To be fair, BC’s carbon tax needs work

(Vancouver) Changes to BC’s carbon tax are needed in order to ensure people in different income groups pay a fair share, according to a new study released today by the Canadian Centre for Policy Alternatives.

Is BC’s Carbon Tax Fair? analyzes the impact of the tax and revenue “recycling” for households with varying income levels. It finds that the tax is progressive for the first year, although personal and corporate income tax cuts still result in an undesirable net benefit to the highest income households, which also have the largest ecological footprint.

As the carbon tax increases in subsequent years, however, it becomes regressive, meaning low-income families pay a larger share of their income to the tax than higher-income families. The authors argue that the best way to fix the problem of inequality is to rework how carbon tax revenues are spent.

“The BC government has committed to ‘recycle’ all carbon tax revenues back to taxpayers through personal tax income cuts, corporate tax cuts, and a Low Income Climate Action Tax Credit,” says co-author and CCPA-BC Senior Economist Marc Lee. “At minimum, the 2009 BC Budget should include an increase to the low-income credit in line with carbon tax revenues, and ideally its share should be half of those revenues.”

“People with low to middle incomes should have real options for changing their behaviour, and be no worse off under any carbon tax scheme,” says Lee.

As for revenue neutrality, Lee concludes, “It is a political consideration above all else, and should be abandoned. The remaining half of carbon tax revenues should be used to fund needed policies to combat global warming, including major transit expansion, transition programs for workers, and energy efficiency programs for low- to middle-income families.”

Is BC’s Carbon Tax Fair? An Impact Analysis for Different Income Levels, by Marc Lee and Toby Sanger, may be downloaded at www.policyalternatives.ca. This study is part of the Climate Justice Project, a joint initiative of the Canadian Centre for Policy Alternatives and the University of British Columbia.

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