By Yoram Bauman and Drew Fagerlin

The attached spreadsheet estimates the fiscal impacts of the Clean The Darn Air ballot measure on household income quintiles. (There are five income quintiles, so—for example—the lowest quintile is the 20% of households with the lowest incomes.) The analysis looks at the direct and indirect impacts of the carbon tax as well as the tax benefits in the measure, including the elimination of the state sales tax on grocery store food, the state-level match of the Earned Income Tax Credit, and the expansion of the Retirement Tax Credit. The analysis does not try to put a dollar amount on benefits from improved air quality such as lower medical expenses and fewer missed days of work and school.

The analysis shows that average households in the lowest two income quintiles will come out slightly ahead, with an average household in the lowest income quintile gaining $105 and an average household in the second-lowest income quintiles gaining $67. The middle income quintile has a small cost increase ($133 for an average household), with higher costs for the top two income quintiles ($298 and $506, respectively).

Data sources for the analysis include the following:

  • The Consumer Expenditure Survey (CEX) from the U.S. Bureau of Labor Statistics has an income quintile breakdown of total expenditures as well as expenditures on specific items such as grocery store food, motor gasoline, natural gas, electricity, and “public transportation” (a category that includes air travel as well as bus and train travel).
  • The State Energy Data System (SEDS) from the U.S. Energy Information Administration has state-level data on consumption of fossil fuels and electricity by four sectors: residential, commercial, industrial, and transportation.
  • The Utah State Tax Commission has data (from an unpublished spreadsheet) on the fiscal impacts of the Clean The Darn Air proposal.
  • Other data sources include the Kem C. Gardner Policy Institute (at the University of Utah), the Tax Policy Center (Urban Institute / Brookings Institution), and informal discussions with state tax experts.

Here is an overview of the analysis, which looks at Fiscal Year 2023 (i.e., the one-year period ending June 30, 2023):

  1. Savings from the elimination of the state sales tax on grocery store food ($154m total) were divided by income quintile based on CEX data on household expenditures on “food at home”.
  2. Savings from the Earned Income Tax Credit ($94m total) were divided by income quintiles based on Tax Policy Center data.
  3. Savings from the expanded Retirement Tax Credit ($19m total) were divided by income quintile based on the details of the RTC and informal discussions with state tax experts.
  4. Natural gas consumption in Utah and corresponding carbon tax amounts were divided into three categories: residential, commercial, and industrial ($46m, $28m, and $4m, respectively). The commercial and industrial costs are covered below; the residential costs (and the benefits from eliminating the state sales tax on residential fuels, $12m) were divided by income quintile based on CEX data on household expenditures on natural gas.
  5. Ditto for electricity: consumption in Utah and corresponding carbon tax amounts were divided into three categories: residential, commercial, and industrial ($85m, $104m, and $12m, respectively; the small amount of transportation-sector consumption was included in residential). The commercial and industrial costs are covered below; the residential costs (and the benefits from eliminating the state sales tax on residential fuels, $28m) were divided by income quintile based on CEX data on household expenditures on electricity.
  6. Motor gasoline was assumed to be 100% consumed by households; the carbon tax ($143m) was divided by income quintile based on CEX data on household expenditures on “gasoline, other fuels, and motor oil”.
  7. Diesel fuel was assumed to be 100% consumed by commercial businesses; the carbon tax ($62m) is allocated below.
  8. The carbon tax on aviation fuel covers fuel loaded onto planes at airports in Utah, so of the total carbon tax ($29m) an estimated 40% is paid by out-of-state visitors. Of the remaining 60%, approximately one-third is estimated to be paid by business travel by the commercial sector, so that amount ($5m) is covered below. The remaining amount ($12m) is estimated to be paid by Utah households and is divided by income quintile based on CEX data on expenditures on “public transportation” (which includes air travel) and other data showing that air travel is heavily weighted to the top two income quintiles.
  9. The carbon tax on large emitters is assumed to be split 5% to the commercial sector and 95% to the industrial sector.
  10. The commercial sector impacts (including parts of the carbon tax on natural gas, electricity, diesel fuel, aviation fuel, and large emitters as well as benefits from eliminating the state sales tax on commercial fuels, with a combined impact of $166m) are assumed to be 100% passed on to customers, so these impacts were divided by income quintile based on CEX data on household expenditures other than those covered above, i.e., on household expenditures on things other than natural gas, electricity, gasoline and other fuels, and “public transportation”.
  11.  The industrial sector impacts (including parts of the carbon tax on natural gas, electricity, and large emitters, with a total of $22m) are assumed to be borne by businesses and shareholders. Some 80% of these impacts are estimated to fall out of state; the 20% of in-state estimates are divided by income quintile based on Census Bureau data on net worth (excluding home equity).
  12. The overall impact for each income quintile (e.g., a total savings of $20.6m for the lowest income quintile) was divided by the estimated number of Utah households per income quintile (a few shy of 200,000, based on Gardner Institute data) to get an average household impact (e.g., $105 in savings per household in the lowest income quintile).

One possible refinement of this analysis would be to separate out consumption by tourists and other visitors, especially motor gasoline but also general consumption (because this affects how the commercial sector impacts are allocated) as well as the modest tax savings that accrue to tourists and other visitors from eliminating the state sales tax on grocery store food.