but I think you are rejecting carbon taxes with a knee-jerk response. You really need to think about how you would pay for an alternative plan, what the impact on consumers would be, and how you would pay to compensate them. I don’t think you have done that.

PLG, market inequality in the Nordic countries is similar to Canada; it is after taxes and transfers that there is the big divergence.

Comment from Darwin O’Connor
Time: July 7, 2010, 8:16 am

I don’t agree regulation is the best option. Many of the decision need to be made to achieve our long term goals of a 80%-90% reduction in emissions can be made by individuals. They need to change how they get around, where they live and what they eat. Many people waste energy vehicles that are inefficient, but I don’t think steel plants buy inefficient coal furnaces because they look cool. In many cases the best solution is not to regulate an industry to be more efficient, but for consumers to reduce how much of their products they buy.

A carbon tax impacts all carbon emissions equally. Not only does this mean the most efficient choices will more likely be made, but, more importantly, individuals will be able to choose how they reduce their emissions. Some people may chose to have a big car, but live in a small house and eat less meat.

Here is a complicated idea, how about we halves the cost of public transit, right now, this very instant.

The reason people don’t take public transit isn’t because of cost. It is already much cheaper then operating a motor vehicle. It is because it is inconvenient. Instead of cutting the cost it would make more sense to divert the same amount of money into improving service.

Cutting cost may even make things a bit worse because it is discourage even more environmentally friendly forms of transportation, like cycling and walking.

Comment from Paul Tulloch
Time: July 7, 2010, 10:13 am

Okay on the last point, cut transit fares, and improve service. It might be easy to suggest it is just cost that people do not take transit, but it is a decision variable fpr those that drive.

I am not sure why you think the price of a fare is not a reason people do not take t the bus. It is the opportunity cost of driving and taking public transport and inconvenience.

So make it cheaper and more convenient and dump the costs on the high end fuel inefficient vehicles.

The first points you make.

MArc,

you are the one that is gong into this in a knee jerk reaction, leading progresisives down a road that many do not think is a viable progressive plan. You think because you say your plan is progressive, it is. You still have not addressed my issue that the carbon tax is useless until it hits the wall of elasticity and shatters, so if you want to talk about dreaming, then go ahead and dream on and lead progressives down a pathway that is straigh in line with what the neo-cons want.

Like I said above, if the companies cannot address the needs for energy change then they go out of business, trust me there is profit to be made, somebody will come in a make the changes and make the profits.

You do nt seem to understand exactly how the business world works. It is not just about short run profits or quarterly profits. The technology is out there developed by public tax dollars, and the renewable is coming along. Put the hard tax on and let the pieces fall, at least we will get somewhere. This whole carbon trading crap is nothing but a long delay to get to hard caps.

You have a policy design problem Marc, make the choices affordable, and non-regressive and then we can call them progressive. But until that time you will not get many progressives to follow down the carbon tax pathway. Sure some such as yourself will follow now, but weight until the pain of the real carbon tax takes effect and then we will see who was dreaming.

It is not that hard to throw a vehicle tax on fuel inefficient vehicles, it is not that difficult to demand industry to instead of spending R&D on making new faster cars or newer more gadgeted cars, fuel efficieny should be the one and only innovation and R&D goal right now.

Industry might think it is culturally draconian, but hey what about the carbon tax that you are proposing and forcing everybody who does not have 6 figured income into doing all the heavy lifting of change.

And to Darwin, yes it is about individual choice, which we do not have much of these day when it come to a culture that has become reliant on the industrial might of modernity. How about making industry give people some choices that we can live with and be green with. You guys seem to think that this is all bottom ended change.

Start at the top!! That is where we ultimately are disagreeing.

Industry should be in the midst of a green revolution right now, but it hardly is, instead they are involved in an awareness campaign pretending, and all those costs of fighting change are passed onto consumers.

I could not disagree with you both more on these issues.

And Marc, please spare me with the knee jerk crap. You are wrong plain and simple and to try and pretend my argument is similar to yours when I think they are differ in some dramatic ways, i.e. mine is targeted policy, yours is across the board, mine is not regressive, yours is, and then say it is knee jerk is kind of confusing.

The carbon tax in BC as we have all agreed is but just one in a many pronged approach in politically dealing with climate change, and I will say this, it really is a ruse right now and once things heat up Campbell will throw it out in a second.

Comment from Purple Library Guy
Time: July 7, 2010, 10:55 am

Marc Lee, market inequalities in the Nordic countries is *not* very similar to Canada. Income distribution is much flatter, before any transfers.

Taking transit to work in many cases isn’t actually cheaper than using a motor vehicle. Transit prices in BC at least have gone up far faster than inflation for a long time; a long commute on transit both ways now costs $9, more than an hour’s work at minimum wage. For my own case, I’ve gone over the figures with my wife repeatedly and we can’t make it make financial sense. I go to work with my wife because we work in the same place. Our car is fuel efficient (a diesel). Parking there costs, but not nearly as much as, say, downtown. If we both took the bus, we would spend $15 per day on bus fare. That’s over $300 a month. Her driving record is good, so we’d save little on insurance. We’d save no more than $40/month on fuel. Another $50 or so on parking. Ultimately we’d save on maintenance, but this car has been pretty reliable thus far. We’d be losing at least $100/month that we don’t have if we switched to transit. Transit would be cheaper if we got rid of the car entirely, but we still have other things we would really prefer to have a car for. It’s true that sufficiently increased transit availability would make a dent in those needs, although a few days ago I bought a 4′ by 8′ sheet of wood for a small carpentry project and I don’t think I’d enjoy taking that home on the bus.
So yes, it’s much more likely I’d take transit if it were cheaper. People who commute solo may not actually *lose* money by taking transit, but I’d be willing to bet there are a lot of cases where it’s basically a wash or a very slight savings. A clear savings would be much more likely to make people accept a bit of inconvenience as a tradeoff.

I’m finding it hard to believe that you are saying both that a carbon tax would result in everyone transparently going for reduced cost and that reducing transit costs wouldn’t get anyone to switch. Formal analyses seem to suggest that a lot of the demand for carbon is inelastic. Informally, for the less well off carbon taxes just become another case of the high cost of being poor–lousy cash flow stops the poor from doing things that are cheaper in the long run but cost up front. So for instance where the well off may buy high quality things which cost extra but last a long time, the poor must buy cheap things which then fall apart quickly forcing them to buy the cheap things again. Similarly, well off people generally cannot be trapped into relying on such things as payday loans. Carbon taxes for poor people can do little to change their habits. For renters it’s worse–they’re not allowed to make their homes more fuel efficient, but since they do pay for heating a carbon tax gives the landlord no incentive to improve efficiency.
All in all, I’d say targeted taxes (and subsidies) would have very different characteristics from an overall carbon tax, and claiming they are the same thing is deeply mistaken.

Finally, politically there is a longer term problem with carbon taxes: Once government starts getting a lot of revenue from the things, government has a built-in need to make sure they fail in their objectives. If emissions actually fall, it reduces government revenue!

Comment from Marc Lee
Time: July 7, 2010, 11:14 am

Well, I gotta check out of this conversation to enjoy the sunshine for a few days. All I can say is that I have crunched the numbers on the progressivity front, and am content to put forward a proposal building on an existing tax and framework that puts more money in the pockets of low income families while funding public transit and retrofits, financed by high income people who do much more emitting. That is called progressive, and I can prove it.

Paul, I’m hearing a lot of righteous opinion from you, but I have not seen any evidence. So come back with some data and we can talk further. But you have not addressed my criticisms of your proposal: how to pay for the plan, and how to address regressive impacts that are inevitable in any serious plan to address climate change.

Personally, I don’t think a carbon tax gets us to zero. At some point a per capita carbon quota or some such thing would need to be introduced. So PLG, you are right about the long-term. But right now we have a carbon tax in BC and we can use it more than offset financial impacts for the poorest, and we can use to fund transit (which is what the mayors of BC are calling for) and other good stuff. Why progressives would be so opposed to that is beyond me.

There are lots of intriguing options out there, none of which are anywhere close to being on the table right now. So if you want to talk about the perfect system, please do, I’m all ears. But in the here and now, what I’m proposing would greatly improve a tax that is, as my post was all about, problematic — I think Paul and PLG are missing the big picture here.

Over and out.

Marc

Comment from Travis Fast
Time: July 7, 2010, 1:46 pm

For those interested the LIS keeps an updated publicly accessible excel spreadsheet with time series data on inequality with GINIs, 90/10 ratios etc. I would post the link but then I will be held in moderation while Marc is surfing. Just google “Luxembourg income study”.

In any case when an economist argues regressive taxes are the key to a social domocratic paradise just walk away. It is a non sequitur in both the literary (i.e., mildly humorous owing to its absurdity) and the logical sense (i.e., a fallacy given the conclusion does not flow from the premise). The nordic countries are NOT a MODEL. Their political economies reflect a complex interplay of social forces and integration with the world market. In the Nordic countries flat taxes are not regressive because they have a highly entrenched commitment to redistribution which cuts across political parties and is supported by a series of institutions from 80 % union density through to highly centralized bargaining regimes with explicit inter-sectoral agreements allowing for the redistribution of income not just between capital and labour at the level of the enterprise but across sectors. All topped of with pretty comprehensive education and training regimes and other sundry LMPs built ensure the mobility of labour and income level of workers in transition.

Marc may say that is what he wants to build with his regressive taxes. It is indeed a noble goal which I support in large measure. The problem with Marc’s argument is of course that he thinks regressive taxes somehow CAUSE the development of all the redistributive institutions and arrangements outlined above. Let us just call this what is: la pensée magique. It does not corresponds to the socio-economic evolution of any of the Nordic countries. Marc’s logic is a case study in exactly why economic analysis without the benefit of training in politics is at best one-sided; and at worst just a series of violent causal abstractions.

In countries like Canada and the US this (flat tax them and the institutions will come) argument just serves as a trojan-horse for increasing inequality as the last thirty years have been witness to a decimation of both private and public institutions which aid and abet redistribution.

I too lament the fact that the political will and the political economy of NA is a barrier to Marc’s dream. But all is not lost, it just means we have to work harder than proposing simple technocratic solutions to what are in fact much more complex problems.

Comment from Paul Tulloch
Time: July 7, 2010, 2:03 pm

whatever Marc,

you seem to miss my point by the way. I will have a further look at the numbers but I have stated, the intended consequences of a carbon tax are to alter behaviour and that has yet to happen. I have no problem with the current carbon tax being a cash grab by Campbell, as long as he puts it towards green initiatives and he leaves the low income out out of the cash grab.

However, this is not doing much for anybody, it is simply a tax, similar to the GST that gets in people’s faces.

So to me it is a huge strategic mistake, and if anybody is missing the big picture, it is you Marc. It is the leading down this policy road that is a grand mistake. Progressive should stick to policy and lobbying for things such as Hard caps- the real solutions not these slippery slope cash grabs by right wing liberal governments. Leave this other stuff for the liberal minded as they are merely quick fixes. I would to see the cheque cut from the carbon tax and the audit of where all that money goes to.

So yes I will have a look at your numbers and I will also try and spend a little more time on my own ideas.

We agree to disagree, but it is the big picture that I am actually more concerned about MArc, the direction you are trying to take progressives, is indeed not progressive enough for me.

Comment from Paul Tulloch
Time: July 8, 2010, 12:09 pm

Hi Marc,

Just wanted to add a bit in to the story as yesterday I read an article that outlined exactly how companies are passing on the costs of the environment to consumers (which would heavily go against my belief in hard caps, but of course the government in this case could be acussed of actually colluding with the companies as teh McGuinty government did not even issue much in terms of information to inform the public)

Apparently in Ontario on July 1st a little known fee started appearing on products that the government started charging companies a reclamation fee on. So instead o eating the cost, most companies started charging it to customers as an Eco fee. Not sure if they had to explicitly have it show up on the register as a eco fee, but I am assuming at least the government demanded at least that measure be put in place.

So basically McGuinty, allowed companies to charge the fee instead of eating it. Which in most cases, they would have added on to the consumer anyways. However I am not convinced that companies could not be made to absorb these costs and hence come out of retained earnings and not be added into the cost of goods sold.

It defuntely was a very poor display by a government addressing the move to green. No leadership and hiding is what I would call it. Wow , pretty darn pathetic by these companies as well, not even a word to consumers, just shows up on the bill as a eco cost. It is no wonder the public is starting to have a bad taste for green.

Comment from Paul Tulloch
Time: July 9, 2010, 12:47 pm

okay, I am just about finished, but did you see this excellent article by Roger Annis posted on the socialist project about the anti-HST entitled “Tax Revolt Destabilizes Government in British Columbia”.

I would argue that if one were to start increasing the carbon tax, one would see similar actions.

However, the carbon tax in terms of the quantitative will never increase to a point where it hits the inelastic curve that we mentioned above. This leaves the qualitative transformation in definition, just another consumption tax grab by the government hiding behind the glimmering green leaves of a signpost for the Campbell saying they are green conscious.

Green tax revolts based on such models as a consumption tax are just not going to work, at least within a space that they are actually supposed meet their objectives.

pt

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