Carbon Tax Whacks the Poor, Later
Three years out, wealthy take smaller hit than low income BCers: study.
British Columbians with low incomes will benefit from the carbon tax in its first year, but will pay more by the scheme's third year, a new study concludes.
The impact of the tax and its offsetting income tax cuts will become increasingly unequal unless the provincial government increases payments to low-income earners, the study says.
The study, by Marc Lee, senior economist with the Canadian Centre for Policy Alternatives, and Toby Sanger, senior economist with the Canadian Union of Public Employees, takes a detailed look at the fairness of the controversial tax.
The carbon tax scheme, which took effect July 1, recycles all carbon-tax revenues through personal and corporate tax cuts and a low-income tax credit.
"In year one, about a third of the revenues go to the low-income credit," Lee told The Tyee. "That's good news. That's a good, well-designed policy."
But while the carbon tax will increase steadily over the next five years, the low-income tax credit is scheduled to increase only once -- by five per cent in July 2009.
That means that by the third year, those in the lowest income group will end up paying an average $47 a year more than they get back in tax cuts and credits.
At the same time, those in the top income group will end up better off by an average of $311 in year three.
Stick with tax but change it: report
"It is important for policy makers to rectify this situation in the 2009 and future budgets by minimally ensuring that the credit grows in line with the carbon tax," the study says.
The study also argues that "revenue neutrality" -- recycling all the revenues from the carbon tax -- is "more of a political decision than anything else" and should be abandoned.
It argues the government should instead spend half of all carbon tax revenues on "major transit expansion, transition programs for workers, energy efficiency improvements for low-to-middle-income families, and an alternative technology development program."
Lee told The Tyee that he doesn't see the study's findings as a reason for axing the tax, as the New Democratic Party Opposition has been demanding.
"I'm more of a fix-the-tax kind of guy," Lee said. "I generally like carbon taxes with the caveat that the carbon tax isn't the only tool in the toolbox. You need regulations and standards and public investment, maybe a cap-and-trade system alongside them as well.
"Secondly, you have to design the tax in a way that makes sure that low-income families are not disproportionately hit by the tax in spite of having the smallest carbon footprints to begin with."
Said Lee: "I think they've done a pretty good job in terms of how they've designed the tax. There are some critiques to be made of the carbon tax system but they're relatively easy to fix. We recommend that the government do that in the 2009 budget."
Computer modeling used
Lee and Sanger ran data from Statistics Canada and the provincial budget through a computer model to determine the impact of the carbon tax on different income groups.
In the first year, from July 2008 to June 2009, the tax will cost the average B.C. household $253, the study concludes.
That's about one-half of one per cent of the average household income.
Accounting for the offsetting tax cuts and credits, the lowest 20 per cent of income earners will see a net gain of $38. That's 0.2 per cent of that group's average household income.
At the same time, the top 20 per cent of income earners will end up $62 ahead -- an amount that rounds off to 0.0 per cent of that group's household income.
By 2010/11, the tax is projected to cost the lowest income group $47 per household after tax cuts and credits.
In the same year, the top income group will come out $311 ahead -- 0.2 per cent of household income.
Lee acknowledged that these are relatively small amounts, but noted that the government's Climate Action Team has recommended increasing the tax after 2012, when it will hit $30 per tonne of greenhouse gases.
Biggest footprints get 'perverse' break
Economists have said that, to be effective, a carbon tax should reach $150 or more. At those kinds of levels, the inequality would be greatly magnified, Lee said.
"You want to get this right at the beginning so that if the tax were to be $200 a tonne, you wouldn't have these really massive regressive impacts."
He called the net benefit to the top income earners "kind of a perverse result. Those are the people who have the largest carbon footprint by virtue of having more airplane travel, larger homes, more cars, greater consumption overall.
"In a well-designed carbon tax system those people ought to be paying net taxes. They can reduce that by reducing their consumption."
The study notes that all income groups can reduce the money they spend on the carbon tax, which applies to virtually all fossil fuels, by reducing the amount they spend on carbon-intensive products.
However, the economists add, lower-income households are the least able to invest in energy-efficient technologies. "They are 'capital-constrained' and often lack the ability to invest in even simple technologies, such as compact fluorescent light bulbs.…
"For this reason, low-income households arguably should receive net benefits from the carbon tax regime in order to provide them with more options and choices in how they adapt."
Political support at risk?
Inequality can have a political impact, as well, the study says:
"If low- and middle-income people get priced out of the market while others can 'buy their way out' of change, climate policies may lose broad-based political support."
The study also considers the political ramifications of "revenue neutrality" -- the guarantee that all carbon-tax revenues must be returned to taxpayers. The concept has been ridiculed by carbon-tax opponents, both in B.C. and in the recent federal election.
"There is no reason why revenue neutrality needs to be part of the carbon tax system," the study says. "The government's approach of full revenue neutrality is more of a political decision than anything else, designed to make the tax more publicly acceptable.
"A common reaction, however, is to ask why a government would introduce a tax only to give the proceeds away, rather than spend revenues on other climate actions…"
No growth seen from income tax cuts
While proponents of revenue neutrality argue that the income tax cuts paid for by the carbon tax will boost economic growth, there is little evidence for this position, the study says.
"A recent study by the David Suzuki Foundation showed very little difference in economic impact among various options for recycling carbon tax revenues. Moreover, tax shifting is not sound public policy because at some point in the future carbon tax revenues should fall because we are doing such a good job at reducing emissions.
"Income tax cuts at this point would need to be revisited to maintain funding for public services."
Related Tyee stories:
- Is Carbon Tax Political Poison?
Dion and Campbell might have just sold it badly: pollster. - BC's Carbon Tax Shell Game
Economist who invented 'eco-footprint' analysis is not impressed. - Carbon Tax Gets Another Voter Test Wednesday
Primer: Parties' global warming stands going into byelection.
![[Tyee]](http://thetyee.cachefly.net/ui/img/ico_fishie.png){kind=small}
Frank
29-10-2008
Regressive taxation
Tax the poor and give money to the rich, that sounds like a Campbell policy to me all right. Too bad the enviros support attacking the poor.
Meanwhile, in the real environment, Campbell's anti-salmon policies have driven whales to starvation too. Guess the whales don't know we're paying 2.4 cents a litre more for gas now which somehow, its unexplained by both Suzuki and Campbell, means all mammals in BC are supposed to be fine and not require any habitat protection. But then the enviros support the Liberals because the gas tax is more important to them than habitat protection.
http://www.theglobeandmail.com/servlet/story/LAC.20081029.BCKILLERWHALES29/TPStory/TPScience/BritishColumbia/
realisticman
30-10-2008
Myths & Facts
Myth: The carbon tax will unfairly impact low-income British Columbians.
Fact: Most low-income individuals and families will be better off under the revenue neutral carbon tax than they were before. A major component of the personal and business income tax cuts provided as part of the revenue neutral carbon tax is the ongoing low income climate action tax credit designed to help protect low income individuals and families. The credit will be paid quarterly along with the federal GST credit.
The credit is effective July 1, 2008 and will provide an annual maximum of $100 for each adult and $30 for each child in 2008 ($100 for the first child in a single parent family) . The maximum credit is reduced by 2 per cent of net income in excess of $30,000 for single individuals ($35,000 for families) The maximum tax credit amounts will increase by 5 per cent and the reduction thresholds will be indexed to provincial inflation starting in 2009.
http://www.fin.gov.bc.ca/scp/tp/climate/A6.htm
Cynic
30-10-2008
When you look at the
When you look at the horrendous environmental degradation around us the carbon tax looks like a pretty rinkydink effort to mitigate the damage. What about the "economic growth" paradigm? The reason we are constantly hammered with the call for more growth is to keep the money/debt spigot flowing or the ponzi scheme will collapse. This is why the banker-controlled governments suddenly can find trillions to bail out the financial system. Without money reform environmental degradation is guaranteed and the carbon tax is futile. This CCPA study is not much use, a better one would address the central problem of the fraudulent issuance of our means of exchange.
G West
30-10-2008
Sorry R/man
Please read the whole of the study...in years 2 and 3 of the program when the additional tax cuts in, the payments to low income folks don't rise in lockstep - as Marc Lee's study illustrates.
It's just simple math...plus, no one is costing the horrendous additional administrative expense - it just gets buried.
How much did it cost to deliver those cheques to 3.3 million citizens in July?
You know the answer - you chose to ignore it.
More to the point, the Wurlitzer doesn't do a thing for the environment, get a single car off the road, buy another bus, insultate another house.
What's nice though, is that the greenwash on our convicted criminal premier doesn't seem to be sticking.
In fact, you don't even need to bother with the study, just read this, from Barrett - you'd be better off doing that than bothering with the flim-flam from the Bureau of Public Affairs....now there's an enterprise I'd like to see costed out!
"...the carbon tax will increase steadily over the next five years, the low-income tax credit is scheduled to increase only once -- by five per cent in July 2009."
That means that by the third year, those in the lowest income group will end up paying an average $47 a year more than they get back in tax cuts and credits.
At the same time, those in the top income group will end up better off by an average of $311 in year three.
Nice for your side....
Skywalker
30-10-2008
It's a shell game.
"A common reaction, however, is to ask why a government would introduce a tax only to give the proceeds away, rather than spend revenues on other climate actions…" A good question and likely why Campbell is not believed. This has been nothing about Campbell going green. It is just one of his political games for the suckers that believe him. Nothing he says is believable.
NicS
30-10-2008
Carbon Tax Almost A Dead Horse
Marc Lee of the CCPA keeps harping on about the Carbon Tax being something he likes. While now trying to impress upon us that its not quite perfect. It strikes me that hes trying to make friends with the likes of GWEST for opposing the "in name only" Carbon Tax. Or maybe Marc Lee has been reprimanded for being so hard on the NDP's opposition to it and is just trying to make amends.
Whichever it is Marc, try and get it right the first time next time. As in, know which side your bread is buttered or are you planning on working for Gordon Campbell or Marc Jaccard in the future?
A word of advice though, politics is not your thing, stick to basic logic and an academic life.
G West
30-10-2008
NicS
I was kind of thinking the same thing - there sure are a lot of folks who want to 'love' the Campbell Tax but they haven't really got any answers as to why nobody else does.
What really rots my socks is the attitude that you can't think the Campbell Tax is a joke and still be a strong environmentalist and supporter of addressing climate change.
There was an interesting example yesterday afternoon on the CBC AM radio 4 - 6 show.
The guest host, Shiral Tobin (formerly Rafe's producer and now directing Rick Cluff's Puff program each weekday morning) was sitting in for Stephen Quinn.
She did a short interview with Jane Goodall who was promoting a local appearance AND shilling for donations and support for her efforts to save the big apes.
After a remark by Goodall concerning her efforts to raise public awareness - Ms Tobin chimed in with an unpaid plug for the BC Liberals Carbon Tax and how people weren't falling all over themselves to support it....
She even went so far as to identify it as a Liberal effort - blissfully unaware ( I guess) that such a reference (debatable at best) amounted to an unpaid advert for the Campbell Liberals on the very day that much of her potential listening audience was heading to the polls in a by-election.
The fact that the public is far ahead of both the politicians AND the media - not to mention a bunch of apparently bought and paid for 'academics' is increasingly obvious in this province.
Glad you brought it up!
carfreed
30-10-2008
carbon tax
How about upping the insurance rate on cars .
Pay as you go would save me a lot of monet since being a conscientious citizen I use an electric bike and public transit to get about.
There is far too much traffic.
Why dont they include all the costs to socity as a result of driving: medical,roads,police surveillance,traffic lights,parking,loss of habitat,street cleaning,etc.
We,as pedestrian need gas masks and noise muffs.
David Lewis
31-10-2008
We must be fair as we kill the planet
All the report cares about, so it says, is fairness. They specifically do not pay attention, they say, whether the tax is effective or could be effective at reducing emissions.
If you spend more as a percentage of your income on fossil fuels as a result of this tax than the next person, the tax is deemed to be unfair.
There is no data or opinion expressed about the relative unfairness of every other aspect of our lives. Minimum standards for food, housing, education, and just about every expense I can think of costs poor people more as a percentage of their income than rich people. Nothing is said as to where BC stands in relation to other provinces on any kind of "fairness" measure, and no data or opinion is supplied comparing Canada to other countries.
But, let's dump on the tax, join the chorus. Even though the guy says he's in favour of carbon taxes, and he's in favour of doing something about climate change, he knows, there's something terribly wrong with this tax.
If the NDP had mounted their critique of the carbon tax from this point of view while saying they support it as a necessary part of reducing greenhouse gas emissions they would be looking a lot better in the eyes of people who want action on this file. So, maybe the NDP will take this report to heart and we'll start to hear less gibberish from them in the future.
"This study did not take into account the one-time $100 dividend". Why? If the report writers did so it would have skewed the result further away from their "this is unfair" conclusion. It was bad enough that they found the tax to be fair for the first year. Adding the $100 into the mix might have pushed the result into fairness two years out of three.
The report assumes that a "static" analysis is fine. They mean the report assumes no one will change one thing they do as a result of seeing a price on carbon appear as the latest writing on the wall.
The point of carbon pricing, whether its cap and trade or carbon tax is to change behaviour. The reason to start small and gradually increase is to serve notice that action is coming and give the society time to take carbon pricing into account in all future decisions.
There would be no point in taking the entire philosphy of pricing carbon into account when analysing this tax. That might have a bearing on the issue of effectiveness, and all these people care about is fairness. We might not have a planet to live on, but we will be fair.
David Lewis
31-10-2008
no option to change behaviour
According to the CCPA report:
"people with low to middle incomes should have real options for changing their behaviour"
I had a 1984 Tercel before this tax was brought in. I paid $200 for it years ago. I get cars when their useful life is over, according to just about anyone else, and fix whatever is required and keep them running. I could have kept this one going for years longer, even though it had 450,000 km. As a result of the high gasoline price caused by the high international oil price, and seeing they were actually going to tax carbon at last, I made the decision to do something. I got a 1995 Tercel, which has proven to get more than 25% better gas mileage. I drive less. I turn the shower off several times while using it to conserve hot water. All my lightbulbs are fluorescent or LED.
I'm planning on putting a biofuel (wood pellet) stove into my wife's house. I'm researching how to get into an electric bicycle to get to the nearest store so I won't have to drive. My wife was very happy to find that transit had now arrived in the town where she lived to cut out 20 miles from her commute to her job. She uses it.
But there's nothing anyone can do. This report assumes that there's nothing anyone is going to do that the government doesn't hand to them on a platter. The government should provide me with a real option. I don't have any options now. Is that right? What kind of analysis is this?
G West
31-10-2008
David Lewis
Generalizations are fraught. The suggestions that all climate scientists think the planet is going down for the count is another unwise and far from accurate statement.
Humans may well be going down for the count - or at least a lot of them.
The planet, however will be here for a few more epochs I think - if it ain't, nothing we can do regarding C02 and other greenhouse gases will have much to do with it.
My car cost $10.00 - does that make me 20 times better than you?
I don't think so....
Although are lots of valuable things individuals can do about their own 'carbon' profile, the suggestion that individual action can make much of a difference sounds a lot like something Rick Mercer would dream up...or something even more symbolic and nonsensical like Gordon Campbell's Rube Goldberg effort to reward his friends with a 'revenue' neutral tax...and punish the poor and working people of British Columbia more than they have already been...
By the way, you should check out pellet stoves before you decide that's the right way to go:
http://fengrrl.blogspot.com/2008/01/do-pellet-stoves-really-reduce-carbon.html
sdgreen
31-10-2008
Carbon Tax is Unfair
There is no doubt about it the Carbon Tax in any form, AT THIS TIME, is flawed.
The carbon tax is NOT revenue neutral, is cost intensive to ALL British Columbians, and in it's present form WILL do nothing to reduce GHG's.
The whole notion of a Carbon Tax is to invoke a penalty against people in the flawed sense that they will reduce their carbon foot print. The problem is, at this time, there are basically 'zero' alternatives for people to adopt without shelling out thousands upon thousands of dollars. Pretty well most people CANNOT affort any alternative energies available now.
Transit systems throughout British Columbia are a joke, and even if expanded will do absolutely nothing to address the ghg issue.
Neither the NDP or the BC Liberal proposals are even remotely effective!
If the ghg problem is serious, and I think it is, then the bloody governments need to take significant action, WITHOUT penalizing the people by adding new costs. It may be that some 'cherished' programs are placed in temporary stasis; so be it.
Right now jsut about all the governments at all levels are doing a circle jerk and accomplishing nothing.
The BCLiberal carbon tax and the NDP proposed cap and trade system are bogus, totally flawed, completely unworkable and does nothing. European countries who have adopted some of the processes, are in a mess, jobs have been lost, nothing has been gained, except dismal results.
We need to accerate RD into solutions, we need to implement solutions but until those solutions are found, there is really nothing to turn towards.
As part of the so called BC Energy program, BCHydro is not penalizing people with their new RIB program. This too is bogus. People must live. BCHydro must find solutions to increase electrical generation. Just so happens that hydro electric is really good!
So far, the ghg taxes are nothing but a cash cow that not only hurts the poor but also just about everyone else.
The NDP plan is no better!
reallife
31-10-2008
Carbon Tax is unfair
As stated in my previous post, I agree that the BC carbon tax is unfair as are most things in our society. However, it is not as bad as most taxes as it returns the bulk of the money to us so we can make our own choices on how to spend it. I am a much better judge of how to spend my own money than the government is.
As for accelerated R&D on energy, private interests will fill the need when energy prices are sufficient to support profitable alternative energy sources. We should not encourage government to throw grants around for this purpose as the money will just disappear (anyone remember the scientific research tax credits?).
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BCHydro must find solutions to increase electrical generation.
I am with you on this one - far better to increase the energy supply rather than ration it. However, BCH is so bureaucratic that it may not be the appropriate vehicle. BCH can only do large projects (like Site C) as they are too inefficient to build and operate small projects (like run of the river). A parallel can be found in the oil industry where large corporations pursue huge, capital intensive projects while the smaller, nimble companies can make money from small oil and gas pools. By the way, if anyone were to question the fact that BCH is too bureaucratic they may want to recall the estimates debate where the Minister of Energy, supported by the top BCH brass, could not even guess the number of vice presidents in BCH.
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Just so happens that hydro electric is really good.
I fully agree. Unfortunately, many do not. For example, Site C is vehemently opposed by people in the northeast (why should their land be flooded to supply power to the lower mainland?). Run of the river projects are also opposed by NIMBYs (Sunshine Coast RD) and special interest groups (white water kayakers).