//Sun sets over the Xcel Energy Building at Zuni and 13th St on Oct. 6, 2020. Photo by Esteban Fernanadez | email@example.com
The Trump administration has rolled back many Obama era policies designed to combat climate change. As a result, several cities and states are taking a granular approach to tackle the problem.
Here in Denver, that granular approach is accompanied by a thorny tax question: Who’s going to shoulder the burden?
“A sales tax negatively affects the people at the lowest bracket of income more than it does the upper bracket. However, the people who consistently produce more carbon emissions are people of upper class,” said Alexis Morris, a Denver resident at the City Council meeting on Aug. 3. “Lower class people who don’t drive cars, who don’t own homes, they don’t have emissions to produce. So, why are they being taxed at the same rate as people who are producing 10, 20, 30 times the amount?”
This year, forests burned and several city skylines looked like something straight out of Mad Max. As this unfolded, Denver took steps to address the degradation of the environment at the local level. Up for a vote in November is a tax proposal to fund Denver’s contribution to tackling climate change.
Ballot Measure 2A seeks to raise around $40 million by increasing sales tax twenty-five one-hundredths of 1%. Or, thought a different way, 2.5 cents on every $10 purchase.
It’s expected that the city’s ability to collect revenue from this tax will be impacted by the COVID-19 recession.
However, progressive critics of Measure 2A believe the financial burden will fall on low-income communities. They charge that a consumption tax will, despite being distributed uniformly to everyone at the register, eat a higher percentage of a low-income family’s income compared to someone wealthier.
There was a separate proposal on the table, though. Originally created by the group Resilient Denver, the measure would have raised funds by taxing commercial and industrial electric and natural gas use instead. Called an excise tax, this would have raised a similar amount of money to Measure 2A. The funds would also have been set aside to tackle climate change.
At the crossroads of urgency and social justice is the story of how policymakers navigate a tightrope between both concerns. The question of who gets taxed ultimately comes down to a tug of war over class issues and climate fears.
Making Polluters Pay
Excise taxes are primarily a business tax. Although businesses are responsible for paying them, sometimes the tax gets passed on to the consumer at the point of sale. Excise taxes are usually collected from motor fuel sales, airline tickets, tobacco and other goods and services.
Last year, Resilient Denver proposed using an excise tax to fund climate action. Known as Council Bill 19-0803, the proposal faced an uphill climb to get on the 2019 ballot. Resilient Denver entered the ballot submission period late, with only 40 days to gather the required signatures to make it onto last year’s ballot. They missed the deadline. However, the time period to collect signatures is different from the submission deadline, and there was still time left on that particular clock to gather enough signatures to make it onto the 2020 ballot. Which they did.
“Now, there’s a concept behind energy taxes that polluters pay, right? The more you use, the more you pay. And I think that the polluter’s pay concept is really where we were,” said Ean Tafoya, spokesperson for Resilient Denver.
At the beginning of January, Denver convened its Climate Action Task Force. Their role was to study the issue as it related to Denver and bring forth recommendations on how best to tackle the problem. It was composed of 26 stakeholders, with an eye toward selecting diverse members representing different community interests within Denver.
“There was a concern maybe by some city council members, but also by the mayor’s office, that there hadn’t really been community engagement on the issue of what we’re going to do around climate and then whether or not there should be an energy tax or some other method of funding that work,” said Dominique Gómez, Program Director for the Salazar Center for North American Conservation. The Salazar Center was a participant in the task force.
The task force considered multiple ways to raise climate action funds, starting with the energy tax already on the ballot.
The energy tax had several features that the Climate Task Force took into consideration. Although it targeted commercial and industrial users, it exempted residential use. It also discouraged the use of fossil fuels by increasing the tax annually by 10% after 2025. The electric portion of the tax would also fall away if Xcel’s energy grid reached 70% renewable energy.
However, the excise tax ran into several obstacles. Taskforce members grappled with technical and implementation considerations. What kind of exemptions would be made for small businesses? How would this be implemented within Xcel’s metering and billing systems? How would the city negotiate these terms when the current contract with Xcel hadn’t expired yet?
The metering and billing question was even a point of contention at the city council meeting on Aug. 3 where the sales tax was approved for the ballot. Councilwoman Candi CdeBaca challenged task force member Sebastian Andrews on why Xcel couldn’t meter usage correctly for different tenants inside one building after telling the council it would be difficult but possible in 2019. Andrews said Xcel told the task force this year that it wasn’t possible and the city would potentially face legal battles if they went down this route.
“The sales tax was appealing for a number of reasons. The main one being the amount of money that it could generate, the feasibility, because there was a clear process to get it in place,” Gómez said.
After five months of discussions, the task force released its findings in a 98-page report. Reaching consensus within the group was important to the members. According to Tafoya, the excise tax only managed to reach about a 50% consensus. Implementing a sales tax, however, got everyone on board.
With civil unrest over systemic oppression as a backdrop, state and local governments everywhere scrambled over the summer to include equity and social justice into their agendas.
However, even before the first protest sign was created in May over the death of George Floyd, equity and social justice was a priority for the taskforce from the very beginning. The report they released reflects that, with the statement placed at the top of the document. Tafoya and Gómez both stressed how seriously the task force took the problem of ensuring any solution they found didn’t unduly burden marginalized communities. They didn’t want to add to the problems faced by those already suffering from the effects of climate change.
Adopting a sales tax presented a problem to a committee dedicated to ensuring equity was front and center in their proposals. By their nature, sales taxes are regressive, being applied uniformly across all earners, but eating into a higher share of income for low-income earners compared to higher-income folks. For example: A person earning $1,000 a month will have $500 left after paying a $500 regressive tax. As opposed to the $9,500 left for household necessities on a $10,000 per month income.
Now, while raising sales tax by 0.25 of a single percent is more reasonable than a hypothetical flat $500 tax bill, the task force still wanted to make sure that the impact of the tax had limited adverse effects on low-income communities.
Several provisions were built into the proposal to avoid just that. First, certain goods like food, medical supplies and feminine hygiene products were exempt from the tax. The committee also placed a significant guardrail into the legislation. Fifty percent of money raised gets reinvested back into what the proposal calls “communities of color, under-resourced communities, and communities most vulnerable to climate change.” Furthermore, the bill language directly states that the funds be dedicated “directly in community with a strong lens toward equity and race and social justice.”
The Fine Print
Colorado is unique among the 50 states for the fact that it is the only one that has a Taxpayer Bill of Rights in its constitution. Under TABOR, both state and local governments cannot raise taxes or spend tax money without voter approval. As a result, it’s very difficult to create new taxes or raise them for government programs. Fees have gone up in the state to make up part of the loss.
So, with the boundaries imposed by TABOR limiting the revenue-generating mechanisms that are common in other states, as well as the constraints faced by the excise tax, the task force decided the sales tax was the best way to go forward. Resilient Denver pulled its energy tax from consideration.
That decision was not met with universal acclaim.
“I think it’s really disappointing that we took a whole year to get to a sales tax, considering what we started out with and what is currently on the ballot with the Resilient Denver initiative,” CdeBaca said at the city council meeting on Aug. 3. “I thought it was more courageous, more complex, definitely more courageous in shifting the burden to our commercial and industrial users.”
Despite the sense of urgency displayed by residents during the public hearing portion at the Aug. 3 meeting, there was pushback from those concerned about the class impact that the sales tax would have. It especially succeeded in uniting two councilmembers who rarely agree with each other. Councilwoman CdeBaca and Councilman Kevin Flynn both walloped the bill over their reservations toward it.
Flynn and CdeBaca worried that despite the task force’s efforts, the sales tax would nonetheless be a burden that would fall mostly on low-income households. Despite the task force’s best efforts to answer his questions, they did not convey how the funds would pay to fight climate change to Flynn’s satisfaction. Flynn stated a preference for the energy tax moving forward, instead. He believed there was more opportunity to continue working with it.
Another issue that Flynn brought up was a claim made that only 26% of sales tax was paid by Denver residents and that a large bulk of sales tax revenue was brought in by tourists. Flynn called it highly implausible that only 26% of sales tax is generated by people who live in Denver.
“The tourists pay sales tax narrative is a pretty common political argument in favor of raising sales taxes,” said Sloan Speck, a professor at the University of Colorado Law School. “From my perspective, I would view it entirely as a political argument.”
The ambiguity around how the money would be spent raised red flags elsewhere. Sharon Lassar, Director of the School of Accountancy at the University of Denver, pointed out that the ballot initiative’s language was vague. Citing the provision that 50% of funds be reinvested in low-income communities that are disproportionately affected by climate change, she questioned how those communities would be identified.
“What percentage of the population is that? Is that like, a three-square block area that is disproportionately harmed by climate change because they’re next to a toxic waste dump? And it says 50% of the $40 million is going to be invested in this three-block area? I don’t know,” Lassar said. “I don’t know. I don’t know what they mean.”
Lassar also questioned how one would evaluate disbursing funds with a lens toward race, equity and social justice. What sort of metrics would be used to make those decisions in that case? Overall, the lack of detailing with some of the phrasing raised serious questions as to what the money raised would buy.
Although the regressive nature of the sales tax is one of the biggest complaints that Flynn, CdeBaca and a host of other people have against the bill, the picture may not be so cut and dry.
Professor Speck said that whether or not a tax is progressive or regressive depends on the balance of who’s funding and where the spending goes.
As an example, Speck came up with an example where a hypothetical tax is distributed unevenly between low income and high-income people. Low-income people pay less than half of the tax, while high-income people pay the rest. However, when the time comes to distribute that tax money out in the form of the government services, more than half of the money is redistributed back out to low income people in the form of benefits.
“That’s not a regressive change,” Speck said. “That’s a progressive change.”
And that appears to be the goal of having language in the bill that directly states that 50% of revenue will be directed toward low-income communities.
Of course, it all depends on what the money is spent on in practice. Lassar was quick to point out that it’s hard to make an argument that a community will benefit from a tax increase when there are few concrete details on how the money’s going to be spent. Which is why language found on the ballot question like, “adaptation and resiliency programs that help vulnerable communities prepare for climate change,” and “neighborhood-based environmental and climate justice programs,” don’t do much to allay concerns over ambiguity.
For its part, the bill itself states that money raised for the climate protection fund must be spent on job creation, solar and other renewable energy infrastructure, neighborhood environmental and climate justice programs, building energy efficiency, and clean and safe transit options.
When Rep. Alexandria Ocasio Cortez and Sen. Ed Markey announced the Green New Deal, the mud slinging contest between Republicans and Democrats obscured an important fact: The proposed legislation intended to be a starting point for a discussion on how the country could best tackle climate change. Instead, right-wing lawmakers and pundits assailed the legislation for trying to take away America’s god-given right to eat hamburgers on Fox News.
Members of the task force like Gómez know the sales tax is an imperfect way to address climate change. In fact, Gómez didn’t back the sales tax during the first round of discussions when the task force was coming up with its recommendations.
However, with an ever-increasing number of ninety degree days and Colorado’s peaks barely resembling their snow-capped selves from 20 years ago, the issue has become an urgent one for many. Although the task force proposed other revenue-generating mechanisms at its disposal, none was as effective at raising money as a tax. And action takes money.
“It’s the keystone. Without funding, it’s going to be really hard for the city to make Denver more equitable in the face of climate change,” Gómez said. “There’s many things the city can do in terms of regulations and other changes. Funding is key. This is our main funding.”
Tafoya stressed that the tax was just one piece of the puzzle when confronting climate change, at least at the local level. But for Tafoya, Gómez and other members of the task force, it’s a chance to lay down a foundation and begin building off of it.
“I think the left in America continually screws itself over by opposing taxes that are nominally regressive,” said Sven Steinmo, a professor of political science at the University of Colorado Boulder.
Steinmo pointed to countries like Sweden, Norway, Denmark and Germany, calling them some of the most progressive countries in the world while at the same time having high consumption taxes. However, those high consumption taxes also allow those countries to have free healthcare and education for everyone.
Meanwhile, in America, the left stops revenue gathering measures through consumption taxes because they say it’s marginally regressive. Steinmo argues that consumption taxes are the best way, in terms of efficiency, to generate a lot of money at relatively low economic costs.
“They end up with this dilemma, that we have an underfunded, social welfare state, underfunded policies that help poor people because the people who represent poor people don’t want the taxes that might affect poor people.”
Holding out for a perfect fix, then, might end up sacrificing the planet on the altar of good intentions.