Tax Reform

State by State

Though green tax reform isn’t exactly becoming the law of the land, it is beginning to make inroads on the state level, where a blizzard of bills have been introduced and a healthy dialogue is building. Here’s a state-by-state look at some exciting developments:

Maine. Progressive financial ideas are alive and well Downeast: Maine has enacted some of the nation’s strictest campaign finance reform laws. One of the most stalwart reformers is State Senator Peter Mills, the ranking Republican member of the Taxation and Labor Committee, who recently proposed that the State Planning Office study tax shifts to promote environmental objectives, including taxes on carbon emissions and other pollutants. The proposal was turned back on a technicality, but Mills wants to reintroduce it, and is seeking bipartisan co-sponsorship.

The Maine Center for Economic Policy and the Mainewatch Institute are developing an advisory committee to develop and test tax-shifting proposals. The committee will have input from four panels, representing industry, stakeholders (from oil dealers to environmentalists), tax experts and economists, and regular citizens. From this process, a consensus bill that can survive in the state legislature is expected to emerge.

Though per capita energy use is high in frigid Maine, the idea of shifting taxes from income and onto polluters has considerable appeal in a state with famously independent voters.

Michigan. Through the work of Democratic State Representative Kirk Profit, the Michigan legislature has its own Subcommittee to Explore the Environmental Sensitivity of the Michigan Tax Code. Hearings began in 1997, and the committee soon evolved eight bills that offered tax incentives for a variety of positive activities. Through the legislation, manufacturers could earn tax credits for energy conservation, and for operating fleets of alternative fuel cars. Four of the eight bills were enacted during the last legislative session, including provisions to offer tax credits for the purchase and installation of recycling equipment; to partially exempt green car buyers from sales tax; and to completely exempt them from the state use tax.

The emphasis on credits for alternative fuel cars is particularly interesting in auto-dependent Michigan, where Congressman John Dingell, a Democrat from Dearborn, has called the Kyoto accords on global warming “a giant Ponzi scheme.”

Minnesota. Green tax reform has an interesting history in Minnesota. It first appeared, in the form of a modest proposal for a $6 per ton carbon tax to fund wind power incentives, in 1992. The group that issued that proposal, Minnesotans for an Energy-Efficient Economy, has since become very active in working for a tax shift, often in coalition with other state groups.

In 1996, a far-reaching Economic Efficiency and Pollution Reduction Act was proposed by State Senator Steve Morse and State Representative Ann Rest. The bill would have cut payroll and property taxes by $1.5 billion a year, with the revenue replaced by pollution taxes. It was defeated in a tie committee vote, and then reintroduced in revised form the following year. In its second incarnation, it completely eliminated property taxes, and used carbon tax revenue to pay for education. This version was withdrawn before a vote could be held.

Public opinion polls show that a majority support environmental tax shifting, particularly if it lowers property tax bills. Despite studies showing that industry costs could decrease if tax reform were implemented, opposition to tax shifting in Minnesota has been vocal. The loudest voices against it are extractive industries, the Teamsters Union and airlines.

Oregon. Oregon Governor John Kitzhaber is intrigued by tax shift proposals, and convened an Environmental Taxation Subcommittee that was to present recommendations by the end of 1998. Northwest Environment Watch estimates that a tax transfer in Oregon could reduce business and income taxes from 46 percent of state revenues to 14 percent, and eliminate all property taxes. Taxes on pollution, carbon and traffic would be added to the 12 percent of state revenues that are already raised by environmentally-conscious levies.

A plethora of proposals are pending in Oregon’s legislature in 1999, including: a tax on pesticides; an environmentally redirected water permit pollution fee that penalizes polluters; and legislative funding for a large-scale tax-shift study. Some Oregon activists are even lobbying for a plan to return pollution tax revenue directly to taxpayers in lump-sum payments. “I think there’s definitely a chance to air these issues at a higher level than was there before,” says Jeff Allen, executive director of the Oregon Environmental Council.

Vermont. Vermont’s Department of Public Service issued a report last summer entitled Fueling Vermont’s Future: Comprehensive Energy Plan and Greenhouse Gas Action Plan. It is a strikingly progressive document that emphasizes pressuring the marketplace to produce more environmental results by including social costs as part of market prices.

In the report, the state agency examines what would happen if a carbon tax were imposed, with revenues returned to taxpayers via other tax cuts; and if motor vehicle registration and licensing fees were reduced in favor of fuel taxes. The report estimates that the two tax shifts together would cut fossil fuel use in the state by 16.2 percent as soon as 2000, while also stimulating a 38.7 percent increase in the use of renewable energy. Energy use for transportation would decline 30 percent, and emissions that cause acid rain and smog would fall 20 percent. In the long run, the report concludes, such tax shifts would increase employment and make energy more affordable.

In 1996, Vermont passed Act 60, a radical refinancing of public school education that includes among its provisions a four-cent-a-gallon increase in the state’s gasoline tax. Earlier provisions that included a more far-reaching pollution and energy tax were killed in committee. A bill based on the state report, which would implement most of its proposals, including a $100 per ton carbon tax, is pending in the state legislature.