Where’s the tax in BC’s carbon tax?

British Columbia’s carbon tax has been getting some high praise lately. A recent article in the Atlantic called it “the crown jewel of North American climate policy”. Such assessments need some tempering. BC’s carbon tax can tell us important things about the limits of fiscal policy today, which in turn questions the potential it has for fostering significant environmental change.

Tales of the tax’s effectiveness focus on its environmental impacts. Almost six years since its introduction, it is indisputable that the carbon tax has had some impact on resource use and emissions. This is clearly a good thing. There is debate about the extent of this impact and where it is concentrated but it’s there – see these charts.

The carbon tax is presented as not being as problematic as other “market-friendly, eco-friendly” measures such as cap-and-trade. These end up being largely corporate giveaways – new sources of commodification and profit. BC’s carbon tax has been hailed as a policy that rather than giving money back to corporations brings revenue back to the people.

Yet as opposed to those who make the carbon tax out to be an unqualified success, I think any hurrah-optimism needs to be seriously qualified.

Indeed, as a tax rather than simply an environmental measure, BC’s carbon tax demonstrates the poverty of tax policy today. It is an expression of the dogma of give-and-take. The economist’s term for this is “revenue neutrality”: any revenue flowing into government coffers from a new tax should be accounted for by corresponding tax cuts elsewhere.

However, as many, including myself, have argued, we currently face a growing crisis in government revenue. As a percentage of GDP, government revenues, both federally and provincially, have been mostly steadily declining for the past three decades and are near record lows. Revenue neutrality at best serves to perpetuate this status quo, both in fact and in giving it further ideological support.

Revenue-neutrality makes it easy to overestimate the tax cuts necessary to compensate for the new tax revenue. At least in the case of BC’s carbon tax, the Ministry of Finance has been erring on the side of caution since the tax was instituted and the revenue gap between the tax cuts that are meant to offset the carbon tax is only projected to grow. Furthermore, the percentage of the tax cuts that has been going to corporations has also been steadily rising.

More pervasively, the focus on revenue-neutrality undermines the notion that the carbon tax is bringing money back to the people. Rather than the focus being on taxes as a redistributive mechanism that has the potential to return some economic power to the poor and working majority, the focus is on taxes as a means to manage market imperfections. Technocracy is bolstered over democracy.

Seen from the perspective of ideology, revenue-neutrality aligns the carbon tax with other more clearly market-focused measures. BC’s carbon tax works in no small part because it doesn’t question the broader neoliberal framework of smaller government and tax reduction. It is all the more so problematic because it claims to be redistributive.

While funnelling some of the revenue generated by the carbon tax into income credits that offset its proportionately higher impact on the poor and the working class is redistributive to an extent, the offsets are currently not large enough and the tax is increasingly regressive. Since it was instituted in 2008, the carbon tax has tripled from $10 to $30 per tonne, while the low-income tax credit has grown by a fraction of that – from $100 to $115.40. The end result is a highly regressive tax where those in the bottom two income quintiles as clear losers and those in the top two quintiles clear gainers.

Consumption taxes like the carbon tax are highly regressive to start with and thus fit well into the trend to replace progressive income and corporate taxes with more regressive measures and user fees.

Fundamentally, there is absolutely no a priori need for revenue-neutrality, in particular at a time when revenues are falling anyhow. Imagine using some of the revenues from the carbon tax to reduce or eliminate transit fares, build new transit and other green infrastructure and so on. Cutting taxes across the board on individuals as well as on corporations (whose tax cuts end up going to the rich who own the majority of corporate stock) under the auspices of fighting climate change is problematic.

The current design of the carbon tax ultimately undermines its main purpose: reducing emissions and slowing climate change. It promotes technocratic solutions as opposed to deeper systemic changes. It entrenches current power dynamics that leave the majority that is feeling and will increasingly feel the effects of climate change with less of a voice. It promotes the view that the problem lies with particular markets rather than more generally with capitalist markets that feed on growth and intensive resource use.

Many mainstream environmental organizations have pointed out that the rate of BC’s carbon tax needs to be higher if the province is to seriously try to meet its greenhouse gas reduction commitments. British Columbia already has some of the lowest personal and corporate tax rates in the country. A higher tax is politically less and less feasible when those best placed to speak to the dangers of climate change are just fighting to get by on reduced public services and stagnant standards of living.

Between green-coloured optimism and debilitating catastrophism of impending ecological disaster lies the hard work of building solidarity and economic power that will allow for meaningful environmental change. Until it takes taxation as revenue-generation and power redistribution seriously, BC’s carbon tax in its current form is no model for such change.