democracyLab

Reforming Oregon’s Tax System:
A Carbon-based Approach

We propose a new approach to Oregon’s tax reform and climate change problems in which a $1.3B/year reduction in personal income tax rates and duplicate taxes are offset by a $1.7B/year tax on carbon-based fossil fuels. The remaining new revenue would be invested in abatements to poor and vulnerable citizens, new sources of clean energy, GHG emissions reductions, and climate change mitigation strategies.

The fossil fuel tax component will act as a consumption tax to help balance Oregon’s tax system and drive our economy towards greater energy efficiency and reduced reliance on imports of oil, natural gas (and LNG), and [power generated from] coal.

The income tax reductions can be made at both the top and bottom of the income scale, providing both abatement and economic incentives. This approach can be made attractive to stakeholders on both the left and the right while providing a leadership opportunity.

Many economists (including 40 of 47 polled recently by the Wall Street Journal) believe that a carbon tax is the most efficient method of cutting our GHG emissions and reducing our dependence on foreign oil. It will cause change more quickly and more systemically than a regulated approach.

Many who favor a “cap and trade” approach to large industrial use of fossil fuels do so because they believe that a carbon tax is not politically feasible. Even if Oregon passes a cap and trade system, we need an effective, economically efficient incentive for the commercial, residential, and consumer segments, especially in the transportation sector.

Oregon is the ideal state for a carbon-based consumption tax. We produce almost no fossil fuels, meaning that the vast majority of over $3B/year paid for them leaves our economy. Every dollar NOT spent on fossil fuels would mean more jobs and a more robust economy because many of those dollars would be spent locally on energy efficiency, distributed generation, and renewable energy sources.

Oregon is also ideal because it very much needs a consumption tax. The current tax reform proposal (Hopeful Tax Reform) includes a 5% sales tax. By using a fossil fuel “sales tax” in place of a general sales tax, we can reduce climate change, protect our economy from foreign disruption, and balance our tax system. This consumption tax will be much less expensive to administer, collect, and enforce than a sales tax or our current income tax.

Under our proposal, the state of Oregon would place a value on the consumption of carbon-based fuels (we propose tying it to the emerging carbon market, currently about $38 per ton of CO2). All entities (corporations, businesses, consumers) would pay that price. The simplest collection method would be to add it as a line item on utility bills and at the gas pump. At $38/ton of CO2, the tax would increase the average Oregon household’s energy costs by $285/year while providing about $1.7B/year in revenue. $.8B would be used to reduce income taxes (thus directly returning over half of the cost). Another $.7B would be used to eliminate the existing gasoline tax (thus eliminating all taxes on biofuels and avoiding the problems caused by the constitutional restriction on the use of fuel taxes). $200M would be available for rebates to poor consumers and particular industries (to avoid regression and economic dislocation), climate change abatements, and programs to accelerate green economic development. As the cost of carbon rises in the world market, the price could be adjusted in a gradual way to avoid economic distortions.

Our proposal can be simultaneously put forward in three ways: a ballot initiative, a bill in the next legislature, and as an alternative consumption tax within the Hopeful Tax Reform framework.

"And most important of all, we need to put a price on carbon – with a CO2 tax that is then rebated back to the people, progressively, according to the laws of each nation, in ways that shift the burden of taxation from employment to pollution. This is by far the most effective and simplest way to accelerate solutions to this crisis."
— Al Gore, Nobel Lecture

Contact Information:

Eli Lamb
eli@lamb.name
503.790.9088

After 20 years of managing system software development at AT&T, Sun Microsystems, and Intel, Eli left to teach and study.
He recently added a graduate certificate in Energy Policy and Economics from Portland State University to his MS (Computer Science, Indiana) and BA (Computer Science and Philosophy, Kansas) degrees. He now spends most of his time on policy issues relating to alternative energy, global warming, and tax shifting.
His company, Green Lightning Consulting LLC, provides investment, information technology, project management, and policy analysis consulting to clients in the green economy.
He is a Founding Partner of Social Venture Partners Portland and an active volunteer with Green Empowerment.

Northwest/Oregon History on Green Taxes and an Oregon Carbon Tax
1998 to early 2002 saw most of the detailed development of “green tax” concepts and proposals in California, Washington, and Oregon. The Northwest Environment Watch in Seattle published Tax Shift in April of 1998. In Oregon, John Kitzhaber’s Tax Review Policy Advisory Committee published their recommendations in January of 1999, proposing four short-term and five long-term green tax options. One recommendation became HB2473, sponsored by then Representative Bill Witt (R-Beaverton), and introduced in 1999.

In 2003, Dr. Frank Vignola, Director of the University of Oregon Solar Energy Center, assisted by then Senator Tony Corcoran (D) and Representative (now Senator) Floyd Prozanski (D), introduced HB2788 (officially sponsored by the Revenue Committee). In 2005, Dr. Vignola also managed to get a carbon tax bill introduced but it died without a hearing. In 2007, Representative Paul Holvey introduced the carbon dioxide fee legislation (HB3261) on behalf of Dr. Vignola. Representative Phil Barnhart got the bill a hearing. The bill died in committee.

Elsewhere:
Boulder has instituted a modest carbon tax. San Francisco’s mayor recently proposed a carbon tax that will be voted on next year. Germany (as well as several other Kyoto countries) has had a carbon tax for several years with well-documented beneficial results.

Supporters and Interest:
Carbon taxes have been gaining renewed interest lately, both nationally and locally. A study is underway by an Oregon business group. Several legislators have expressed interest in the concept. The Oregon Environmental Council has supported green taxes for several years. To date, however, there has been no complete, well argued proposal for a large scale carbon consumption tax for Oregon. Here is our opportunity to build some political momentum behind a specific proposal.

Key Resources:
Carbon Tax Center: http://www.carbontax.org/
Durning, Alan Thein and Yoram Bauman. Tax Shift. Seattle, Northwest Environment Watch, 1998.
Hamond, M. Jeff, Stephen J. DeCanio, Peggy Duxbury, Alan H. Sanstad, and Christopher H. Stinson. Tax Waste, Not Work: How Changing What We Tax Can Lead to a Stronger Economy and a Cleaner Environment. San Francisco, CA: Redefining Progress, 1994.
Hopeful Tax Reform Proposal: http://www.senatorfrankmorse.com/
Vignola, Frank. “Oregon’s Carbon Tax Legislation”. Solar Rising, March 2003, Vol 5, Issue 1, Quarterly Newsletter of the Oregon Solar Energy Industries Association (OSEIA), pages 4,5.

“Tax Waste, not Work”

Additional Information about the Policy Idea

What is your current strategy for moving this idea forward? What is the general timeline?
My current strategy is direct lobbying with individual legislators and committees. We will also work with the Hopeful Tax Reform team to see if they would be willing to directly substitute the carbon tax for sales tax. In the event that we see substantial public support for a carbon tax but little legislative support, we would do a formal poll to see if a ballot initiative would be appropriate.

Based on the list of prizes that are available for the winner of this contest, what prizes would you select and how would you put them to use?
Of maximum value would be the lobby day and the media exposure. Of secondary value would be the meetings with individual legislators. The Bus trip and the volunteer phone banks would be used to urge citizens to contact their legislators in support of a carbon tax.

Voters in the Progressive Policy Battle Royale commit either money or volunteer time to whichever ideas they support. To what 501c3 organization will your monetary donations go and how will they be used? How will you be able to put volunteers to use and what kinds of tasks will they perform?
If we win, we would ask the Oregon Environmental Council to act as our sponsor. The money would be used to fund staff time and media expenses. OEC could use their skills, contacts, and resources to effectively lobby for this reform.

Information about the Presenter

After 20 years of managing system software development at AT&T, Sun Microsystems, and Intel, Eli Lamb left to teach and study. He recently added a graduate certificate in Energy Policy and Economics from Portland State University to his MS (Computer Science, Indiana) and BA (Computer Science and Philosophy, Kansas) degrees. He now spends most of his time on policy issues relating to alternative energy, global warming, and tax shifting. His company, Green Lightning Consulting LLC, provides investment, information technology, project management, and policy analysis consulting to clients in the green economy. He is a Founding Partner of Social Venture Partners Portland and an active volunteer with Green Empowerment.