When the Governor’s office published information on the economic impact of his proposed carbon cap and trade tax plan late last year, it was nothing more than a series of presentation slides without any real analysis or narrative description. We felt the public needed a more thorough view of the impacts and commissioned a deeper analysis, which we released in early February.
There are many areas of agreement. For instance, both reports find that Washington is, in fact, making true progress towards reducing our greenhouse gas emissions. Our per capita GHG emission rate is now 36% below the national average and has been on a downward trend over the last 10 years – despite growth in the economy and population. Both analyses show that the Governor’s plan will immediately raise the price of gas by $.11 per gallon – $.41 increase above projections over time – and raise costs of natural gas by 22 percent above projections over time. Despite his rhetoric about targeting only “big polluters,” the Governor’s own analysis shows every Washington family will be paying more for energy.
When the Governor’s office finally released a more comprehensive analysis of their plan in March, they reached much different conclusions on the impact on jobs and some other key metrics. That was cause for concern, but so were many mischaracterizations of our analysis they relayed at an Appropriations Committee hearing. We felt it was important to set the record straight.
1) Economic Models: Although the state has used an economic model called IMPLAN before (the economic model the Collaborative used), their cap-and-trade tax plan analysis was conducted using REMI, a closed-source, proprietary tool. One of the reasons we used IMPLAN is its data, algorithms and linkages are documented and publicly available. We can’t say with certainty why our results differ because the economic model the Governor’s office is using for its analysis is proprietary. We can’t trace how it tracks price impacts as they ripple through the economy because its assumptions aren’t transparent.
2) How Taxes Impact Economy: This is where we see the largest difference. Our analysis shows that total worker income will be reduced by about $3.1 billion; OFM’s analysis is much lower. We believe that the OFM analysis only factors in the increased cost of transportation fuel, electricity and natural gas on the individual or business directly paying. The Governor has said he hopes that companies won’t pass these costs on to their customers or consumers. But businesses don’t just absorb higher taxes or costs. They pass them on in the form of higher prices. A full economic lifecycle is much more complex, and our model accounts for three separate ‘tiers’ of effects.
For instance, let’s consider a product like aluminum. The first tier calculates the effects of rising energy prices on a company that manufactures aluminum. The second tier goes one step further and looks at the effect rising aluminum prices would have on industries that rely on aluminum to build their products (such as airplanes). The third tier calculates the price increases of all finished products containing aluminum (such as increased airplane ticket prices) and the exports of aluminum within the U.S. and abroad. All told, we believe the primary reason our analyses differ is because our model takes a more comprehensive look at how the economy truly functions.
3) Jobs and Economic Impact: When economic growth is projected, it creates a baseline for how much growth is predicted over time, in both employment and growth. When policy changes are modeled, it is against that baseline projection – i.e. are we growing slower than projected or faster than projected?
The OFM analysis predicts that as a result of a $1.3 billion annual carbon cap and trade tax, Washington will actuallyincrease job and economic growth beyond current baseline projections. In other words, the implementation of a new $1.3 billion tax will help economic growth. This flies in the face of widely-accepted economic theory. Every family knows that if you are paying your bills and your taxes go up, you have less money to spend on other goods, not more.
Contrary to OFM’s description or our conclusions, our analysis predicts that jobs and the economy will still grow over time. But they will grow below current projections. We predict that over the next 20 years, Washington will have an average of 56,000 fewer jobs each year than under current projections. This includes 6,000 fewer jobs each year in the manufacturing sector. OFM described this conclusion as a loss from current job levels. It is not. It’s a prediction that we will create jobs at a slower rate going forward.
Read our full comments on the Governor’s analysis here.