Lessig in the Kitchen

Getting serious. Change Congress?

Change Congress in the Kitchen?

Draft Lessig.

No bailout for Wall Street!

Gretchen Morgenson interviewed by Bill Moyers:

BILL MOYERS: But I mean, look what they've been doing. Their past experience is no indication that they will respond to what you're saying.

GRETCHEN MORGENSON: Only if they're held accountable.

BILL MOYERS: By?

GRETCHEN MORGENSON: And if they have to pay the bill that comes a cropper. Let's not make it a bail out where the taxpayer bails out Wall Street, please.

BILL MOYERS: Then Wall Street would be the winner and--

GRETCHEN MORGENSON: Then Wall Street would say, "Fine. I'll go do that again. I'll go throw money at a problem and let it blow up, and I don't mind."

BILL MOYERS: Does this contribute to what you and I both know are-- is growing inequality in the country? The gap between the rich and the poor? The greatest gap since 1929? Is this contributing to that gap?

GRETCHEN MORGENSON: To the degree that Wall Street made an awful, awful lot of money on these securities, yes, it contributes to that gap. To people who work on Wall Street, you saw the enormous bonuses, the enormous payouts to the CEOs of these firms. Absolutely. The mortgage mania contributed to that. The little guy doesn't have the benefit of all the powerful friends in Washington and the powerful friends on Wall Street. The little guy is just trying to be able to retire comfortably and not have to scrimp and worry about money. And he and she have a right to that. And if we're in an ownership society that's ballyhooed around, that should be a benefit. That should be who wins. But unfortunately, the little guy is the guy that's usually the bag holder.

Kitchen Linker may post this ARM reset schedule chart on the kitchen wall, noting that any housing bubble is in part a kitchen bubble, and any housing bust is in part a kitchen blowout.

Both links via Ben's Housing Bubble Blog.

The Price of Gasoline SHOULD Go Up

Tom Evslin (on the kitchen blogroll) has a must read post on why The Price of Gasoline SHOULD Go Up:

Suppose we were to raise the tax on gasoline and diesel used as motor fuels by $.50/gallon every six months for the next three years. We could immediately end the $.50/gallon subsidy to ethanol producers without discouraging production. We could remove the stupid restrictions on importing ethanol made from sugar since there’s be plenty of demand for both foreign and domestic ethanol. We could stop the tariffs which protect the sugar growers as they find a market – as corn has already done – as a fuel source.

Even more expensive biofuels would become economical without subsidy. The government could stop playing the pork barrel game of trying to decide which alternative fuels to subsidize how much and let the most efficient producers replace gasoline.

Putting aside the politics, there are still two enormous problems with this proposal:

1. The tax is extremely regressive – the working poor pay much more of their income in gas tax than the rich.
2. The government will withdraw huge sums from the economy and legislators’ll invent vote-buying programs to spend it.

Both problems could be solved, however, by reducing or eliminating social security taxes – also regressive – at lower income levels, maybe after keeping a little of the surplus to make sure that social security and Medicare are actually funded for when the baby boomers retire.

Absolutely, though Kitchen Linker will argue that a gas tax is not regressive on a global and long term scale.

Al Gore's testimony

As reported at Reason, includes:

(2) I believe we should start using the tax code to reduce taxes on production and employment and substitute pollution taxes. We’re discouraging work and encouraging the destruction of the planet’s habitability. We should discourage pollution while encouraging work. Carbon pollution is not currently priced into the marketplace. I internalize air and water and I think that the economic system should too.

Great, but his other nine points consist of a mismash of regulation, prohibition, and subsidy.

Smart people need to advocate the best policy, doing nothing is a false choice (also see Greg Mankiw's criticism of accepting the worst policies by default).

OPEC tax shift

Greg Mankiw provides some hard budget info:

For example, if I am reading it correctly, we could increase the gasoline tax by $1 (see revenue option 48) and reduce all ordinary income tax rates, AMT rates, and dividend and capital gains rates by 2 percentage points (see revenue option 1) to produce an approximately revenue-neutral tax reform.

That's a start.

But Kitchen Linker really likes a comment by "Mr. Mercy Vetsel" on Mankiw's post:

Amen! Now we just need to package that with a clever name that doesn't inspire thoughts of pork...

Preparing to join the "OPEC Tax Shift (Shift Taxes to OPEC)" club

Amen!

Truth too inconvenient

The Washington Post has some excellent columnists. Robert Samuelson says:

What we really need is a more urgent program of research and development, focusing on nuclear power, electric batteries, alternative fuels and the capture of carbon dioxide. Naturally, there's no guarantee that socially acceptable and cost-competitive technologies will result. But without them, global warming is more or less on automatic pilot. Only new technologies would enable countries -- rich and poor -- to reconcile the immediate imperative of economic growth with the potential hazards of climate change.

Meanwhile, we could temper our energy appetite. I've argued before for a high oil tax to prod Americans to buy more fuel-efficient vehicles. The main aim would be to limit insecure oil imports, but it would also check CO2 emissions. Similarly, we might be better off shifting some of the tax burden from wages and profits to a broader tax on energy or carbon. That would favor more fuel-efficient light bulbs, appliances and industrial processes.

It's a debate we ought to have -- but probably won't. Any realistic response would be costly, uncertain and no doubt unpopular. That's one truth too inconvenient for almost anyone to admit.

Kitchen Linker is 100% for a realistic response.

Pigou Club vs. Pig Club

Bryan Caplan:

Given all the pork involved in the biofuels ripoff, I think that those politicians who support it ought to be called the Pig Club.

Indeed. Let Kitchen Linker give Caplan a hint: the Pigou Club is the alternative to the Pig Club.

Tax Saudi Arabia, Iran, and Venezuela

A hefty gas tax would initially be paid by American drivers. But as Americans became more fuel efficient as a result of the tax, the tax would be paid by oil producers. Read about tax incidence.

So the U.S. can replace taxes on goods with taxes on bads, save the environment, and make American foreign policy enemies pay the tax!

Kitchen Linker asks: Why are we not doing this already!?

Government employees and public transit

Freakonomics points out that a New York Times article notes that in Manhattan government workers are the group second most likely to drive onto the island (most likely are workers in "transportation, warehousing and utilities"), likely because they get free parking with their government jobs (and probably many get free use of vehicles).

Kitchen Linker says government employees should be required to take public transit or at least should not get any subsidy for private transportation. This will result in more lobbying for better public transit (who is in a better position to lobby than government employees?), better transit, and more of everyone using public transit, in a virtuous cycle.

Bush's Pigouvian opportunity

It is no surprise that in order to pay for massive increases in federal spending (think Iraq and drug payments) Bush will raise taxes. If Bush is smart (stay with Kitchen Linker; even a broken clock is smart twice a day) he would use this "opportunity" to join the Pigou Club and increase the federal gas tax.

Dear GWB,

Extending the payroll tax will not contribute to your legacy. Taking the first step to efficiently save the planet from climate change will. You decide.

Sincerely,
Kitchen Linker

p.s. Top Democrats have good ideas on tax simplification that should be bipartisan. Work with them.

Efficiently attacking inequality

Since discovering the Pigou Club, Kitchen Linker has gotten a little interested in tax policy. Here's a great article on this that has nothing to do with Pigou or energy. Sebastian Mallaby on Attacking Inequality in the Washington Post:

Fixing these egregiously regressive programs could yield really juicy benefits. On a back-of-the-envelope calculation, raising the minimum wage might transfer $10 billion a year to poor workers; call it $20 billion if you want to stretch the assumptions generously. But if you eliminated just a quarter of the subsidies in the tax code, you would liberate about $180 billion a year -- enough to finance a big expansion in the earned-income tax credit plus a cut in the regressive payroll tax. And this sort of redistribution would not risk higher unemployment or compromise economic growth at all. Democrats on the left and right ought to be embracing it.

The Milk Mafia

Unlike the SugarCorn Mafia, the Milk Mafia doesn't directly impact energy policy, but read the stunning and disgusting expose in the Washington Post and take our your anger on the SugarCorn Mafia.

p.s. Kitchen Linker says "milk is bad for your bones and immune system, say away from the cows, don't get hit by the milk mafia!"

A pro-Pigouvian anarchist!

It seems even anarchists accept that Pigouvian taxes are superior. Or at least hard-core libertarians can accept this, as Kitchen Linker is not certain that Degrees of Freedom is an anarchist, though the probability is high given DoF linkage. After a list of moralistic reasons taxes in general are bad, DoF says:

If a tax on gasoline could be implemented as a dollar-for-dollar replacement for the tax on capital gains, even I would be in favor of that.

DoF doesn't think a tax shift is possible because politicians like to spend, but then no tax reduction would be possible ever, and obviously taxes have been cut at various times. The important thing though is that a NoPigou type has admitted that Pigouvian taxes are superior!

Should other anarchists reconsider? And if anarchists, the only group that can logically oppose Pigouvian taxes, then everyone else should join the Pigou Club, pronto!

Unfair hearing for Pigou Club

Greg Mankiw says Bloomberg's Amity Shales gives the Pigou Club a "fair hearing." Kitchen Linker isn't going to judge "fair" but the columnist gets everything wrong in Gas Tax Fans Invoke a Telling Name for Road Hogs. Her three anti-Pigouvian arguments:

Well not all. For there is already a No Pigou Club, founded by Terence Corcoran, editor of Canada's National Post. Corcoran offers some compelling counterarguments. Pigovian taxes change behavior, he notes, but not necessarily as their sponsors wish. Gas taxes may depress driving, but perhaps not enough to matter. Late in life Pigou himself acknowledged this, writing that when it came to such taxes ``we seldom know enough to decide'' which is the right tax or the right tax rate.

The second argument against a gas tax is that today, when even GE calls itself green, it's a hard sell. Democrats in Washington believe they won in November by playing against the stereotype of their party. So they are unlikely to push for a levy associated with Al Gore.

But the strongest argument against a gas tax is that revenues from such taxes tend to be used for purposes other than those intended. The states' cigarette taxes, for example, are classically Pigovian, punishing an unwanted behavior. But the billions those taxes have earned have promoted another kind of sin: excessive government spending. Too often the money has gone into state general revenue coffers instead of paying for smoking prevention and medical care for smokers.

The second is not an argument against Pigouvian taxes per se. It just says they will be politically difficult to enact. So what? Is any change from the status quo politically easy? As noted previously, any tax change is hard, so why not go for a big and much better one?

The first and third arguments only make sense if Shales is an anarchist. Does anyone ever argue against taxes on labor or capital because it is hard to figure out their "optimal" level? The fact is the primary purpose of taxation is to raise revenue for government, nevermind their "optimal level" for any other purpose. Quite simply Pigouvian taxes discourage harmful behavior, most taxes (for example on labor or capital) discourage productive behavior. Any questions?

Any anti-Pigouvian non-anarchist ignoring these facts needs to address them or completely miss the point, verging on dishonesty.

Pigou means less planning

NoPigouClub:

But here's Jaccard's big claim: He supports Pigovian taxes because they involve "no role for planners." We'll have more on this untruth in later postings, but let's begin with one question: Who sets the price--i.e. the tax?

and

And then another question: What do we do with the money collected through the Pigovian tax? Let's get the Ministry of the Environment and the Department of Industry...but, hey, no planners, please.

Unless all NoPigouClub members are anarchists, they will admit that taxes need to be collected. The level of energy tax should not be set by the EPA or Commerce Department, but by Congress ... just as Income and other taxes are now set, mostly according to what Congress thinks it can get away with and how much is needed to cover spending minus borrowing. There is no additional planning, just a shift from one sort of taxes to another.

And the shift is better if you care about the environment, the economy, or simply distrust planners.

Why?

1. Taxes on income and capital suppress positive externalities (ex: economic growth).
2. Pigouvian taxes substitute for regulation and prohibition of greenhouse gas and other pollutant emissions.
3. (Redundant, but Kitchen Linker must drive home the point) Without pigouvian taxes, we will continue to have damaging tax on labor and capital AND extremely inefficient and politically determined non-solutions to our environmental problems (ex: the SugarCorn mafia)

Come to grips with reality NoPigou and switch clubs!

Pelosi's pigouvian opportunity

SF Chronicle on how fixing the Alternative Minimum Tax, which hits Democratic voters hard, is putting the new Democratic Congress in a tough spot:

But if Democrats impose the pay-go rule, they cannot fix the alternative minimum tax without gutting existing spending programs -- much less creating new ones -- or sharply raising other taxes.

Sounds like a perfect opportunity to swap in a gas tax, which should doubly please environmentalist Democrats.

SugarCorn Mafia

Bring it to justice. James Surowiecki in the New Yorker:

Our current policy is absurd even by Washington standards: Congress is paying billions in subsidies to get us to use more ethanol, while keeping in place tariffs and quotas that guarantee that we’ll use less. And while most of the time tariffs just mean higher prices and reduced competition, in the case of ethanol the negative effects are considerably greater, leaving us saddled with an inferior and less energy-efficient technology and as dependent as ever on oil-producing countries. Because of the ethanol tariffs, we’re imposing taxes on fuel from countries that are friendly to the U.S., but no tax at all on fuel from countries that are among our most vehement opponents. Congressmen justify the barriers to foreign ethanol with talk of “energy security.” But how is the U.S. more secure when it has to import oil from Venezuela rather than ethanol from Brazil? These tariffs are bad economic policy, bad energy policy, and bad foreign policy. Talk about your Domino effect.

Of course ethanol from tropical sugar, not eight times less efficient midwestern corn, could be an important component of reducing greenhouse gas emissions. Time to congress with Congress.

Pigou manifesto great but too low, too slow and a tax increase

Greg Mankiw in the Wall Street Journal.

Kitchen Linker says:

1) $1/gallon over 10 years is too low and too slow

2) It needs to be revenue neutral, as Al Gore has proposed.

But the manifesto is excellent. Seven reasons you should support this. Call your politico and tell them. Maybe interrupt their lewd IM convo if necessary.

Green Party of Canada joins Pigou Club

The Green Party of Canada has joined the Pigou Club, according to the Toronto Star:

Canadians should pay a carbon tax on gasoline and other fossil fuels in return for lower income and other personal taxes, the Green party says.

The shift in the tax burden — designed to ensure federal revenues don't increase — would cut consumption of fuels that cause climate change and help Canada to achieve its Kyoto Protocol target, Green Leader Elizabeth May said yesterday.

Even conservative economists have concluded "a carbon tax ... is the single most effective way" to cut greenhouse gas emissions and promote a strong economy, May told reporters.

The heaviest tax would be imposed on fuel with the highest carbon content — coal. The levy would be lower on cleaner fuels, such as natural gas. It wouldn't be punitive: "It's not intended to change driving habits," she said. It might raise the cost of gasoline and heating fuels by cents a litre.

I don't get the not intended to change driving habits part, but good for the Greens.