Economic policy

Nuts and Bolts Carbon Policy: First Steps Under a Green New Deal

Alexander Hamilton, the founder of the American economic system, laid the foundation for government investment in new and important economic enterprise. He wrote:

Experience teaches, that men are often so much governed by what they are accustomed to see and practice, that the simplest and most obvious improvements, in the [most] ordinary occupations, are adopted with hesitation, reluctance and by slow gradations … To produce the desirable changes, as early as may be expedient, may therefore require the incitement and patronage of government…

He goes on to say:

The apprehension of failing in new attempts is perhaps a more serious impediment…it is of importance that the confidence of cautious sagacious capitalists…should be excited… it is essential, that they should be made to see in any project, which is new, and for that reason alone, if, for no other, precarious, the prospect of such a degree of countenance and support from government, as may be capable of overcoming the obstacles, inseparable from first experiments.

Combine the above directive from Hamilton with the fact that the climate crisis is slowly but inexorably destroying coastland, agricultural systems, and formerly habitable parts of the planet. In human terms, this is our “oh, shit” moment. Either wake up and turn the Titanic now, or continue business as usual and doom our children.

Many people have been showing us both the problem and the solutions. James Hansen and Al Gore, of course. But also Bill McKibben, who in 2012 showed us the terrifying math, and then created a movement to demand we keep the fossil fuel in the ground. And Van Jones, whose Green Jobs Corps showed us ten years ago that the changes could create opportunity for the youngest and most disadvantaged among us.

More recently the “Water Keepers” of the Lakota Sioux fought the Dakota Access Pipeline that would multiply the civilization-destroying power of the Alberta Tar Sands oil boom. And now we have the kids of the Sunrise Movement, who camped outside Nancy Pelosi’s office this past November, clamoring for a Green New Deal to help them save their futures. And now-Rep. Alexandria Ocasio-Cortez, who joined them and then laid out a Green New Deal work plan and principles for lawmakers.

So here we are. I am going to assume from here that if you are reading this, you understand the urgency of the climate crisis. (If you aren’t sufficiently terrified, perhaps you missed the hurricanes and wildfires of 2018? At least please go read Bill McKibben’s link above.)

So far the public discussion about a Green New Deal has mostly been about broad principles, which is appropriate. But as we start to talk about the legislation and the big public investments that are needed, let’s also understand which policies will force change and which will not.

So what I will do from here is:

  1. Briefly lay out the overall principles and components of the Green New Deal from various proposals.
  2. Discuss the different types of policies that would work to green the most carbon-intensive sectors of the economy, and
  3. Make some distinctions between what the federal government can do directly, and what the federal government can help fund.

My hope is to inform the conversation about how to implement the transition to a cleaner economy in ways that reflect the Green New Deal principles, but in this piece I am only addressing a narrow slice of that pie. Since it’s best to write what you know, I’m going to talk mostly about specific policies that would provide a first step toward decarbonizing the big economic sectors I know best, such as industry and energy. (I know agriculture is critical, but someone else can fill in those details; likewise I will just make some broad points about the federal role in transportation policy). So here we go.Read More »Nuts and Bolts Carbon Policy: First Steps Under a Green New Deal

North Carolina’s Get-Out-the-Conservative-Vote Constitutional Amendments

The North Carolina General Assembly has passed bills to place six constitutional amendments on the ballot on November 6th. A simple majority vote puts these ill-advised amendments into the state Constitution.

The purpose of these amendments is to get right-leaning voters to the polls for the crucial mid-term elections. Take Senate Bill 677, a Constitutional amendment to protect the right to “hunt, fish, and harvest wildlife”. Is there some threat to these activities? Nope. But it sure sounds like something that the GOP’s base would want to come out to the polls to support.

Other than cluttering up the Constitution, SB 677 sounds harmless, although maybe there’s something nefarious about it that I don’t understand. But some of the other amendments are terrible for the future of North Carolina. I’m going to analyze one of them, a cap on state income tax rates, in the rest of this post.

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Tax Expenditures Flying Under the Radar

Many of the tax breaks in the Federal tax code are classified as tax expenditures because, like many government spending programs, they subsidize particular economic activities or help particular groups of people. Tax expenditures contribute to the federal deficit, but don’t appear in the Federal budget and generally fly under the radar.

They’re Huge

Although you rarely hear tax expenditures being discussed, they are huge: The Congressional Budget Office (CBO) expects 2017 tax expenditures to be 8% of GDP. This graph from the CBO shows just how big a deal they are by comparing them to other expenses and to sources of revenue:

CBO comparison of Tax Expenditures, Revenues, and Selected Spending
Revenues, Tax Expenditures, and Selected Components of Spending in 2017

You can see that tax expenditures dwarf defense spending, or Medicare spending, or Social Security spending. They are almost of the same magnitude as individual income tax revenues.

Tax expenditures are a big deal and worth understanding!

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Tax Credits Can Provide Progressive Subsidies

Tax and Credits section of IRS Form 1040, illustrating various tax credits that are available to taxpayers.

In my last post, I discussed why tax deductions are inherently unfair in that a deduction of a certain dollar amount is worth more to someone paying a higher marginal tax rate than to someone paying a lower marginal tax rate. In this post, I will discuss tax credits, another mechanism used by the tax code to subsidize certain economic activities and behaviors. Tax credits have several advantages over tax deductions, but are less-widely used.

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Tax Deductions for Individuals are Unfair and Complex

Tax deductions for individuals are an important part of federal income taxes and most states’ income taxes.

In a previous post, I outlined four desiderata for a reformed tax system: responsive, fair, simple and transparent, and enforceable. In this post, I aim to convince you that tax deductions for individuals are neither fair nor simple and transparent. (Important: tax deductions for businesses are different and not discussed in this post.)

Read More »Tax Deductions for Individuals are Unfair and Complex