In November, voters in Washington state will cast ballots on Initiative 732, which would establish the first tax on carbon emissions in the United States. As the election rapidly approaches, environmentalists have spoken out both for and against the initiative. Arguments focus on a variety of issues, including what should be done with the revenue from the tax. The initiative proposes using the revenue to reduce other taxes, rather than generate new income for the state. However, critics are concerned about the accuracy of revenue projections, and believe the tax may reduce the state’s overall revenue.
RFF’s Dallas Burtraw recently highlighted research by himself and other RFF experts that finds “the way revenues from a carbon tax are used is even more important than the level of the tax with respect to the impact on households.” One of the potentially important ways that a carbon tax affects consumers is the change in electricity prices, but the effect in Washington should be small. Because Washington has no income tax, revenue from the proposed carbon tax would help reduce the state’s sales tax to alleviate some of the financial burden on low-income families, and would be approximately “revenue neutral.”
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