Cap and Trade= Carbon Tax + Corporate Welfare part 1 million and five

I have previously stated my preference for a carbon tax over a cap and trade regimen. What I see as the weakness of a Cap and Trade program proponents see as its strength: its opaque nature. It is true that a cap and trade, were the emissions permits to be auctioned off, would simulate a carbon tax. All well and good. But the reason most cap and trade advocates prefer a cap and trade is not because it simulates a carbon tax, but that it does so and reformers can avoid saying the word tax. But as its opacity is a double edged sword, it is also much more susceptible to rent seeking as is evidenced in the form of the proposed Waxmen-Markey bill whereby 85% of the emissions permits would be allocated as opposed to auctioned off. I can imagine how rigorous the allocation methodology will be: 1. Do you pollute extensively? Check; 2. Are you headquartered in or provide service extensively in a key congressional district? Check; 3. Have you donated to my (insert namer or party) campaign? Check; 4. Here is a free emissions permit which you can now use to defray the costs of your pollution by either keeping or selling at a premium to a less politically connected power company.

Palin Needs Schooling ASAP

Here is a bit from her interview with Charlie Gibson:

"GIBSON: So let me summarize the three things that you’d change in the Bush economic plans. One, two, three.

PALIN: Reduce taxes, control spending, reform the oversight and the overseeing agencies and committees to make sure that America’s dollars and investments are protected.

GIBSON: So let me break some of those down. You talk about spending. How much smaller would a McCain budget be? Where would you cut?

PALIN: We’re going to find efficiencies in every department. We have got to. There are some things that I think should be off the table. Veterans’ programs, off the table. You know, we owe it to our veterans and that’s the greatest manifestation that we can show in terms of support for our military, those who are in public service fighting for America. …It’s to make sure that our veterans are taken care of and the promises that we’ve made to them are fulfilled.

GIBSON: So you’d take military off the table, the veterans’ benefits. That’s 20 percent of the budget. & Do you talk about entitlement reform? Is there money you can save in Social Security, Medicare and Medicaid?

PALIN: I am sure that there are efficiencies that are going to be found in all of these agencies. I’m confident in that."

Palin is pulling the whole fraud, waste and abuse line. Repeat after me: the government is an insurance company with a side business in defense. If you are going to try to bring the budget into balance on the spending side you will have to tackle a combination of defense, medicare, medicaid, and social security.

To be fair, this is not necessarily a fair reflection of Palin's knowledge or lack of knowledge. Many on the right have been peddling this bullshit for ages. This has been a pet peeve of mine for awhile.

hat tip: economist mom

Kudos to Obama on Taxes

Every once an awhile you'll hear the ditty about how Warren Buffett pays has a lower effective tax rate than his secretary and what a travesty this is. I agree that it is a travesty but Democrats then use it as a rallying cry to raise income taxes. There is only one problem with this, it wouldn't do a blessed thing to Warren Buffet's effective tax rate as most of his income is derived from capital as opposed to labor (which are taxed at different rates: 18% v. 35% for the highest income tax bracket). Obama correctly noted this in conjunction with the Buffett story and argued that the story presented a rationale to raise capital gains taxes not income taxes.

The Progressive Consumption Tax

The Democracy Journal is hosting an orgy of ideas. The one I found most interesting was Robert Frank's progressive consumption tax. In general, I think implementing some form of a consumption tax in conjunction with an income tax is a good idea. Such a hybrid system would to some degree mitigate the problem of taxing "goods" as opposed to taxing "bads". By incorporating both systems, though, you can also address concerns about progressivity. Well, Robert Frank doesn't want a stinking hybrid system, he goes big. I don't think relying excessively on either a consumption tax or an income tax is sensible. I tend to think you want to have a variety of different revenue sources so as to provide revenue stability.

What interested me about Frank's proposal was the underlying motivation. Frank seems less concerned with negative aspects of taxing work but rather consumed with deterring status or positional competition. He thinks that Americans suffer from an consumer arms race where we are all spending ourselves into debt just keep up with the joneses. I have heard this view advanced a decent amount in the liberal blogosphere (prominently by Ezra Klein) and I of two minds on the subject. My basic reaction is: so what? I am unsure why the government need intervene wielding its power to tax because some people are spiteful, envious, or have poor self esteem. Instead of taxing those that consume maybe we should tax those who envious of others' consumption. We could embed monitors on every soul and monitor envy emissions and wire this machine up to their bank account and conduct continuous withdraws as appropriate and transfer those moneys to people whose personal fulfillment is not fueled by spite. Though, this seems all a bit invasive. And I don't know if the technology exists (though we could do another Manhattan project). But, as much as I hate to admit it, I do think there is something to Frank's point of view. I can't accept it whole hog. Not gonna do it. BUT, I do think that in fact, sometimes people do consume purely to show that they can consume, and maybe there is some harm in this. And maybe in narrow instances, there is a way to harness certain folks prediliction for cupidity for the public good. In Virginia we have a car tax which is progressive. It could be made steeply progressive so that once you exceed $50 k for a non-business purchase the tax rate doubles.

In concluding this wet bag of shit post, I like Frank's idea, I am not a fan of his motivation.

A Green Tax System

An idea presented by Paul Hawken about transitioning to green fees as opposed to income, payroll and corporate taxes.

"If we were to incrementally replace over a twenty-year period all government revenues ($1.25 trillion), including the deficit amount of the budget that is not collected ($264 billion), through the use of fees on products and processes, we would be adding 5 percent of the total, or $76 billion a year (thereafter adjusted annually for inflation and budget increases). The annual fees and taxes on virgin resources, emissions, fuels, products, wastes, rights, and services would equal about 1.2 percent of the Gross Domestic Product. At the same time, the same $76 billion per year, also adjusted annually for inflation, would be lopped off present income and payroll taxes, both individual and corporate. At the end of the period, most government revenues would be derived from green taxes, virtually none from income, payroll, or corporate taxes. Of course, people may still wish to levy a surcharge on high income individuals and companies. But we would nonetheless have consistently and steadily shifted the tax burden from income and entrepreneurial activity to those activities we wish to discourage, thereby transforming the economy. The resulting changes in the marketplace this would cause would be dramatic. Every purchase would become more constructive and less destructive. Equally important, the innate instinct to save money would reward both the customer and the environment.

The whole key to redesigning the economy is to shift incrementally most if not all the taxes presently derived from “goods” to “bads,” from income and payroll taxes to taxes on pollution, environmental degradation, and nonrenewable energy consumption. Because green taxes are incorporated into the price a company or customer pays for a resource, product, or service, they create powerful incentives to revise and constantly improve methods of production, distribution, and consumption, as well as a means to reconsider our wants and needs. The purpose of a green tax is to give people and companies positive incentives to avoid them."