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BC carbon tax now 'revenue negative': Lee

Economist Marc Lee is making the case that the B.C. Liberals' cut corporate income taxes so deeply that the provincial carbon tax -- which was presented as part of the justification for those cuts -- is now a money-loser for provincial taxpayers.

"B.C.'s carbon tax was supposed to be 'revenue neutral,' meaning all carbon tax revenue would be 'recycled' to British Columbians through personal income tax cuts, corporate income tax cuts and a low-income credit," Lee writes on a Canadian Centre for Policy Alternatives (CCPA) blog called Policy Note.

"But recent budgets have shown a carbon tax deficit: tax cuts have completely swamped carbon tax revenues. While some were concerned that the carbon tax would be a 'tax grab', instead we [have] a carbon tax is that is revenue negative not revenue neutral," Lee writes.

Lee argues that while the government's tax cuts came reasonable close to covering the carbon tax in it's first year (2008/2009), the "carbon deficit swelled" in 2009/2010 when "carbon tax revenues were $542 million, while tax cuts and credits cost $767 million" for a deficit of $225 million.

"Looking forward, budget projections show that the trend of deficits on the carbon account continues for the duration of the three-year fiscal plan," Lee writes.

The CCPA economist points to corporate tax cuts as the culprit:

"Corporate tax cuts are now absorbing the lion's share of carbon tax revenues. In 2010/11, they will be equivalent to 57% of carbon tax revenues, compared to one-third in 2008/09.

"Cutting corporate taxes is the worst possible way of using carbon tax revenues. This is because of the intense concentration of ownership of capital at the top of the income distribution (when you hear corporate tax cuts think upper-income tax cuts), and also because shareholders outside BC, who pay no carbon tax, benefit from corporate tax cuts. While it might make sense to provide tax credits for investments in energy efficiency, corporate tax cuts essentially reward the worst offenders when it comes to greenhouse gas emissions.

"A final note: the 2010 budget provides for an increase in the low-income credit as of July 2011 (in a previous post I mistakenly reported this as occurring in 2010) to $115.50 per adult and $34.50 per child. That will represent an increase of 15.5% in the value of the credit since the carbon tax was introduced in July 2008. Meanwhile the tax itself will be 150% higher as of July 2011. The result is an increasingly regressive carbon tax and revenue recycling regime."

Monte Paulsen writes about carbon shift for The Tyee.

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