tag:blogger.com,1999:blog-52561367303921592362024-03-13T07:41:44.465-04:00Green Energy Tax CutsThe Supply Side Solution to Global Warming and Oil DependenceRod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-5256136730392159236.post-77415757692598826502013-04-15T16:30:00.001-04:002013-04-15T16:30:46.480-04:00Can Tax Cuts Beat Global Warming? My Tax Day Interview<br />
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<span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;">Most people hate paying taxes, especially today, Tax Day. So p</span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;">lease check out and share my Tax Day interview below with <a href="http://nobleprofit.org/nobleprofit-moment-with-rod-richardson-green-energy-tax-cuts-can-they-help-beat-global-warming/" target="_blank">NobleProfit</a></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;">'s awesome CEO, Amy Seidman, for thoughts on how to save the planet by giving taxpayers a break on green energy investments.</span></div>
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<span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><br /></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><iframe allowfullscreen="" frameborder="0" height="315" src="http://www.youtube.com/embed/7B3pfmgdb5Y" width="560"></iframe></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><br /></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;">Here is the YouTube Link: <a href="http://youtu.be/7B3pfmgdb5Y" rel="nofollow" target="_blank">http://youtu.be/7B3pfmgdb5Y</a></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><br /></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><br /></span></div>
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<span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;">Here is the CSRwire link: <a href="http://www.csrwire.com/blog/posts/801-noble-profit-can-green-energy-tax-cuts-help-beat-global-warming">http://www.csrwire.com/blog/posts/801-noble-profit-can-green-energy-tax-cuts-help-beat-global-warming</a></span></div>
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<span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><br /></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;">Here is a version of the accompanying <a href="http://nobleprofit.org/nobleprofit-moment-with-rod-richardson-green-energy-tax-cuts-can-they-help-beat-global-warming/" target="_blank">NobleProfit article</a>:</span></div>
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<span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><br /></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><b>NobleProfit Interview with Rod Richardson: Can Tax Cuts Beat Global Warming?</b></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><br /></span><span class="Apple-style-span" style="color: #333333; font-family: 'lucida grande', tahoma, verdana, arial, sans-serif; font-size: 13px; line-height: 17px;"><span class="text_exposed_show" style="display: inline;"><br />Most people hate paying taxes, especially today, Tax Day. In this video interview, Rod Richardson, the blogger behind Green Energy Tax Cuts, puts forward a planet-and-taxpayer-friendly idea: fight global warming by eliminating all taxes on green energy investments. Rod argues this will lead to a massive influx of new investment in clean energy, and produce less pain and more prosperity than any existing policy alternative, with an appeal across party lines... because it won't cost taxpayers a dime.<br /><br />The Green Energy Tax Cuts proposal fuses a traditionally liberal passion about global warming and clean energy with a traditionally conservative love of tax cuts and supply side economic policy. In this interview, Rod explains some of the barriers to liberals and conservatives coming together on this issue, and shows a possible avenue toward political consensus. He also explains why it is painless and far more effective to grow the clean energy sector rapidly by eliminating all investment, capital gains and estate taxes on green energy. Doing so would attract billions in new investment to successful business models, while other more punitive and costly approaches ultimately promote failure and attract opposition.</span></span></div>
Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-44493620574085174112011-12-10T19:21:00.001-05:002012-11-07T21:41:46.747-05:00Why Green Energy Tax Cuts?<br />
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<span class="Apple-style-span" style="font-family: inherit;">Given the name of my blog, it is not surprising this is the question I get most often</span><span class="Apple-style-span" style="font-family: inherit;">. </span></div>
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Of course, when asked by a progressive, it means: why tax cuts instead of direct subsidies, mandates, carbon taxes, etc.? When asked by a conservative or libertarian, it means why incentivize alternative energy at all?</div>
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There are several good reasons to support supply side tax cuts for clean, renewable energy... and different reasons depending on your political orientation, I might add.</div>
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<span class="Apple-style-span" style="font-family: inherit;">For instance, Milton Friedman once said "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible." So for true Friedman fans, </span>forget global warming, forget foreign oil dependency, this argument is the clincher: it is a TAX CUT. As such, the net benefit to the economy from cutting taxes will be positive. If, as many free market scholars argue, cutting taxes is the best thing to do right now for the economy, then cutting some taxes is the next best thing. You do what you can.</div>
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<span class="Apple-style-span" style="font-family: inherit;">However, if you are asking "why promote alternative energy at all?" then I defer to the folks, left and right, talking about the negative externalities of fossil fuels: global warming, economic and strategic vulnerability (and hard costs) arising from oil dependency, national security considerations, many sorts of pollution, depletion of finite resources, etc. Some of these folks may even be <a href="http://www.setamericafree.org/openletter.htm" target="_blank">neo-cons like Daniel Pipes and Frank Gaffney</a>. I am not trying to judge, promote or add to those arguments, other than to say that they are serious, and the consequences of dismissing these concerns, if wrong, could be bad. Prudence dictates that if something can be done to promote alternative energy and lessen the social costs and risks of fossil fuels, if it would do more good than harm, then it would be better to do it.</span></div>
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<span class="Apple-style-span" style="font-family: inherit;">If you are asking "why specifically supply side tax cuts for green energy? Why not </span>direct subsidies, mandates, carbon taxes, etc.?" the answer is that, if it seems something must be done, supply side tax cuts are the least harmful, most beneficial of all possible incentives for green energy. Tax cuts are usually a net positive for the economy as a whole, while direct subsidies, increased regulation and taxes on carbon (or anything) are all economic depressants. (For more information see: <a href="http://greenenergytaxcuts.blogspot.com/2011/11/green-energy-tax-cuts-in-new-york-times.html" target="_blank">the argument against direct subsidies</a>, and <a href="http://www.greenenergytaxcuts.com/2009/01/apostle-to-cato.html" target="_blank">the argument against carbon tax schemes and over-regulation</a>. Coming soon: a FAQ.)</div>
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<span class="Apple-style-span" style="font-family: inherit;">Therefore, if the political majority of the US has decided to promote alternative energy for whatever reason (as seems to be the case) supply side tax cuts is the best way to do so. For those who wish to promote alternative energy, <a href="http://greenenergytaxcuts.blogspot.com/2011/11/over-subsidy-or-wrong-incentive.html" target="_blank">it is the only way to promote success, not failure</a>. But even for those who do NOT wish to promote alternative energy, it is still the best middle ground compromise that is (a) cheaper and better for the economy that any of the alternatives (carbon taxes, direct subsidies, increased regulation and mandates), and (b) sure to not waste money on failures, sure to only benefit the most successful, profitable alternative energy business models. Further, it is the only kind of incentive </span>whose disappearance will not spell disaster, that will not create unsustainable, dependent corporate subsidy addicts.</div>
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<span class="Apple-style-span" style="font-family: inherit;">But there is another, even more important reason to support green energy tax cuts: They can help heal the left/right schism in America. This is a win-win solution that both lowers taxes and helps the environment, that replaces costly subsidies, taxes and regulations, that combines both environmental and libertarian concerns. That sets the stage for more to come.</span></div>
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<span class="Apple-style-span" style="font-family: inherit;">For the right, it is a great way to teach the left to love supply side tax cuts. The left and much of the political center believe, erroneously, that supply side tax cuts are a boondoggle. Think of this then as a much needed demonstration project showcasing the power of such tax cuts to foster investment and successful, profitable innovation in an area near and dear to the heart of the left. It could help set the stage for across the board supply side tax cuts. The big win for the right here is a possible thaw in the left's perception of supply side tax cuts as a result of this policy, and a willingness to replace costly, harmful big government approaches with free market approaches similar to this.</span></div>
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<span class="Apple-style-span" style="font-family: inherit;">For the left, the promise of supply side tax cuts it is a great way to garner support from the right for environmental and alternative energy concerns. The big win for the left here is that left's abiding humanitarian concerns may become more palatable to the right if presented in a manner that reduces taxes, subsidies and regulations, allowing for further <a href="http://www.21stcentrist.com/2009/09/super-pro-bono-best-new-idea-in-health.html" target="_blank">humanitarian progress in other areas following this model, such as health care.</a> </span></div>
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<span class="Apple-style-span" style="font-family: inherit;">For America, the ultimate big win of adopting solutions like this would be the restoration of something similar to the 18th-19th C. Liberal consensus, that combined a passion for freedom and free markets, with a powerful appeal to justice, rights, equality and humanity. That 19th C. consensus has largely fractured into two sets of concerns, claimed respectively by the the right and left of today. Restoring that consensus would mean smaller government, lower taxes, cheaper, more efficient environmental and humanitarian policies, greater prosperity.</span></div>
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<span class="Apple-style-span" style="font-family: inherit;">Supply side tax cuts for green energy can lead to: (a) competitive alternative energy companies that can stand alone, with zero taxpayer dollars wasted on incentives for failures; (b) <a href="http://greenenergytaxcuts.blogspot.com/2008/11/how-to-save-auto-industry-without.html" target="_blank">a revitalized auto-industry</a>; (c) a right/left thaw, a new liberty-with-humanity consensus leading to more efficient, cheaper, sustainable incentive-based social policies; (d) broad supply side tax cuts for the whole economy; (e) smaller deficits and ever more balanced budgets. I expect, as profitable alternative energy companies emerge, tax preferences will be reduced. </span></div>
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Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com2tag:blogger.com,1999:blog-5256136730392159236.post-86654988745519395242011-11-18T21:38:00.001-05:002012-11-07T21:45:37.518-05:00Green Energy Tax Cuts in the New York Times!<br />
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<b style="font-size: 1.5em;">Woa. </b><a href="http://www.nytimes.com/2011/11/19/opinion/federal-subsidies-for-renewable-energy.html?_r=1&partner=rssnyt&emc=rss" target="_blank"><b>The New York Times </b>has published my letter about supply side tax cuts for green energy in Saturday's paper, print and online.</a> What a pleasant surprise!</div>
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Editor Sue Mermelstein did a great job slimming down my original letter <a href="http://greenenergytaxcuts.blogspot.com/2011/11/over-subsidy-or-wrong-incentive.html" target="_blank">(similar to my last post)</a> yet making it somehow better. Boy, I wish I had an editor.</div>
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The letter responds to last Friday's article, <a href="http://www.nytimes.com/2011/11/12/business/energy-environment/a-cornucopia-of-help-for-renewable-energy.html" target="_blank">"A Gold Rush of Subsidies in Clean Energy Search."</a> The letter can be read <a href="http://www.nytimes.com/2011/11/19/opinion/federal-subsidies-for-renewable-energy.html?_r=1&partner=rssnyt&emc=rss" target="_blank">in The Times online</a>, or, well, here:</div>
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<b>To the Editor:</b>Your article does a great service in detailing the oversubsidization of alternative energy, but doesn’t mention the biggest problem with these kinds of direct subsidies: They are addictive and create long-term corporate dependency. What happens when budgets get cut and the subsidies run out, as happened in Spain? Complete collapse. </blockquote>
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There is only one sustainable way to support alternative energy; only one way to reward success, not failure; only one incentive whose disappearance does not spell disaster: supply-side tax cuts for green energy. That means elimination of corporate taxes, capital gains taxes, sales taxes and estate taxes for clean, renewable energy investments. </blockquote>
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Such tax cuts promote success, not failure, because they benefit only companies with sustainable revenues and profits. Investors would be encouraged to invest in such businesses because their profits will be tax-free, a huge advantage over other investments. </blockquote>
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We have directly subsidized enough alternative energy start-ups in the United States. We have already rewarded failures like Solyndra. Now we need to separate the wheat from the chaff. </blockquote>
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With supply-side tax cuts for green energy, the most competitive, profitable alternative energy models will survive, thrive and attract more capital, and unsustainable models will disappear. </blockquote>
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R. RANDOLPH RICHARDSON<br />
New York, Nov. 13, 2011</blockquote>
I'm very glad The New York Times, my home town paper of record, thinks green energy tax cuts are an idea worthy of further public airing. Since I call my self a centrist (indeed the <a href="http://www.21stcentrist.com/" target="_blank">21stCentrist</a>) it is nice that I actually do get support from all sides for these ideas.<br />
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Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com11tag:blogger.com,1999:blog-5256136730392159236.post-53747031983201702132011-11-12T22:15:00.001-05:002011-11-12T22:55:47.866-05:00Over Subsidy, or Wrong Incentive?<a href="http://www.nytimes.com/2011/11/12/business/energy-environment/a-cornucopia-of-help-for-renewable-energy.html?pagewanted=all%3Fsrc%3Dtp&smid=fb-share">The New York Times had a great article yesterday about the over-subsidization of alternative energy. </a> But the authors fail to mention the biggest problem with these kinds of direct subsidies for alternative energy. They are addictive and create long-term corporate dependency on public subsidy. They anticipate and therefor reward failure. What happens when the subsidies run out, when the government goes broke, budgets get cut, as they did in Spain? Complete collapse of these kinds of subsidized industries. They blow away like chaff in the wind.<br />
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There is only one sustainable way to support alternative energy, only one way that rewards success, not failure, where the disappearance of the incentive does not spell disaster: supply side tax cuts for green energy. That means elimination of corporate taxes, capital gains taxes, sales taxes and estate taxes for clean, renewable energy investments. Investors would be encouraged to invest in such businesses because their profits will be tax free, a huge advantage over other investments. But that benefit is only realized by successful companies that can make a profit. Only then does investment becomes keenly focused on finding and developing economically successful, competitive alternative energy business models, not unprofitable subsidy addicts.<br />
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We have directly subsidized enough alternative energy start ups in the United States. It is clear we have already rewarded failures like Solyndra. Now we need to separate the wheat from the chaff. It is time to switch the incentive structure to find and reward the winners. With supply side tax cuts for green energy, the most competitive, profitable alternative energy models will survive and thrive and attract private investment on their own merits, and unsustainable models will disappear.<br />
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The problem is not just over-subsidization. It is the wrong incentive structure entirely.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com7tag:blogger.com,1999:blog-5256136730392159236.post-71917681271416080452009-09-25T09:08:00.002-04:002012-11-07T21:46:50.465-05:0021st Centrist in DevelopmentI am presently working on development of a new blog, 21st Centrist. <br />While I have not yet publicly launched it as yet, you can check out<br /> <i><a href="http://21stcentrist.blogspot.com/">the beta site version of the blog here</a>.</i>Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-74331743499632967042009-09-06T00:36:00.010-04:002009-09-06T03:00:04.242-04:00The Supply Side Health Care Solution<blockquote> </blockquote>I have not even blogged about it until today, but regardless, another of my policy proposals has just seen international syndication thanks to Mr. Deroy Murdock and the Scripps Howard News Service. This one: a simple way to fix the health care mess. Now, there is something deeply wrong about this. I mean, after all, shouldn't I have at least set it down in black and white, spent some time marshaling my thoughts and all that? How is it that an off-the-cuff suggestion at a conference makes it into, what, scores or hundreds of papers around the world? That is just stupid.<br /><br />But <a href="http://article.nationalreview.com/?q=MzIzOTQ1MWQwZDM3MDIyZjU5Y2QyM2U4MWUyMTgwMjE">here it is</a>. And <a href="http://washingtontimes.com/news/2009/aug/29/use-the-tax-system/">here</a>. And <a href="http://www.washingtonexaminer.com/politics/Tax-cuts-could-get-health-care-back-on-track--55494857.html">here</a>. A bunch of other places too. Egads.<br /><br />Here is the National Review Online version, excerpted:<br /><blockquote>"As New York philanthropist R. Randolph Richardson recently noted at an Atlas Economic Research Foundation seminar, why not reward doctors who donate their services to needy, uninsured patients? Imagine that Doctor Gomez sees the uninsured every Tuesday and Thursday from 10:00 a.m. to noon. She could treat the value of these four hours of weekly foregone revenue as a charitable deduction.<br /><br />“One fix to our health-care woes might be simply to increase and regularize the supply of pro bono care for those who cannot pay,” Richardson tells me. “Increasing the supply of pro bono care is essentially a supply-side problem, amenable to supply-side solutions. If you want more of something, tax it less. So, if you want doctors and other health-care providers to supply care to those who cannot pay, then simply reduce their taxes to zero for doing so.”<br /><br />The goal here is to entice millions of health-care professionals to contribute their services to those who cannot afford them and cannot secure or purchase insurance. Why not turn thousands of clinics and examination rooms into the domestic equivalent of Doctors Without Borders?<br /><br />Government should limit itself to certifying people as uninsured and needy, so that prosperous-but-stingy people do not game the system. "<br /></blockquote>Perhaps I have some emails I've drafted about this proposal, but I'm damned if I can find 'em right now. Well, there is always another post to put some much needed flesh on this skinny little notion. Shoot. I probably need a whole new blog.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com2tag:blogger.com,1999:blog-5256136730392159236.post-87796238186494461462009-09-02T17:39:00.006-04:002012-11-07T21:47:53.278-05:00Supply Side Environmentalism Goes Public!<blockquote>
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<span class="Apple-style-span" style="font-family: Times;"><a href="http://www.ustream.tv/recorded/1942551"><span class="Apple-style-span" style="font-size: medium;">Here is a video</span></a><span class="Apple-style-span" style="font-size: medium;"> of the first ever public discussion of Supply Side Environmentalism, as applied to clean energy. The talk takes place at a conference of think tanks convened by the <a href="http://atlasnetwork.org/">Atlas Economic Research Foundation</a>.</span></span><br />
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<span class="Apple-style-span" style="font-family: Times;"><span class="Apple-style-span" style="color: #191919; line-height: 27px;"><span class="Apple-style-span" style="font-size: medium;">The crowd in the video is predominantly free market libertarians, so I pitched the talk to that audience, emphasizing that this is a great way to get environmentally concerned progressives and liberals to appreciate tax cuts. Were I to address progressives or liberals, I would rather emphasize that my approach is a great way to get tax cut loving libertarians and conservatives to do and care more about the environment. In any event, my clear intent is to bridge the gap between left and right on this issue, and whichever group does that first, will take the center and the lead.<br /><br />The Q &A begins at the 50 minute mark, and has some interesting remarks.</span></span></span></div>
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Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-58415275099936915992009-08-13T22:43:00.006-04:002009-09-02T18:34:12.417-04:00Some Debate!<blockquote> </blockquote>I was supposed to debate Ken Malloy last week at the Atlas Economic Research Institute conference in Canada. I had been assured he hated my ideas. He favored some sort of energy tax, apparently. So I had been told.<br /><br />But he came up to me at the opening cocktail party the evening before a debate. Says he: "I really hated your proposal when I first heard it. But when I ran it through my analytical model†, it scored extremely high in nearly all parameters. That made me re-consider. You really hoist some sacred cows on their own petard in a very interesting way. I now think your green energy tax cuts idea is one of the most innovative energy policy proposals I have heard in years."<br /><br />Wow, thanks Ken! Never had a debate go down quite like that before...<br /><br />Ken still does not like one aspect of my proposal: he says it distorts markets. However, he favors a carbon tax, which in my views, distorts markets even more, and also imposes economy-wide deadweight loss. But that debate, it seems, will have to wait until another day.<br /><span style="font-size:85%;"><br />†Ken has developed a tool for analyzing eco/energy policy proposals he calls "The Ecoviergy Index."</span>Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-79225832654426836752009-07-31T10:33:00.009-04:002009-08-01T02:37:15.997-04:00Sir Antony Fisher, Gentleman Turtle Farmer<blockquote> </blockquote>Many old memories have bubbled to the surface since the <a href="http://atlasnetwork.org/">Atlas Economic Research Institute</a> invited me to speak at their <a href="http://guest.cvent.com/EVENTS/Info/Summary.aspx?e=3e7c5027-9656-47c5-8fe2-914f449c8376">conference in Canada next week</a> -- on a panel about supply side environmentalism -- primarily because Atlas founder, <a href="http://en.wikipedia.org/wiki/Antony_Fisher">Sir Antony Fisher</a>, was a good friend and influential mentor to me in my youth. Many of the core ideas that I write about on this blog are a direct outgrowth of Sir Antony's free market environmentalist influence. So addressing his organization, his intellectual descendants, feels a bit like coming full circle.<br /><br />Sir Antony was a frequent overnight guest in my family's Manhattan apartment in the 1970's and early 1980's, a wanderer on a great mission -- a mission he shared with my father, Randy Richardson, then President of the <a href="http://en.wikipedia.org/wiki/Smith_Richardson_Foundation">Smith Richardson Foundation</a>, and others -- a mission to spread the idea of liberty. There can be no doubt that Sir Antony is one of liberty's great unsung heroes, directly instigating the creation over 150 libertarian or free market think tanks world wide in his lifetime -- including many of the most influential, such as the Institute For Economic Affairs in London, The Manhattan Institute, The Fraser Institute in Canada, and the Pacific Research Institute in San Francisco. That network of think tanks, supported and fostered by Atlas, has now swelled to well over 300.<br /><br />My dad half-jokingly call him "the Johnny Appleseed of ideas." He was a fascinating Englishman, and we were only too happy to help him in his mission, and provide him with shelter and meals whenever he blew into town.<br /><br />Sir Antony and my dad clicked on so many levels. Both were WWII veterans, my dad a grunt in Patton's Third Army, Fisher more glamorously, a decorated RAF pilot who flew alongside and lost his brother in the Battle of Britain. The war taught them a deep, lifelong hatred of totalitarianism in all its flavors. So both became champions of liberal democracy and free markets. Both were entrepreneurs and aquaculture pioneers, with a passion for doomed sea farming ventures: Fisher ran a green sea turtle farm in the Cayman Islands, while my dad in those days launched innovative ventures with mussels, clams and shrimp. (Dad sometimes referred fondly to Sir Antony as "that gentleman turtle farmer.")<br /><br />They advised each other on these ventures, and stoked a kind of wild eyed mania in each other for the dream of saving the planet by farming the sea. Whenever Sir Antony would show up, we would trade long yarns, war stories and fish tales until late into the night. I of course got quite caught up in all this, eventually taking time off after my freshman year in 1980 to do underwater construction on the first US mussel farm, BlueGold Sea Farms, located in Narragansett Bay, RI. The next time I saw Sir Antony, he was keen to hear all about my experiences working 50 feet down in pitch black freezing water, lowering, guiding and then unshackling two ton mooring blocks, sunk six feet in mud, while scores of giant spider crabs circled and closed in. Ah, the romance of the sea!<br /><br />(I remember thinking enviously that Sir Antony at least had the good sense to do his sea farming on a tropical island with warm, clear water and resort facilities.)<br /><br />But for me, the most seductive aspect of the various aquaculture ventures we discussed with Sir Antony was not their potential profitability, but their innovative idealism. To us, sea farming was a way to feed a world in danger of overpopulation and starvation, a way to provide massive amounts of cheap high quality protein well beyond the overstretched capabilities of dirt farmers. Sir Antony was not just trying to turn a buck with his green sea turtle farm, he was saving an endangered species. A portion of all turtle hatchlings at the farm were raised until able to fend for themselves, then released into the wild. Sir Antony was actually increasing wild turtle populations, actually saving the green sea turtle. Ironically, the farm was done in by radical environmentalist who banned the sale of all green sea turtle products, regardless of origin, and refused to listen to reason. Sir Antony's turtle farm would have been successful, but for this.<br /><br />Of direct relevance to the Atlas conference in Canada, to our panel on supply side environmentalism, is then the legacy of Sir Antony's free market environmentalism, and his personal impact on the ideas I will be presenting. A key point is that the founder of the Atlas network, Sir Antony Fisher, was NOT dismissive of environmental concerns, but passionate about them. He was only critical of ill-conceived big government solutions to these problems. Rather, he cared deeply about beautiful endangered species such as the green sea turtle, and personally committed his time and fortune to saving them, through free market means. (Note that Sir Antony was well ahead of the curve with this strategy. Nowadays is is commonplace for groups like the <a href="http://www.rainforest-alliance.org/">Rainforest Alliance</a> to promote the idea of saving an endangered resource like the rainforest by turning it into a sustainable commercial opportunity.)<br /><br />As Atlas network think tanks ponder the way forward in the wake of the financial crisis and the electoral gains of liberals, we could do no better than to consider Sir Antony's passion for green sea turtles. Don't waste time dismissing liberal environmental concerns. Instead, get passionate about solving real environmental problems. Promote free market solutions that work better than tax, spend and regulate, that leave the economy in better shape than if we did nothing (regardless of whether the problem is real or not). In other words, steal the issue by providing better, cheaper, prosperity-inducing solutions.<br /><br />Like supply side green energy tax cuts.<br /><br />More on that later.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com1tag:blogger.com,1999:blog-5256136730392159236.post-17483008416752537152009-07-03T02:24:00.011-04:002012-11-07T22:21:54.162-05:00Libertarian Columnists, Right and Wrong<blockquote>
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Some libertarians get it, some don't.<br />
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Nationally syndicated pundit <a href="http://www.scrippsnews.com/taxonomy/term/479">Deroy Murdock</a> has taken up the green energy tax cut cause with spirit and passion in <a href="http://www.vcstar.com/news/2009/jul/03/green-energy-tax-cuts-instead-of-cap-and-trade/">his latest column for Scripps Howard News Service</a> and <a href="http://article.nationalreview.com/?q=ZmM1ZDM1ZmY2YmVhMGNlNDM0ZWM2OTQ4MDRhYTM4NWU">National Review Online</a>. Mr. Murdock quotes me and this blog extensively. He points out that the cap and trade bill in Congress will likely act as an energy tax, depressing the economy further, while a green energy tax cut would both stimulate the economy and more effectively shift America away from dirty fuels and inefficient vehicles.<br />
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On the other hand, Cato Institute scholar Alan Reynolds, for whom I have enormous respect as one off the founding fathers of supply-side economics, has most disappointingly joined the chorus of those calling for a gas tax <a href="http://online.wsj.com/article/SB124649332091983175.html">in a op-ed in the Wall Street Journal</a>. Reynolds is one of the key guys who made the Reagan tax cuts happen, so it is frustrating to see him now championing tax hikes. Worse, he is part of an increasingly weird phenomenon of folks who call themselves libertarian/supply-side/or free market economists who now voice some support for energy taxes. This group includes Harvard economists Jeffrey Miron and Greg Mankiw, as well as Cato Senior Fellow Jerry Taylor, whom I <a href="http://greenenergytaxcuts.blogspot.com/2009/01/apostle-to-cato.html">debated at some length in January</a>.<br />
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Of course, neither carbon nor gas tax hikes have any real basis in libertarian or supply-side theory. What precisely is behind this misguided pro-tax advocacy will be a subject for a future post.<br />
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To his credit, Reynolds rationale for a gas tax is better than most. Reynolds is rightly concerned that new CAFE fuel efficiency standards (which already shut down the previously successful Caterpillar Diesel Truck Engine division just last year) will kill GM. Further, he rightly points out that because we apply a 24¢/gallon tax to diesel, our most efficient fuel, but not to gasoline and ethanol, we create an economic distortion that decreases American fuel efficiency. Reynolds argues that a 24¢/gallon tax on both gas and ethanol would level the playing field, increasing American fuel efficiency and the spurring the development of more fuel efficient cars without the potentially catastrophic damage CAFE will do to GM and Chrysler.<br />
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The problem with Reynolds' proposal is that, in the current climate, if Republicans who listen to people like Reynolds become friendly to a gas tax, we will get BOTH the new, harsh CAFE standards AND a new gas tax. The Democrats have blinders on to any economic damage that might result from their most beloved green policies: CAFE, energy taxes and subsidies. They are not going to listen to Mr. Reynolds criticism and will insist on the policies they want, and use any support they get from the pro-energy-tax libertarians to ram that policy through too.<br />
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Further, just as the Democrats turn a blind eye to the damage from CAFE, Reynolds also turns a blind eye to the damage that will be caused by the taxes he proposes. All energy taxes create a dead-weight loss that act as a drag on the entire economy, raising prices, depressing nearly all economic activity. Reynolds ignores that inconvenient truth, as do his pro-tax libertarian colleagues.<br />
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The saddest part of it is that Reynolds should know better. If supply-side tax cut prescriptions work for the entire economy, they will also work for Americas' green industries, while stimulating the entire economy in the process. Mr. Reynolds should have provided a real alternative not only to CAFE, but to the entire tax/subsidize/regulate Democrat energy agenda. CAFE standards should not be used to force companies to make uneconomic decisions, but as the basis of a schedule of tax relief encouraging companies to invest in the most fuel efficient vehicles. Not only should such vehicles be tax free to the extent they meet or exceed CAFE standards, but companies that meet them (and their stocks and bonds) should be income and capital gains tax free in proportion to the percentage of highly fuel efficient vehicles that such companies sell. Far from depressing the economy as would any energy tax, such CAFE-based green tax cuts would stimulate both the economy and massive new investment in a green retooling of the auto industries -- without a bailout -- as I discuss <a href="http://greenenergytaxcuts.blogspot.com/2008/11/how-to-save-auto-industry-without.html">here</a>.<br />
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Spurring new green investment is essentially a supply-side problem, amenable to supply-side solutions. Reynolds and his pro-energy-tax economist colleagues should learn that energy tax hikes do not spur green investment. These folks need to take a hard look at the experience of Scandinavian countries that have employed aggressive carbon taxes since the 1990s with (surprise!) no net reduction of carbon emissions. This failure is explained by the fact that energy taxes starve industries of the very revenue and new capital that are most needed in order to invest in green technologies. If new green investment is what is needed, supply-side green tax cuts are the best way to go.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com3tag:blogger.com,1999:blog-5256136730392159236.post-28321296016012018362009-03-12T23:23:00.006-04:002012-11-07T22:20:26.333-05:00Obama Talks Sense! Reason Rallies with Markets!<blockquote>
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I swear, it is like Obama is reading my blog.<br />
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A week ago, <a href="http://greenenergytaxcuts.blogspot.com/2009/03/how-to-dodge-obama-depression.html">I opined that Obama's lack of bipartisanship destroyed the market's confidence</a>, and that he needs to cut corporate taxes in line with European/OECD rates and rethink his energy plan in order for the markets to rally and the economy recover. Today, <a href="http://online.wsj.com/article/SB123689161351811405.html">addressing CEOs at the Business Roundtable</a>, Obama put corporate tax cuts and energy plan redesign on the table. And the markets rallied.<br />
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Even better, Obama apparently linked cutting corporate taxes to closing loopholes and ending subsidies. Amen. One can only hope this does not turn out to be another example of his famous fake right, go left hoops tactic.<br />
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But really, the last couple of days has seen an epidemic outbreak of reason, tracking the current stock market rally. On Tuesday, <a href="http://www.marketwatch.com/news/story/frank-up-tick-rule-introduced-month/story.aspx?guid=%7B54251552-13B2-4F70-AA8B-DA31C4F66E1F%7D&dist=msr_13">Barney Frank announced the re-instatement of the uptick rule</a>, which slows down a short-selling avalanche and so will give a lift to markets. On Wednesday, both <a href="http://www.reuters.com/article/ousiv/idUSTRE5293N720090310">Fed Chairman Bernanke</a> and <a href="http://online.wsj.com/article/SB123672700679188601.html">Warren Buffet</a> urged "improvements" in mark to market accounting rules, which many argue triggered the current financial crisis and collapse of major investment banks by forcing valuable assets to be listed at zero market value when markets are not functioning.<br />
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<a href="http://online.wsj.com/article/SB123689700452612473.html?mod=article-outset-box">Then the Europeans chimed in</a>: "In Berlin Thursday, with German Chancellor Angela Merkel at his side, French President Nicolas Sarkozy explicitly rejected Mr. Obama's push for more global fiscal stimulus, declaring, 'the problem is not about spending more, but putting in place a system of regulation so that the economic and financial catastrophe that the world is seeing does not reproduce itself.'"<br />
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Since the mere mention of European technocrats can induce fits of boot licking and forelock tugging among American liberals, one can only hope Obama will listen closely to this advice. Hopefully, Sarkozy will also find time at the G-20 summit to explain to Obama the policy of <a href="http://greenenergytaxcuts.blogspot.com/2008/12/green-tax-cut-blind-spot-left-right.html">green tax cuts</a> that he and British Prime Minister Gordon Brown helped steer through the European Parliament this winter – the addition of which could seriously improve Obama's energy plan. <br />
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One can only hope that good sense is contagious, and these ideas all take root, as they should have months ago, sparing us all much unnecessary pain and loss. My expectation is that the degree to which these various great ideas are adopted or rejected, the markets and the economy will rise or fall.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-50664350557039240032009-03-05T16:56:00.018-05:002012-11-07T22:34:09.841-05:00How to Dodge "The Obama Depression"<blockquote>
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Google "Obama Depression" and you will find that an increasing number of bloggers and pundits are throwing the term around. Since a depression occurs only when real GDP declines more than 10%, more circumspect publications like the Wall Street Journal are now calling it "<a href="http://online.wsj.com/article/SB123604419092515347.html">The Obama Economy</a>" and warning that <a href="http://online.wsj.com/article/SB123612575524423967.html">the possibility of depression</a> has been increased by the President and his party's policies and statements.†<br />
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While there is plenty of blame to go around, there are perhaps reasons to lay some responsibility for the post-inauguration stock market free fall at Obama's doorstep, and if GDP falls 10% or more, it will be called the Obama Depression, and the name will likely stick. Why?<br />
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<span style="font-weight: bold;">1) Lack of bipartisanship on the stimulus bill, budget and financial recovery plans destroyed confidence.</span> This goes beyond the obvious fact that these were all the highly partisan creations of Team Obama, so he will get the credit, or blame, for the results. More importantly, by insisting on a partisan economic plan, Obama guarantied that only about half the country would like the plan, and the other half would have no confidence in it. Obama failed to restore consumer or investor confidence, and in fact destroyed it, by rushing through plans half the country would certainly hate. Plunging stock markets and lowest-ever consumer confidence index are a direct reflection of that dynamic.<br />
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The perception among many moderates (like myself) that Obama has broken his pledge to govern in a bipartisan manner has also increased uncertainty about how extreme his policies might become (i.e., nationalization). This uncertainty has obviously helped fuel the market decline as well.<br />
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<span style="font-weight: bold;">2) Obama promotes economic policies that have failed in the past, while he rejects policies that have succeeded. </span>Obama's stimulus is entirely demand-side spending in hopes of sparking more demand and spending, and no supply-side tax cuts to stimulate work and investment. In fact, his plan even includes supply-side depressants in the form of tax hikes and a more steeply graduated tax code. History gives <a href="http://greenenergytaxcuts.blogspot.com/2009/02/from-textbook-stimulus-fallacy-to-dow.html">fairly clear guidance</a> that this is the wrong approach. Supply-side tax cuts were put into effect under Kennedy/Johnson, Reagan and Bush, and each time resulted in economic expansion and the end of a recession or slump. However, the last time large scale demand-side stimulus was attempted in conjunction with tax hikes it resulted stagnation and inflation under Carter. When FDR raised taxes in 1937, he re-tanked the economy and undid whatever good he had done up until that point. Anyone who is aware of this history – as are many sophisticated investors – would be understandably concerned about Obama's dangerous combination of demand-side stimulus and tax hikes.††<br />
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Thus, many investors lack confidence in Obama's plans because there is fairly strong evidence that they won't fix the economy and might even set back any recovery.<br />
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While Obama often contrasts his plan to "those who think we should do nothing," in reality most Republicans and libertarians actually advocate supply-side corporate tax cuts. The US rates are 15 percentage points higher than the OECD average but produce about a third less revenue. That is good <a href="http://cato.org/pubs/articles/edwards-taxnotes-laffer-curve.pdf">evidence</a> that not only are the rates <a href="http://cato.org/pubs/tbb/tbb_1107_49.pdf">out of line internationally</a>, placing the US at a competitive disadvantage, but that the rates are too high on the curve, so reducing them could likely result in more tax revenue, and <a href="http://greenenergytaxcuts.blogspot.com/2009/02/from-textbook-stimulus-fallacy-to-dow.html">a greater stimulus effect than spending</a>. There really is no good excuse not to do this, given the OECD data. Ironically, Obama can now be criticized for not doing enough, for rejecting the most promising solutions because of ideological prejudice.<br />
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So how can the President best prevent "The Obama Depression" and revive the markets and the economy? First, by actually living up to his <a href="http://blogs.abcnews.com/politicalpunch/2008/11/rahmbo-pledges.html">pledge to govern in a bipartisan mannner</a>, particularly with respect to the stimulus and budget. We need a recovery plan that can give confidence to ALL Americans, not just half of them. There needs to be elements in the plan that everyone can cheer. Specifically, by revising the stimulus plan to cut corporate tax cuts to average OECD levels (24%) and including other supply-side incentives to work and invest, he can give hope and confidence to all Americans, not just his followers. Markets would rally. Such tax cuts would increase the earnings derived value of corporate stock by over 23%, so help markets to rise and recover, which would in turn boost spending and renewed investment. All that would boost the economy, and so reduce the rate of foreclosures, taking pressure off the banking crisis.<br />
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Getting buyers back in the markets is key, both to help stocks recover, and in order to clean up the CDO mess. Here are a few suggestions to encourage such investments: For the next twelve months, let's make any stock purchased be capital gains and dividend tax free for as long as it is held. That would be a very strong encouragement for buyers to come back into the markets... and we are not giving up any current revenue to do so. In fact, we could raise a great deal of current revenue if instead, for twelve months, buyers paid a .25% sales tax on stock at purchase rather than a 15% or 20% capital gains tax when it is sold: that is quite a good deal for investors, and would raise quite a bit here and now, while pulling buyers back to the market.<br />
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Eliminating gains taxes on existing distressed CDOs would increase their value and marketability to private investors, and reduce the amount taxpayers would have to pay for any bailout. Along these lines, I suggest interest income taxes be eliminated in cases where banks voluntarily reduce the interest or principal due on a loan in foreclosure by at least the value of the taxes due. This would encourage voluntary loan adjustments, reduce foreclosures, and also help to increase the marketability of CDOs.<br />
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Other parts of Obama's plan could also be accomplished with more stimulus effect, less economic drag and reduced cost. For instance, aggressive <a href="http://greenenergytaxcuts.blogspot.com/2008/11/since-you-ask.html">supply-and-demand-side tax cuts for clean, efficient renewable energy</a> technologies could replace most of the Obama energy plan with better results for less. Expensive subsidies often end up rewarding failure, while carbon taxes depress the economy and simply don't work.†† CAFE regulations recently put the successful Caterpillar diesel truck engine division out of business, and could do the same to other companies. By contrast, steep tax cuts or tax freedom for green energy businesses that meet the desired standards would stimulate the entire economy by lowering the cost of clean energy while increasing and diversifying the supply. This would create a stronger, more entrepreneurial green energy sector, while avoiding the pitfalls of political patronage, heavy-handed over-regulation, subsidized failure and corporate dependency. <a href="http://greenenergytaxcuts.blogspot.com/2008/11/how-to-save-auto-industry-without.html">And it could help save and transform the auto industry without a bailout.</a><br />
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Obama can turn around the economy and take out an insurance policy against "The Obama Depression" by embracing smart, supply-side, bipartisan solutions that markets can cheer. Indeed, given the unprecedented severity of the crisis, and the extent to which people are suffering as never before, it is unconscionable for Obama to leave undone anything that could help, particularly the proven solutions that have worked in the past.<br />
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<span style="font-size: 85%;">†I spoke to soon: even the WSJ has published the "Obama depression" moniker <a href="http://online.wsj.com/article/SB123552068199964531.html">here</a>.<br />††Obama has a similar problem with his energy program. While Obama promotes a carbon cap-and-trade plan, many green advocates believe cap-and-trade is ineffective and unenforceable, and prefer a carbon tax. Unfortunately, the empirical evidence from Scandinavian countries is that carbon taxes do not work. Norway has had carbon taxes since the 1990's and their per capita emissions are up over 40%. Denmark's experience shows that what really works is investment in renewable energy and efficiency. So the question then becomes how to best support such investment: direct subsidy or <a href="http://greenenergytaxcuts.blogspot.com/2008/11/since-you-ask.html">supply-and-demand-side tax cuts for green energy</a>? Unless you want to subsidize failure an create a culture of patronage and corporate dependency, the only real answer is tax cuts. This approach would be cheaper, more effective, and better at stimulating both green energy and the economy.</span>Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-29445043630535489312009-02-08T16:05:00.011-05:002012-11-07T22:35:32.900-05:00From Textbook Stimulus Fallacy to Dow 10,000<span style="color: black; font-size: 130%;"><span style="font-style: italic;">Missing Tax Cut Multipliers Make all the Difference</span></span> <br />
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There is, it seems, a fallacy in textbook economic theory. Harvard economist and best selling textbook author <a href="http://www.economics.harvard.edu/faculty/mankiw">Greg Mankiw</a> points out <a href="http://www.nytimes.com/2009/01/11/business/economy/11view.html">in the New York Times</a> that while textbook Keynesian economics suggests federal spending is more effective than tax cuts at stimulating the economy, empirical evidence suggests otherwise.<br />
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Economics textbooks, including Mr. Samuelson’s and my own more recent contribution, teach that each dollar of government spending can increase the nation’s <a href="http://topics.nytimes.com/top/reference/timestopics/subjects/u/united_states_economy/gross_domestic_product/index.html?inline=nyt-classifier" title="More articles about the U.S. gross domestic product.">gross domestic product</a> by more than a dollar. When higher government spending increases G.D.P., consumers respond to the extra income they earn by spending more themselves. Higher consumer spending expands aggregate demand further, raising the G.D.P. yet again. And so on. This positive feedback loop is called the multiplier effect. </div>
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In practice, however, the multiplier for government spending is not very large. The best evidence comes from a recent study by Valerie A. Ramey, an economist at the University of California, San Diego. Based on the United States’ historical record, Professor Ramey estimates that each dollar of government spending increases the G.D.P. by only 1.4 dollars. So, by doing the math, we find that when the G.D.P. expands, less than a third of the increase takes the form of private consumption and investment. Most is for what the government has ordered, which raises the next question.</div>
<span class="bold" style="font-style: italic; font-weight: bold;">WILL THE EXTRA SPENDING BE ON THINGS WE NEED?</span><span style="font-style: italic;"> If you hire your neighbor for $100 to dig a hole in your backyard and then fill it up, and he hires you to do the same in his yard, the government statisticians report that things are improving. The economy has created two jobs, and the G.D.P. rises by $200. But it is unlikely that, having wasted all that time digging and filling, either of you is better off... If the </span><a href="http://topics.nytimes.com/top/reference/timestopics/subjects/u/united_states_economy/economic_stimulus/index.html?inline=nyt-classifier" style="font-style: italic;" title="More articles about economic stimulus.">stimulus package</a><span style="font-style: italic;"> takes the form of bridges to nowhere, a result could be economic expansion as measured by standard statistics but little increase in economic well-being...</span><br />
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<span class="bold" style="font-weight: bold;">MIGHT TAX CUTS BE MORE POTENT?</span> Textbook Keynesian theory says that tax cuts are less potent than spending increases for stimulating an economy. When the government spends a dollar, the dollar is spent. When the government gives a household a dollar back in taxes, the dollar might be saved, which does not add to aggregate demand.</div>
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The evidence, however, is hard to square with the theory. A recent <a href="http://www.econ.berkeley.edu/%7Ecromer/RomerDraft307.pdf">study</a> by <a href="http://topics.nytimes.com/top/reference/timestopics/people/r/christina_d_romer/index.html?inline=nyt-per" title="More articles about Christina D. Romer.">Christina D. Romer</a> and David H. Romer, then economists at the University of California, Berkeley, finds that a dollar of tax cuts raises the G.D.P. by about $3. According to the Romers, the multiplier for tax cuts is more than twice what Professor Ramey finds for spending increases.† </div>
<span style="font-style: italic;">Why this is so remains a puzzle. One can easily conjecture about what the textbook theory leaves out, but it will take more research to sort things out.</span></blockquote>
One wishes Prof. Mankiw would do a bit more informed conjecturing in the Times, because the answer to the above puzzle could greatly inform the current stimulus debate. It is likely there is more than just one factor at play here. Prof. Mankiw at least offers one explanation here why the multiplier for spending stimulus may be so low: too many bridges to nowhere, too much useless digging-and-filling ditches drags down the spending multiplier. <a href="http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html">But hidden elsewhere in his blog</a>, Mankiw more powerfully explains the higher multiplier for tax cuts:<br />
<blockquote>
<span style="font-style: italic;">One hypothesis is that that compared with spending increases, tax cuts produce a bigger boost in investment demand. This might work through changing relative prices in a direction favorable to capital investment--a mechanism absent in the textbook Keynesian model.</span><br />
<br />
<span style="font-style: italic;">Suppose, for example, that tax cuts... take the form of cuts in payroll taxes (as suggested by </span><a href="http://gregmankiw.blogspot.com/2008/12/bils-klenow-stimulus-plan.html" style="font-style: italic;">Bils and Klenow</a><span style="font-style: italic;">). This tax cut would reduce the cost of labor and, if labor and capital are complements, increase the demand for capital goods. Thus, the tax cut stimulates demand not only by increasing disposable income and consumption spending (the textbook Keynesian channel) but also by incentivizing more investment spending. A similar result might obtain if the tax cut included, say, an investment tax credit.</span>††</blockquote>
All the above clearly applies to the current debate over whether corporate tax cuts should be included in the stimulus package, with critics making the same textbook arguments that businesses might save rather than invest the tax cut, while federal spending is surely spent.<br />
<br />
However, it seems to me that when the Mankiw hypothesis is applied to corporate tax cuts, (which is a cleaner thought experiment than a payroll tax in that we don't need to consider the employee tax cut) not only does it become crystal clear that Mankiw MUST be right about price changes boosting investment demand, but that there is an additional market mechanism in play here, boosting both aggregate demand and hence the tax multiplier.<br />
<br />
Let's follow the chain of cause and effect: corporate tax cuts would mean higher after-tax earnings; since earnings determine stock prices through P/E ratios, higher earnings forecasts would signal a immediately higher market value for each corporation and the stock market as a whole. Rising values will pull investors back into the market. Further, a rising stock market generally means rising consumer spending and demand as individual see their net worth recover and deferred needs become pressing. Lastly, rising demand would further determine that corporate tax cuts would be invested, not saved, again, in direct contradiction of the above textbook expectations.<br />
<br />
How does this work out in the current market? Doing the math, we see that cutting combined federal-state corporate rates 15 percentage points from the present 39% to say 24% (making US rates in line with average corporate rates in OECD countries) would raise corporate after-tax earnings by about 24.6%. If P/E ratios are stable, it is likely that both corporate valuations and stock markets would rise by roughly the same percentage, around 24.6%, in a fairly short period. If the current market floor is at about DOW 8000, that implies that a 15% corporate tax cut would raise the value of the DOW to just under 10,000. This number could be higher if P/E ratios rise (as is usually the case in rising markets) or if a significant portion of investors use leverage. Subsequent rising demand could further boost the Dow significantly above 10,000, driving a powerful positive feedback loop that boosts demand and GDP further.<br />
<br />
While I leave it up to others to quantify tax cut multipliers, it is easy to see where additional equity and debt market multipliers kick in, and what has been left out of the textbook theory: some of the new investors will use debt for leverage (creating an additional credit market multiplier) or pull money out of savings (in contradiction to textbook models that result in low multipliers). Further, as with the new investment, the new consumption will also be partly financed from debt or savings, credit markets again boosting demand and the tax multiplier. Lastly, facing stronger demand, businesses would not only invest their tax cuts, but seek more equity and debt financing, creating an additional leverage multiplier. Higher stock valuations (the direct result of tax cuts) would further strengthen balance sheets and allow corporations to borrow more money more cheaply. <br />
<br />
At nearly every step of this chain of causation, we further see that the textbook Keynesian assumption that the tax cut will be saved rather than invested is powerfully contradicted, that the tax cut would be not only fully invested but also attracts additional debt or equity financing at three different levels: that of the investor, consumer and corporation.<br />
<br />
By contrast, no such equity+credit market multiplier effect could be plausibly attributed to federal spending, <a href="http://www.mitpressjournals.org/doi/abs/10.1162/003355302320935043?cookieSet=1&journalCode=qjec">which seems instead to actually crowd out private investment</a>.<br />
<br />
Prof. Mankiw observes:<br />
<blockquote>
This hypothesized channel seems broadly consistent with the empirical findings of <a href="http://www.mitpressjournals.org/doi/abs/10.1162/003355302320935043?cookieSet=1&journalCode=qjec">Blanchard and Perotti</a>, <a href="http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2005-039.pdf">Mountford and Uhlig</a>, <a href="http://www3.interscience.wiley.com/journal/119118992/abstract">Alesina and Ardagna</a>, and <a href="http://www.nber.org/digest/jan00/w7207.html">Alesina, Ardagna, Perotti, and Schiantarelli</a>. </blockquote>
He refers to his own hypothesis, of course, but it is equally true of my elaboration on equity and debt market multipliers, and probably applies to a broad variety of tax cuts (and regulatory relief) that effect the value of investments. This hypothesis could be further verified if research shows the following: (a) that corporate tax cuts lead to rising stock markets; and (b) that rising stock markets lead to rising consumer spending.<br />
<br />
To correct the spending stimulus fallacy, future economics textbook should say that every dollar of federal spending is either spent or misspent, but every dollar of tax cut is not only invested, but attracts many more dollars of additional investment by raising underlying valuations.<br />
<br />
Addendum: So why post this here on a blog about green energy tax cuts? Because not only is the proposed stimulus worth writing about, but all the above bolsters the case for supply-side green tax cuts, which should also boost GDP by $3 for every dollar of tax cut, according to the empirical research cited above. I can't help noticing that Mankiw is the founder of <a href="http://gregmankiw.blogspot.com/2006/10/pigou-club-manifesto.html">The Pigou Club</a>, arguing for <a href="http://en.wikipedia.org/wiki/Pigovian_tax">Pigouvian tax</a> adjustments to take into account market externalities. Now this may come as a surprise, but I am applying for admission to the club on the grounds that green tax cuts are indeed a legitimate Pigouvian tax adjustment to account for positive and negative externalities of various energy technologies. That I oppose carbon or gas taxes on account of the $3 of GDP loss they create for every dollar of tax, or believe Pigouvian tax cuts are superior to Pigouvian tax hikes is merely a matter for thought-provoking internal debate among club members, and should not bar me from admission, or full enjoyment of club facilities...<br />
<br />
<span style="font-size: 85%;">†Prof. Mankiw points to other empirical evidence of low spending and high tax cut multipliers <a href="http://gregmankiw.blogspot.com/2008/12/fiscal-policy-puzzles.html">here</a>, <a href="http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html">here </a>and <a href="http://gregmankiw.blogspot.com/2009/01/mountford-and-uhlig-on-fiscal-policy.html">here</a>. Christina Romer is President Obama's appointee as chairwoman of the Council of Economic Advisors.<br /><br />††Mankiw's hypothesis is similar to the explanation offered by supply-side economics: tax cuts make it more rewarding to work and invest, and less rewarding to employ accountants and tax shelters: therefore a tax cut gets us more work and investment. But supply-siders go one step further by suggesting that the highest tax multipliers are associated with cuts at the highest marginal rates, that since the highest rates create the severest disincentives to work and invest, the magnitude of the economic benefit for a cut at these rates will be greatest, as will the likelihood that such cuts will be revenue positive or neutral.</span>Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com25tag:blogger.com,1999:blog-5256136730392159236.post-65618280789407784032009-01-15T22:36:00.004-05:002012-11-07T22:41:47.098-05:00Apostle to Cato III: Epilogue (and Prologue)<blockquote>
</blockquote>
Jerry Taylor has withdrawn from this debate. For now, at least.<br />
<br />
You may each judge for yourselves†, but it seems to me, and apparently to some of my readers, that Jerry left standing my three central points: that cutting taxes on green energy, vehicles, infrastructure and efficiency appears to be 1) much like the broad tax cuts proposed by Cato's supply-siders, and hence, better for the economy than doing nothing; 2) far better than the tax and spend energy initiatives currently on the table (carbon tax-or-trade, subsidy, mandates) which were initially preferred by Jerry over tax cuts; and 3) similar to Cato's tuition tax credit and tax free health saving account proposals, as tax cutting strategies designed to strategically avert a big-gov disaster.<br />
<br />
If I am right about these points, then Cato – and many other think tanks on the right as well – should adopt the green energy tax cut proposal because it is philosophically consistent, economically beneficial, can help avert a big-gov disaster, and can help convince progressives (whose identity is evolving) to appreciate the benefits of tax cuts, and draw them away from pitfalls of tax and spend policies.<br />
<br />
So I issue an invitation, and a challenge – to Cato, AEI, Heritage, Americans for Tax Reform, Manhattan Institute, Atlas and many others. Let's build this proposal together. Let's use our time in the wilderness to save the wilderness, and capitalism too.<br />
<br />
But if you think I am wrong, then let's debate. If you think you can make a better case, then make it. But the truth is, as we have seen here in this debate, that just as cutting taxes beats doing nothing (or tax hikes) on the macro level, it does so on the sector level as well. If you disagree, bring it on.<br />
<br />
If you have courage in your convictions, that is.<br />
<br />
Now, excuse me, but I need to go talk to some progressives. Let me leave the final word on this debate (for now, at least) to one of my readers, Rachel from Seattle:<br />
<blockquote>
"Both you and Jerry Taylor make many wonderful points. I think Taylor is right that doing nothing is better than tax credits, subsidy, carbon tax. But it seems to me that he has misread your proposal, and much of this debate is a misunderstanding. He is reading it as a tax credit proposal, but it is not. Your point is a persuasive insight that I have not heard before, that tax cuts are entirely different from tax credits (or subsidy) in that government is simply getting out of the way vs throwing money at failure. Subsidy probably isn't even the right word for what you are describing. More an unburdening. And you probably are right that it could benefit the whole economy.<br />
<br />
Jerry is also right that more debt should be avoided, so if your proposal is to work, it will be critical how it is designed, so that it is at least revenue neutral.<br />
<br />
Nice to read a really good debate like this between libertarians."</blockquote>
<span style="font-size: 85%;">†Readers may find <a href="http://greenenergytaxcuts.blogspot.com/2009/01/apostle-to-cato.html">part I of the debate here</a>, and <a href="http://greenenergytaxcuts.blogspot.com/2009/01/apostle-ii.html">part II here</a>.</span>Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com2tag:blogger.com,1999:blog-5256136730392159236.post-71265537276464413822009-01-09T17:15:00.020-05:002012-11-07T22:43:22.413-05:00Apostle to Cato II<blockquote>
</blockquote>
So continues my debate with Jerry Taylor of the Cato Institute, and with it, my apostolic ministry of reason, to rededicate the hearts and minds of the Cato community to the cause of reduced taxes and government – for the sake of the general prosperity – wherever and whenever we can do this; specifically, through green energy tax cuts, here and now.<br />
<br />
I note that now, while Obama spends the weekend pondering the need to replace portions of his stimulus package with tax cuts, we have an opportune moment to start. There is much unproductive green energy stimulus being considered that would be well to replace with a productive green energy tax cut.<br />
<br />
Round one of this debate can be found <a href="http://greenenergytaxcuts.blogspot.com/2009/01/apostle-to-cato.html">here</a>. The comments on round one include a fine exchange with Cato's Randal O'Toole that gets to the heart of the carbon tax. Without further ado, here is...<br />
<br />
<span style="color: #6633ff; font-family: trebuchet ms; font-size: 130%; font-style: italic;">The Second Reply of Cato Senior Fellow Jerry Taylor:</span><br />
<br />
I am in favor of the smallest government possible consistent with the job that government is charged with (protecting my right to life, liberty, and the pursuit of happiness). The size of government is defined by how much it spends and how much it regulates. Not by how much it taxes.<br />
<br />
I suspect that you don't agree. If not, ask yourself this - if we zeroed-out taxes for 2009 and found a way to borrow all the money necessary to meet current federal spending plans, would we have reduced the size of government to zero? No. Would we have reduced the size of government at all? No again. To argue to the contrary is to argue that putting your grocery bill on your credit card reduces your effective grocery bill to zero. The reality, of course, is that you simply decided to pay for today's groceries tomorrow ... but with interest. If you pay interest on your credit card, the size of your total bill went up, not down, by putting those groceries on the credit card.<br />
<br />
Why exactly do some libertarians believe that paying for your groceries with a credit card is somehow more "freedom enhancing" than paying with cash? Beats me. A stronger argument would be to pay with cash. At least you avoid paying the interest on the borrowed money.<br />
<br />
The inescapable reality is that - unless interest rates on Treasury Bills are zero - borrowing to pay for current spending increases the size of government relative to levying taxes to pay for current spending. Because my fundamental aim is to reduce the size of government, I prefer the latter to the former.<br />
<br />
Now, you are certainly correct that taxes harm economic growth. But borrowing to pay for spending programs simply transfers the economic harm of the taxes avoided from the present to the future. Hence, tax cuts are in a very real sense "borrowing" economic growth from the future. We are temporarily wealthier for it but we will later be poorer for it ... or future generations will be poorer for it if we die before the bills come due.<br />
<br />
Again, the only way to reduce the economic harm caused by taxation is to reduce spending. Borrowing will not do the trick.<br />
<br />
As far as economic stimulus is concerned, I don't think the best stimulus is a tax cut for the simple reason that a tax cut may not be used to purchase goods or services ... it might instead be saved. Now, that's fine with me (I'm not sold on the Keynesian stimulus argument anyway), but if government-induced stimulus is the objective, I don't think tax cuts will do the job as well as spending might. Again, however, I am not in favor of government-induced stimulus, so that's neither here nor there.<br />
<br />
<span style="font-weight: bold;">So let's focus specifically on your green tax credit idea.</span><br />
<br />
First, since the tax cut you propose takes place in an era of deficit spending, you are by definition increasing the size of government with your tax cut.<br />
<br />
Second, your claim that tax credits do not entail deadweight losses is risible. The federal ethanol program is largely (but not entirely) founded upon the 51¢ blenders' tax credit and economists Harry de Gorter and David Just at Cornell find that the deadweight losses from that tax credit will total $28-49 billion by 2022. Deadweight losses likewise follow from the existing tax credits afforded the renewable energy industry, but how large they might be is unclear.<br />
<br />
Third, many of the energy sources you hope to favor with these tax cuts will not actually be helped because, as Tufts economist Gilbert Metcalf points out, their net tax burden at present is actually negative!<br />
<br />
Fourth, by using the tax code to favor some energy investments over others, you are again, by definition, expanding the size of government (hastening back to Friedman's definition that the size of government is defined by how much it spends AND how much it regulates). You are of course welcome to argue for market rigging exercises, but please, don't lecture me for being ideologically impure in the course of doing so.<br />
<br />
Fifth and finally, you may be right that your green energy tax cut idea is better than the Obama alternatives, but it is not Cato's job to figure out how best to maneuver on the existing political terrain and to use that insight to inform our arguments for second-best policy change. Our job is to argue for what policy OUGHT to be and let the political chips fall where they may. There are plenty of people in Washington who engage in this "argue for the best deal (or least bad deal) that we can get this year" approach. And there's nothing wrong with that. But there likewise needs to be someone or some institution out there arguing for best practice.<br />
<br />
Finally, a few points of clarification. I do not "extol the virtues" of a carbon tax. I am against a carbon tax. I do not extol the virtues of taxes in general. I prefer them to borrowing if the question is how to pay for our governmental bills (save for spending that will largely benefit future generations, in which case borrowing to some extent is defensible), but I more strongly prefer cutting spending and, correspondingly, cutting taxes as we go.<br />
<br />
Jerry Taylor, Senior Fellow, The Cato Institute<br />
<span style="font-size: 100%;"><br /></span><span style="color: #666666; font-family: trebuchet ms; font-size: 100%; font-style: italic;">My Second Reply:</span><br />
<span style="color: #6633ff; font-size: 130%;">Feeling Quite Ignored</span><br />
<br />
One of the strangest features of debating you, Jerry, is the nagging feeling that you are really debating someone else. Honestly, I am feeling quite ignored. For your most devastating arguments bury nameless foes whose feckless views seem quite different from my own.<br />
<br />
Who are these people? Please name some names, cite some articles! Who are these "libertarians" who champion debt financing? 'Cause it sure as subsidized sugar ain't me, Jerry.<br />
<br />
Now, they may exist, but I don't know any libertarians currently arguing for debt financing. So unless I am mistaken, the real target of that remark is -- besides myself -- anyone arguing for tax cuts, including Chris Edwards, Richard Rahn, Daniel Mitchell and most of the tax policy team at Cato. Is that right? Because from what you say here, it is clear that you disagree with these gentlemen's most fundamental recommendations to cut taxes -- and not just when it comes to energy policy, as I supposed earlier.<br />
<br />
In order to make the argument that I, or any tax cut advocate, favor debt financing, you assume that any tax cut will lead to a tax revenue decline and hence more debt. In order to make that assumption, you must ignore <a href="http://www.econlib.org/library/Enc/SupplySideEconomics.html">supply-side economics</a> and <a href="http://www.heritage.org/Research/Taxes/bg1765.cfm">the Laffer curve</a> -- you never even mention either, but simply disregard these arguments as if I never raised them. But I do, often. I also specifically cite and rely on Chris Edwards' recent arguments that cutting present US corporate tax rates would boost the economy and raise overall tax revenues, in order to illustrate how a corporate green tax cut would enhance overall prosperity and could either increase overall tax revenue or be tax neutral, depending on how it is crafted.<br />
<br />
But you never bother to refute those key arguments, so they stand. Similarly you ignore but never refute my arguments that avoiding the big-gov disaster along with the spending cuts which are integral to my proposal, would, on top of revenue neutrality, shrink the size of government. Therefore, your claim that a green tax cut would "by definition increas[e] the size of government" (by forcing debt financing, I suppose you mean) simply fails because it does not refute the contrary arguments on the table.<br />
<br />
Jerry, if you ignore powerful, key arguments -- like <a href="http://www.youtube.com/watch?v=yBC3XivM3eA&feature=related">supply-side theory</a>, the <a href="http://www.youtube.com/watch?v=fIqyCpCPrvU">Laffer curve</a>, or your <a href="http://www.cato.org/pubs/articles/edwards-taxnotes-laffer-curve.pdf">colleagues' recent tax research</a> -- then I win the point and the debate. You must refute these arguments to prove my proposal leads to anything other than prosperity and less government. State clearly why the Laffer curve is a bunch of hooey, if that is what you think. Tell us why Chris is wrong, if you believe he is leading us to ruin. But as things stand – ignored but unrefuted – (a) your tax-cuts-lead-to-debt critique is fatally flawed in that it ignores that tax rates, if too high, may be cut while increasing tax revenue; (b) you therefore have not diminished my case that a green energy tax cut leads to general prosperity and less government.<br />
<br />
<span style="color: #6633ff; font-size: 130%;">Debatable Points</span><br />
<br />
That big picture is echoed in flaws in your specific points:<br />
<br />
<span style="font-weight: bold;">1) Government size is defined by extent of spending and regulation, not taxation.</span> Nonsense. First, taxes are regulations, often called IRS or Treasury regulations. Second, if taking our property under threat of violence is not the quintessential and second most potentially objectionable act of government, I don't know what is. You even define your libertarianism by quoting the Declaration of Independence, which ironically is the world's most famous complaint against tyrannical taxation. So I'll stand with Jefferson and the Continental Congress on this one, thank you. Taxes are government encroaching, and tax cuts removes that government encroachment -- possibly even permanently, without transferring it, depending on the shape of the applicable Laffer curve. I suspect many if not most libertarians would agree with this traditional American view.<br />
<br />
Your illustrative zero taxation thought experiment is fun but flawed. Just turn it on its head to see why: imagine a world with no (non-tax) regulations, with spending set at zero, but also with taxation at 100% of not only income, but any and all assets you own. According to you, government has then vanished. But destitute and homeless, I doubt you would feel government had shrunk much or developed a lighter touch. Taxation is just as much a measure of the burden of government as spending, regulation, debt or collective force.<br />
<br />
The application of this idea to the green tax cut debate is that carbon taxes, subsidies, mandates all increase government. A green tax cut is fundamentally different from these interferences, in that it actually reduces government and removes it from a particular endeavor, and so has fundamentally different economic characteristics (reduction of dead-weight loss, etc.).<br />
<br />
Revisiting your related claim that I am "by definition, expanding the size of government," I further reply that I am rather removing and shrinking government both by cutting taxes, and by displacing much more onerous big-gov tax and spend programs like carbon taxes, subsidies, and mandates. However, I am somewhat put out by the thought that you will probably just ignore this argument as you have the others.<br />
<br />
<span style="font-weight: bold;">2) <span style="font-style: italic;">"[T]he only way to reduce the economic harm caused by taxation is to reduce spending."</span></span> Again, you are denying the Laffer curve here, which says that the harm caused by excessive taxation may be reduced by reducing rates, without reducing revenues. You are right that only spending cuts solve excessive spending -- we agree there -- but the reason is that no matter how much you tax, there is a maximum revenue that can be raised, period. Since we can't tax our way out of debt, we must ween the progressives away from spending policies, which is precisely what my proposal accomplishes. In other words, my proposal is a path to the spending reductions you yourself say are essential.<br />
<br />
<span style="font-weight: bold;">3) A tax cut is not the best stimulus because <span style="font-style: italic;">"a tax cut may not be used to purchase goods or services ... it might instead be saved."</span></span> That possibility is really only true of personal income and property taxes and personal savings. The business tax cuts that are part of a green energy tax cut (sales, corporate income and capital gains tax cuts) are not subject to this objection and are well documented to encourage consumption, investment and general prosperity.<br />
<br />
<span style="font-weight: bold;">4) <span style="font-style: italic;">"[L]et's focus specifically on your green tax credit idea" ... "your claim that tax credits do not entail dead-weight losses is risible."</span> </span>Please, Jerry, read the title of my blog. It says tax cuts, not tax credits. Again you are ignoring what I actually say in order to set up a strawman. As I argued in my original remarks, these are NOT the same thing, and it makes a big difference.† Tax credits are a form of direct subsidy, a federal expenditure that allows a buyer to pay more for something than it is worth. This allows an unprofitable business to seem profitable. It allows the subsidization of failure. This is what YOU said is better than tax cuts: direct subsidy. I said politically directed subsidies, including tax credits, entail higher dead-weight loss. You are not attacking my argument here: you are attacking yours!! You are confirming that my argument is correct!<br />
<br />
No actual tax cut will allow this subsidization of failure. If you cut a sales tax or a corporate income tax, any products sold must still turn a profit on their own merit for the business to be viable. Tax cuts come into play only after a sale is made and a profit logged. In my proposal, there is no cash payment offered up front (i.e., tax credit/subsidy) that boosts the product above its true price. Only the green energy businesses that are profitable on their own merits will survive under my proposal, and the most profitable business models will receive the most in total tax cuts. Tax cuts promote success, while all other forms of subsidy, including tax credits, often subsidize failure.<br />
<br />
I fully expect corn ethanol will NOT survive in the Green Energy Tax Cut environment – including the elimination of existing subsidy tax credits – because the basic business model is unprofitable without subsidy, and the fuel requires more energy to produce than it yields. But that is a good thing, because the green technologies that thrive will be viable and productive.<br />
<br />
A related point is that the negative net tax burden that Prof. Metcalf reports is another way of describing the subsidization of failure through tax credit subsidies. Zero or low tax burden indicates a successful approach, but prolonged negative tax burden indicates an approach mired in failure. Which is in fact the direct subsidy approach you say is superior to green energy tax cuts.<br />
<br />
<span style="font-weight: bold;">5) As to your remark that I favor market rigging,</span> my reply is I do not, that rather I favor lowering taxes where both possible and most likely to pass along the benefit to the whole economy. I favor eliminating tax-spend-regulate approaches, if externalities need to be taken into account, and replacing these with the most economically beneficial alternative: tax cuts. That is actually an effort to minimize market rigging. Since the public has clearly decided that such externalities exist and warrant support for alternative energy, it is arguably a form of market rigging on your part to insist there be no price adjustment. I believe in the face of a clear public decision such as the above, it is Cato's responsibility to promote the most economically beneficial option that meets the public's goals.<br />
<br />
This speaks to your point that Cato should promote best practice. A green energy tax cut is better practice than doing nothing, because it is more conducive to prosperity, because it shrinks government and better avoids the big-gov disaster, because it sets up an environment conducive to future broad tax and spending cuts. It is just as much best practice as tuition tax credits or tax-free health savings accounts, as tax cutting proposals designed to reduce overall government interference. Contrary to your tax cut critique, Cato's supply-siders are also pushing best practice, and there is no reason to think their recommendations would not work best for the green energy sector as well. If you think Cato is wrong to push these proposals, that Cato should limit itself to calling for the end to public schooling, for example, you should say so boldly. But I think Cato is on the right track in promoting strategic tax cuts as the best policy to promote prosperity and reduce harmful government interference in these areas. Cato needs to merely get on an intellectually consistent track with respect to energy policy in order to hit the best practice sweet spot.<br />
<br />
Lastly, if you say that Cato has no business arguing for second-best policy, why oh why then are your articles freighted with an elaborate hierarchy of second, third and fourth best policy choices – all far worse than tax cuts? In my view, your hierarchy not only is wrong, but gives aid and comfort to tax and spend advocates, for whose policies you should have not a single kind word. Looking at <a href="http://www.cato.org/mediahighlights/">Patrick J. Michaels bang-on evisceration of the carbon tax</a> (video on <a href="http://www.cato.org/">Cato home page</a> today) I can't fathom why any Cato scholar would say that it is an effective price adjustment tool, when empirically it simply does not work and causes great harm.<br />
<br />
<span style="color: #6633ff; font-size: 130%;">Points Ignored and Lost</span><br />
<br />
In addition to the unchallenged arguments noted above, you seem to have wisely conceded the point – and all underlying arguments – that green energy tax cuts are superior to a carbon tax, cap-and-trade or subsidy. Perhaps your argument about the dead-weight loss of tax credit subsidies for ethanol was an attempt to refute my arguments, but I trust you can see now how it rather refutes yours.<br />
<br />
Further, beyond your flawed tax cuts = debt critique, your response does not directly challenged my central arguments that green energy tax cuts, like all tax cuts, would tend to enhance prosperity more than doing nothing;†† would help reduce spending by avoiding a big-gov disaster (i.e., the tax-and-spend approach you preferred and have apparently abandoned); and would create conditions conducive to future spending and tax cuts, as we ween progressives away from the big-gov trough. Nor do you challenge the idea that strategic tax cuts in the energy sector would act like a broad tax cut for the whole economy, as the benefit of the cut is passed on in reduced energy prices.<br />
<br />
I very much appreciate the exchange of ideas with thoughtful individuals like yourself and Randal. I don't mind sharp, challenging arguments, I enjoy a tough debate, and hope you feel the same. I sincerely hope you are able to respond, and fill in the gaps in your argument – or even better, are ready to concede a few points, and make some changes for the better in Cato's energy policy. I am also very curious to hear from the Cato scholars whose views you directly contradict: the supply-siders, Edwards, Rahn, Mitchell, et al., and the health and education reform advocates. Do they see the contradictions? Do they agree with your tax-cuts-lead-to-debt critique? Do they agree with me that tax cuts remove government, and so are economically different and superior to any of the tax-and-spend interventions you initially preferred? Do they think that the approaching big-gov energy disaster is somehow different from the education and health care disasters, and so requires a different logic and response?<br />
<br />
I'm all ears.<br />
<br />
R. Randolph Richardson, Green Energy Tax Cuts Beta Blog<br />
<br />
<span style="font-size: 85%;">†As I said in my original remarks: "Most subsidies, even tax credits, can allow unprofitable companies to seem profitable. Tax cuts, however, cannot make the unprofitable profitable, so only real solutions will survive. [I]f broadly applied, tax [cuts] will allow the market, not the government, to pick the specific winners among clean technologies."<br />†† You at least partially admit green energy tax cuts would promote prosperity when you agree that taxes harm prosperity.</span>Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com3tag:blogger.com,1999:blog-5256136730392159236.post-50808645785172980702009-01-01T23:16:00.039-05:002012-11-07T22:46:23.159-05:00Apostle to Cato<blockquote>
</blockquote>
What follows is an utterly bizarre philosophical tango between myself and <a href="http://www.cato.org/people/jerry-taylor">Jerry Taylor</a>, Senior Fellow at the <a href="http://www.cato.org/">Cato Institute</a>. Bizarre, because it features a reportedly libertarian Cato scholar arguing that tax hikes and government spending make for better policy than tax cuts, at least when it comes to alternative energy. This is strange, because when it comes to anything else, Cato scholars invariably – and rightly – prefer tax cuts to tax hikes, spending, or just about any other big government approach one might name. But here is Jerry, openly flirting with at least elements of the Big Government Disaster.†<br />
<br />
Jerry goes on at some length about what he sees as the failings of the "libertarian faith" concerning tax cuts. So be it. As an apostle of reason, then, and not faith, I reach out to Jerry and all the Cato brethren to say: Re-examine your reason; be wary of contradictions lest ye stumble into disaster and miss the way forward out of the wilderness.<br />
<br />
Some Cato scholars will, I am sure, instantly see as much and more. May they strive to spread the grace of reason. For Jerry's approach – inconsistent with the best reasoning to be found at Cato concerning taxes, spending, tuition tax credits, tax free health savings accounts, and much else – will undoubtedly leave us defenseless to the approaching Big Government Disaster that will hit the energy sector (and economy with it) within months. Just as it damaged our health care system and destroyed American education decades ago. Cato can only play valiant catch-up in these areas with innovative tax cut proposals. But now, before the storm hits, if Cato heeds the apostolic call, armed with the sound reason of a new innovative green tax cut proposal, there is a chance to avert a new and similar disaster completely, before it ravages our energy sector and economy.<br />
<br />
So forget the distracting controversies of global warming and oil dependency. Let us rather keep the following firmly in mind. If, as many Cato scholars argue, cutting taxes is the best thing to do right now to stimulate the economy, then cutting <span style="font-style: italic;">some</span> taxes is the next best thing. If avoiding mandates, tax hikes and federal investment schemes is also good, then let's do even better by substituting tax cuts instead. You do what is possible. Right now, the progressive agenda gives us the opening, because we can show progressives how to accomplish their most cherished green goals better than they can themselves – and in doing so, we can lift the economy and demonstrate the power of smart tax cuts to help America prosper and shift green. Who knows? Tree huggers and progressives may even come to love tax cuts.<br />
<br />
All this continues <a href="http://knol.google.com/k/jerry-taylor/should-there-be-a-system-of-federal/1adq09v7leuu4/3#">a fascinating Google Knol debate</a> which asks whether alternative energy deserves government support. Jerry, and Peter Van Doren of Cato, argue no; <a href="http://climateprogress.org/about">Joseph Romm</a>, editor of the <a href="http://climateprogress.org/2008/10/28/the-intellectual-bankruptcy-of-the-cato-institute/">ClimateProgress.org</a> blog at the <a href="http://www.americanprogress.org/">Center for American Progress</a>, <a href="http://knol.google.com/k/joseph-romm/jumpstarting-the-transition-to-clean/2kyurdvkxl7u3/2#H1-Cato-proposes-a-do-nothing-energy-and-climate-strategy">says yes</a>. And I, in comment, offer up a compromise for libertarians and progressives alike: broad supply-and-demand-side tax cuts on green energy, vehicles, infrastructure and efficiency, in order to <a href="http://www.greenenergytaxcuts.com/2008/11/since-you-ask.html">supercharge green energy investment, entrepreneurship and employment, reduce energy prices, and boost the overall economy</a> (and, as a bonus, <a href="http://www.greenenergytaxcuts.com/2008/11/how-to-save-auto-industry-without.html">save the auto industry without a bailout</a>).<br />
<br />
In his reply, I note that Jerry never once disputes the benefits resulting from a green tax cut, contenting himself with some theoretical objections, and surprising un-Cato-like preferences for taxes and subsidies. So those benefits stand as yet unchallenged. Well and good. Let's talk about Jerry's concerns, and he can respond as he likes. I welcome comments from all my readers, and on this post, especially from anyone at Cato or the Center for American Progress. Maybe we'll hear from Joe. Readers can find here below, slightly redacted, my knol comment first, Jerry's reply next, and my current response below that.<br />
<br />
Thank you, Jerry, for your thoughtful reply to my comment. As an apostle of reason, I offer new wine for the new year to you and the brethren of Cato. Perhaps if we libertarians use our time in the wilderness wisely, we can save ourselves, the wilderness and capitalism too.<br />
_____________<br />
<span style="font-size: 85%;">†We should note up front that I am in no way calling for a litmus test for Cato scholars. I am saying that internal contradictions could be a sign of a flawed argument, and so deserve to be carefully noted and considered. I am also saying that Cato should consider and adopt new ideas consistent with and building on existing Cato models.</span><br />
<br />
<span style="color: #666666; font-family: arial; font-size: 100%;">My Knol Comment:</span><br />
<span style="color: #6633ff; font-size: 130%;"><span style="color: #33ff33;"><span style="color: #6633ff;">Why not tax cut our way to a greener future?</span></span></span><span style="color: #6633ff; font-size: 130%;"><span style="color: #33ff33;"><span style="color: #6633ff;"></span></span></span><br />
<br />
Jerry/Peter and Joe may seem poles apart, but perhaps they have simply failed to realize that not all incentives are equal. There is at least one undiscovered option that should work far better than anything Joe has proposed, and should appeal to any serious follower of Milton Friedman.<br />
<br />
Try this on for size: total tax freedom for all green energy sources, infrastructure and vehicles. Zero sales or income tax (or capital gains tax on stocks and dividends) in proportion to the percentage of a company's revenue that comes from green energy sources.<br />
<br />
Now, I'm not going to make all possible arguments about this here and now. But I will say this. Tax freedom is utterly unlike any subsidy or incentive that has been discussed in this debate so far, in several critical respects. Most subsidies, even tax credits, can allow unprofitable companies to seem profitable. Tax cuts, however, cannot make the unprofitable profitable, so only real solutions will survive. And, if broadly applied, tax freedom will allow the market, not the government, to pick the specific winners among clean technologies.<br />
<br />
There can be no doubt that tax freedom or even sharp tax cuts for green energy will supercharge investment in this vital area of entrepreneurship well beyond anything Joe or the President-elect has proposed, creating millions of new jobs. Obama's proposed $150 billion direct investment over ten years simply cannot compete with what the private sector can do if unleashed and properly motivated with low-or-no taxes. ExxonMobil itself would shift green in order to become tax free. And, by the way, this proposal would swiftly bring massive new debt and equity investment to a green-shifting auto industry, obviating the need for bailout, bankruptcy or socialist takeover.<br />
<br />
Why Joe should love this is obvious. It is massively more effective than the incentives he has proposed, and does not cost a dime of federal spending upfront.<br />
<br />
Why Jerry and Peter should love this goes to the heart of what Cato is about. Milton Friedman once said "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible." There are plenty of other arguments I could make about putting downward pressure on energy prices, etc. But this one is the clincher: it is a TAX CUT. As such, the net benefit to the economy from cutting taxes will be positive. Forget global warming, forget foreign oil dependency. If, as many Cato scholars argue, cutting taxes is the best thing to do right now to stimulate the economy, then cutting some taxes is the next best thing. You do what you can.<br />
<br />
Tax cuts are fundamentally different from most tax-funded subsidies: federal spending or "investment," mandates, bold new initiatives to pick this or that particular winner, even tax credits. All of those create economic drag and have other negative blow-back, none have the pro-growth benefits of a broad tax cut.<br />
<br />
One last thing. As a Cato donor for decades, I can't begin to express my dismay that a Cato Fellow would extol the virtues of a carbon tax (or any tax hike). Or the unenforceable boondoggle that is cap-and-trade, a carbon tax by another name. Our economy is reeling from the 500% oil price rise over the last five years -- which may likely return if the economy attempts recovery -- and you want to make oil cost more? Do you want to bring on a depression?<br />
<br />
But at least I am glad that you like the principle behind the carbon tax, which is that the best thing to do, if anything, is to adjust any price discrepancy between fossil fuels and clean energy. Because a green energy tax cut really amounts to the double negative of a carbon tax: it is a no-carbon tax cut. Same price adjustment, superior result. Why? Tax cut, not tax hike.<br />
<br />
Think tanks like Cato need to wrap their head around the notion that green energy incentives are coming, like it or not. Many of those incentives could do major damage. Cato and it friends should champion the one incentive that won't do that kind of harm and that will actually do a great deal of good: a green energy tax cut.<br />
<br />
R. Randolph Richardson<br />
The Green Energy Tax Cuts Beta Blog<br />
<br />
<span style="color: #6633ff; font-family: trebuchet ms; font-size: 130%;">Reply of Jerry Taylor, Senior Fellow, Cato Institute:</span><br />
<br />
There is no universal consensus on the matter of tax cuts here at the<br />
Cato Institute, so the opinion I am about to express should not be taken<br />
as a reflection of the opinions you might find elsewhere in this<br />
building. My take, however, is that the tax code should not be used to<br />
encourage this or discourage that because I do not believe in having the<br />
government direct capital flows in the economy and favor some<br />
investments relative to others. Tax cuts are simply an indirect way of<br />
doing this and are in one sense worse than more direct interventions<br />
because tax preferences are less visible to third parties. Tax<br />
preferences increase the cost of tax collection, decrease otherwise<br />
desirable economic activity, create dead-weight losses, and produce less<br />
economic efficiency as a consequence.<br />
<br />
Nor do I buy the argument that tax cuts are always a good idea. Why is<br />
it a matter of libertarian faith that it's better to pay for government<br />
spending with a metaphorical credit card than with cash? The former<br />
must be paid for in cash eventually ... with interest. That is, it will<br />
cost society MORE to pay for government via debt than via taxes. All<br />
that changes is the time in which the taxes are collected. Deficits<br />
simply borrow tax receipts from the future ... which, in a sense, is the<br />
same as borrowing economic growth from the future. It is not obvious to<br />
me that a political system that forces people in some distant future to<br />
pay for my government services today is somehow more libertarian than<br />
one that forces recipients of government help to pay the bills to some<br />
extent for that help.<br />
<br />
Moreover, to the extent that taxes are reflections of the marginal cost<br />
of government to the average voter, cutting taxes while increasing<br />
spending reduces the marginal cost of government. It's no wonder, then,<br />
that public appetite for government spending goes up whenever taxes are<br />
cut. Do you doubt, for instance, that the $700 billion bail-out of Wall<br />
Street or the likely $125 billion bail-out of Detroit would never get<br />
off the ground if those programs had to actually be paid for by<br />
taxpayers in the here-and-now?<br />
<br />
The usual defense, however, is that tax cuts starve government of<br />
revenues and thus, eventually, will starve-out government spending.<br />
Unfortunately, there seems to be no functional limit on the federal<br />
credit card and, thus, no empirical evidence that tax cuts = less<br />
spending. In fact, in-house regression analyses that we've performed on<br />
the matter show no clear relationship between the two ... an observation<br />
that we shared with Milton Friedman before he passed away and a finding<br />
that convinced him (in correspondence with us) that his "starve the<br />
beast" hypothesis was likely wrong.<br />
<br />
Regardless, there are less economically disruptive ways of promoting<br />
renewable energy. Direct subsidy from the Treasury is preferable<br />
because it avoids the inefficiency associated with a distorted tax code.<br />
Cap and trade or a carbon tax would be even better. But do not confuse<br />
that with a support for either policy. I do not favor a carbon tax or<br />
cap and trade programs in the energy sector because I am convinced (for<br />
the time being anyway) that focused adaptation is a less costly and more<br />
effective means of dealing with climate change than emissions<br />
reductions; <a href="http://www.cato.org/pub_display.php?pub_id=9125">http://www.cato.org/pub_display.php?pub_id=9125</a>.<br />
<br />
Jerry Taylor, Cato<br />
<br />
<span style="color: #666666; font-family: trebuchet ms;">My Response:</span><br />
<a href="http://www.youtube.com/watch?v=WUi_ed5EnxI"><span style="color: #6633ff; font-size: 130%;">The Remarkable <span style="font-style: italic;">Tango Keynesio</span></span></a><br />
<br />
Jerry, I am very relieved to hear that your opinion on tax cuts is not universally shared at Cato. For when you suddenly shift from strict libertarian non-interventionism to argue that tax hikes (!) and direct federal spending are better policies than tax cuts to boost the green energy sector, the auto industry and the economy, you do-si-do right off the honest libertarian ranch only to fling yourself in the foul embrace of the old <a href="http://www.youtube.com/watch?v=WUi_ed5EnxI" style="font-style: italic;">Tango Keynesio</a>. Perhaps urbane types like Mr. Romm would not notice or care. But no, as a longtime Cato supporter and friend, I can't let you be led astray by this duplicitous <a href="http://en.wikipedia.org/wiki/Gancho_%28dance_move%29" style="font-style: italic;">gancho</a> two-stepper.<br />
<br />
So shaken was I by your fall into Keynesian ways that, after grabbing my smelling salts, I had to rush to check, and yes, your position is shockingly at odds with most of your Cato colleagues. For instance, <a href="http://www.cato.org/pub_display.php?pub_id=9816">just last month in the Washington Times</a>, Cato senior fellow <a href="http://www.cato.org/people/richard-rahn">Richard W. Rahn</a> demolished the notion that direct federal investment or subsidy (which you prefer to tax cuts) has any net beneficial effects, and proposed a broad array of, yes, tax cuts instead. Cato's <a href="http://www.cato.org/people/chris-edwards">Chris Edwards</a>, in a essay called <a href="http://www.cato.org/pub_display.php?pub_id=9842"><span style="font-style: italic;">"Not Keen on Keynes,"</span></a> said much the same, and in contradiction to your argument that tax cuts increase government deficits, <a href="http://www.cato.org/pubs/tbb/tbb_1107_49.pdf">offers global evidence that various tax cuts do in fact boost tax revenues</a> by strengthening the economy.<br />
<br />
But it is not just the Keynesian bits, the tax-and-spend footwork, that is out of sync. It is the whole remarkable tango. Stepping back, we see your seemingly strong <span style="font-style: italic;">laissez-faire</span> entrance is really a sort of unrealistic utopian libertarianism that is also out of step with Cato's usual realism. You take the position that <span style="font-style: italic;">"the tax code should not be used to encourage this or discourage that because I do not believe in having the government direct capital flows in the economy and favor some investments relative to others."</span> But your position is at odds with some of the best real world campaigns in progress at Cato. Posted dead-center on Cato's home page in December we find <a href="http://www.cato.org/people/adam-schaeffer">Adam B. Schaeffer's</a> excellent article, "<a href="http://www.cato.org/pub_display.php?pub_id=9843" style="font-style: italic;">School Tax Credit Can Help Kids and the State</a>," arguing that the tax code should be used to encourage private schooling. Elsewhere, we find <a href="http://www.cato.org/people/michael-cannon">Michael F. Cannon</a> proposing <a href="http://www.bepress.com/fhep/11/2/3/">tax-free health savings accounts</a>, which again use the tax code to encourage saving for medical expenditure, at the expense everything else from dry-cleaning to ExxonMobil.<br />
<br />
<span style="font-size: 130%;"><span style="color: #6633ff;">Keeping it Real</span></span><br />
<br />
Cato's real world libertarianism regarding strategic tax cuts seems to be nuanced as follows: <span style="font-style: italic;">Let's not use the tax code to favor this or that... unless the alternative is socialism or some other disastrous government boondoggle. Then in that case, a well-crafted tax cut to favor a popular social goal is absolutely the preferred way to go, because tax cuts foster growth, entrepreneurship and competition, and avoid the pitfalls of big government.</span> If, as it seems, that is the larger Cato view, then, Hallelujah, praise the board! But your position ignores the looming big government disaster, spurning realistic tax cut alternatives in favor of unrealistic, no-win do-nothingism.<br />
<br />
Fortunately, the Cato board apparently disagrees with the no-win do-nothing approach in education and health care. Sadly, Cato was not in the game back when public education and health programs were first created. Otherwise, we might now enjoy education tax credits, vouchers or tax-free health savings accounts, instead of playing catch up with a host of big-gov disasters in place, all very difficult to reform or remove.<br />
<br />
Clearly, the same situation is now at hand with green energy. As with education and health care, the public has determined overwhelmingly that it wants some kind of government support for renewable, cleaner, more efficient energy technology. That is not just <a href="http://www.pollingreport.com/energy.htm">evident in the polls</a>: it is here, now, a clear fact that the new administration will certainly enact extensive new forms of public support for alternative energy and energy efficiency in mere months. Many of these (cap and trade, Federal "investment" subsidy) could be damaging to the economy and impossible to remove... unless good people, like you folks at Cato, get in the game NOW, stop with the do-nothing rhetoric that earns only scorn, and champion tax-cutting, pro-growth, market oriented strategies like green energy tax cuts. Otherwise, you are going to be playing catch up in 5, 10, 20 years, facing entrenched big-gov programs, proposing exactly these kinds of alternatives then, and wishing you had acted earlier.<br />
<br />
Not only is your utopian do-nothingism out of step with the above ongoing campaigns at Cato, that you ignore negative externalities makes it out of sync with basic economics. Sure, in a perfect world, government should not intervene in the markets to favor one group or another. But it is also well accepted among economists of all stripes that if one industry (say fossil fuels) is creating a mess for which everyone else must pay ("negative externalities"), then price adjustments through taxes or other means may be warranted. This is ultimately decided not by economists, but subjectively by an annoyed public, for – never mind the complex climate and security controversies – how do we really price the bulldozing of our purple mountain majesties, or oil slicks on either shining sea? You are ignoring the 800 pound gorilla: the public has determined that big negative externalities exists, whether we agree, or not.<br />
<br />
<span style="font-size: 130%;"><span style="color: #6633ff;">The Only Question That Matters</span></span><br />
<br />
Since massive government intervention is on its way, like it or not, doing nothing is a lost argument, hence nearly irrelevant. The only real question becomes, what would be the least damaging, most beneficial intervention?<br />
<br />
(I am setting aside "focused adaptation" because it does not address the various negative externalities beyond climate change; the policy is also extremely unlikely to be adopted in the near future; and the policy serves simply as a subsidiary argument supporting your basic proposal that we do nothing right now – which, again, is not going to happen.)<br />
<br />
So let's focus on the policy alternatives that will likely become legislation very soon: various tax hikes on carbon, fossil fuels or oil company profits; pay-to-play cap-and-trade; various clean energy mandates; massive Federal "investment" (i.e., subsidy). Because of their likelihood, these are the only alternatives that really matter when evaluating green energy tax cuts. Half of the benefit of the Green Energy Tax Cut proposal lies in avoiding exactly this disaster. And here you are preferring it. I tell you, Jerry, I feel like Alice in Wonderland when I have to defend tax cuts to a Cato scholar who prefers big government programs.<br />
<br />
It should not surprise us that when you start down the path of favoring tax and spend policies over tax cuts, not only do you contradict your fellows at Cato, you contradict yourself. For instance, you say:<br />
<span style="font-style: italic;"></span><br />
<blockquote>
<span style="font-style: italic;">"Direct subsidy from the Treasury is preferable because it avoids the inefficiency associated with a distorted tax code. Cap and trade or a carbon tax would be even better."</span></blockquote>
You say you don't like "a distorted tax code," then say you prefer a carbon tax. Hello Jerry. This makes no sense. A carbon tax is itself a tax code distortion, actually a far worse one than a green tax cut, as you yourself explain and we shall see. But first, let's notice that you also contradict yourself in the first part of your statement: "subsidy... avoids the inefficiency associated with a distorted tax code." Not so, as you explain at length to Joseph Romm. To pull out just one of your many anti-subsidy remarks from the debate, you said:<br />
<span style="font-style: italic;"></span><br />
<blockquote>
<span style="font-style: italic;">"Subsidies... re-direct investment flows from more profitable to less profitable activities and thus will impoverish the economy."</span></blockquote>
That sounds like a pretty bad distortion, Jerry. In fact subsidies can create a worse economic distortions than broad based tax cuts, especially if these take the form of the Federal "venture capital" investments promised by the Obama campaign. These will only train green entrepreneurs to shower donations on politicians in hopes of preferment. If history is our guide, subsidies and "investments" will often be handed out for political reasons, and the resulting inefficiency and corruption of American entrepreneurship will be enormous.<br />
<br />
But you already know all about this kind of distortion, because (in another example of the same self-contradiction) you yourself brilliantly list for Joe the long history of failed and politically motivated bad government "investments" in the alternative energy industry. By contrast, an across the board green energy tax cut does not favor one particular green company over another, but lets the market pick the winners -- without any of the massive distortions from politically determined subsidies that you describe.<br />
<br />
<span style="font-size: 130%;"><span style="color: #6633ff;">To Tax, Or Not To Tax?</span></span><br />
<br />
Now, going back to carbon taxes, how do we know that distortion from a carbon tax hike would be economically worse than from a green energy tax cut? You point the way when you argue that: <span style="font-style: italic;">"Tax preferences... create dead-weight losses, and produce less economic efficiency as a consequence..."</span> Both options are tax preferences, so equal on that score. The difference is, tax hike versus tax cut. We know that a carbon tax would entail more dead-weight loss because economics 101 says that tax hikes create dead-weight losses, but tax cuts eliminate them. For anyone who is wondering what a dead-weight loss is, <a href="http://www.econmodel.com/classic/terms/deadweight_loss.htm">here is a nice little description that sums it up.</a> Any tax prices out some consumers who can't afford it, creating losses for both those consumers and the producers, who sell less. Eliminate the tax, and you eliminate the loss.<br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYz1YzSGelbMivt1drrS4R0_Nkaa7L7WSNuvgy3qWGdlYef5xjwtLKEdFO8f8IQtxrcePZ-ohQmwnnsAkz19WknzfDNPcOAmRHmaQfOWSUhDryuVqbYSg-q-xZ4tClTrDCKmMXSdlr_UM/s1600-h/pastedGraphic7.jpg" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img alt="" border="0" id="BLOGGER_PHOTO_ID_5286589913069073490" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYz1YzSGelbMivt1drrS4R0_Nkaa7L7WSNuvgy3qWGdlYef5xjwtLKEdFO8f8IQtxrcePZ-ohQmwnnsAkz19WknzfDNPcOAmRHmaQfOWSUhDryuVqbYSg-q-xZ4tClTrDCKmMXSdlr_UM/s320/pastedGraphic7.jpg" style="cursor: pointer; float: left; height: 263px; margin: 0pt 10px 10px 0pt; width: 408px;" /></a><br />
This dead-weight loss analysis is a technical way of saying that tax hikes depress economic activity and tax cuts boost economic activity. So if you need to adjust a price in the market, the better way to do it is with a tax cut, not a tax hike.<br />
<br />
And by the way, lest anyone be misled by jargon, the distortion caused by the politically determined subsidies Jerry favors is ALSO a dead-weight loss, and as noted, far more damaging than a broad tax cut. Contrary to what Jerry implies, subsidies do not have any dead-weight loss advantage over tax cuts, rather the reverse.<br />
<br />
Thus far, your arguments for favoring subsidy and carbon tax hikes are self-contradictory. You have not advanced any logical, non-contradictory arguments to support these preferences. This is the predictable result of doing the <a href="http://www.youtube.com/watch?v=WUi_ed5EnxI">Keynesian Tango</a>. Those sly <a href="http://www.youtube.com/watch?v=7R0um8fcecY"><span style="font-style: italic;">sacada</span></a> steps will trip you up every time.<br />
<br />
<span style="color: #6633ff; font-size: 130%;">Paths of Error</span><br />
<br />
The rest of your arguments may or may not be self-contradictory (I have not read everything you have written). They are, however, wrong:<br />
<br />
<span style="font-weight: bold;">1) </span><span style="font-style: italic; font-weight: bold;">"Tax cuts are... worse than more direct interventions because [they] are less visible to third parties."</span> Not so. As I am sure all your Cato fellows are keenly aware, <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=worldwide">no third party can see any of the $2 trillion dollars of entirely invisible direct investment that the Fed has recently doled out to God knows which banks, because they aren't telling.</a> By contrast, tax cuts are extremely visible to market participants, featuring prominently in any sales or investment pitch when relevant. Tax cuts in fact must be visible if they are to work as planned. It is the back room deals to subsidize in this or that particular company, the approach you prefer, that are truly invisible and pernicious to boot.<br />
<br />
<span style="font-weight: bold;">2) </span><span style="font-style: italic; font-weight: bold;">"Tax preferences increase the cost of tax collection."</span> T'ain't necessarily so. Tax cuts, as your Cato colleagues will tell you, increase tax compliance, so decrease the cost of tax enforcement. Besides, a carbon tax would have the same objection (oh, hey, there's a self-contradiction!) only the enforcement costs would be even greater, because compliance would be worse. Cap-and-trade would require the cost of a huge bureaucracy to give the illusion that the program is enforceable and not running off the rails. All "direct interventions" you favor would have similarly huge administrative costs. Indeed it is safe to say that the administrative costs for each of these tax and spend options would be far larger than for green energy tax cuts, which could possibly lower tax collection costs through better compliance.<br />
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<span style="font-weight: bold;">3) </span><span style="font-style: italic; font-weight: bold;">"Tax preferences... decrease otherwise desirable economic activity."</span> OK, well, this is part of the same self-contradiction again. For the above merely tweaks the dead-weight loss argument a bit, so the same objection applies to both carbon tax and subsidies, only more so. But the formulation is noteworthy.<br />
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Let's be clear, the economic activity that is principally decreased here -- oil and coal consumption -- is not really all that desirable in the eyes of the American public. All the policies we are discussing are supposed to do just that. The key difference is that tax and spend policies drag the entire economy down in the process, while green tax cuts, like any tax cut, will help boost not only the entire economy, but can also help the oil and coal companies profitably diversify in clean green ways, becoming increasingly tax free the greener they get. So everybody benefits.<br />
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In fact, strategic tax cuts or hikes, focussed on the energy sector, will have a 2X effect, positive or negative, for a cumulative 4X difference in outcome. Energy is such a key input in the economy, like taxes or interest rates, that energy price changes can have a big impact on economic health. A tax cut in the energy sector will have all the benefits of a normal tax cut (benefits for the energy sector, etc.) plus the added benefit of lower energy prices stimulating the entire economy. A carbon tax, would have a double negative effect: all the dead-weight harm to the industry from a fossil fuel tax hike, plus the harm of higher energy prices for all.<br />
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That is why the energy sector is the best possible area to target for a strategic tax cut, because the benefit of that tax cut is immediately passed on to the rest of the economy through reduced energy prices. That is also why a gas or carbon tax would be an economic disaster at this time, because that tax hike is also passed on. So it is clear that a carbon tax would "decrease otherwise desirable economic activity" to a huge degree, while a green energy tax cut would actually benefit the whole economy, net of net.<br />
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Indeed, the net economic benefit is even greater than that, for if we include tax cuts on energy efficiency, we get an additional multiplier effect by factoring in those gains. If our cars and refrigerators use less energy, not only do we consume and pay less, but that reduced demand puts even more downward pressure on energy prices. Those combined saving are also passed on to the entire economy, like a broad tax cut.<br />
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Like a broad tax cut? Actually, it really is a broad tax cut, because the benefits of a strategic green energy tax cut flow through so easily via energy prices, because the double multiplier effect magnifies the benefit to all. Since Cato stands no hope of getting a broad across-the-board tax cut passed in the next several years, this is certainly the next best thing.<br />
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<span style="color: #6633ff; font-size: 130%;">What is in it for Oil and Coal?</span><br />
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Now, you may argue, why should the oil or coal industries suffer? I would agree. They should not. But they would definitely suffer a great deal under the punitive anti-fossil-fuel tax-and-spend policies you and the Democrats currently prefer. By contrast, under the green energy tax cut proposal, those industries are offered a massive opportunity to simultaneously diversify and reduce all corporate taxes (sales, income, interest income, even shareholder's capital gains taxes) by shifting green. Think of it. Companies like ExxonMobil are currently sitting on mountains of cash that the Democrats would like to take away from them. Now we all know they will have to diversify someday. Why not now? How about instead of the punishing policies you prefer and the Democrats will likely enact, we let them keep all that cash and even reduce their taxes by diversifying into the most promising green energy investment available? How would ExxonMobil feel about becoming the leader in not just oil, but in every clean, green energy source... which they could certainly do with their piles of cash. How would they feel about becoming increasingly tax free? And then, when fuel competition has increased to the public's satisfaction through strategic tax cuts, we will have an object lesson in the power of tax cuts, and an excellent case for across the board tax cuts to decrease dead-weight loss, boost the economy and raise revenue.<br />
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<span style="font-size: 130%;"><span style="color: #6633ff;">But Wait: Jerry Hates Tax Cuts!</span></span><br />
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Oh right. To me, this is the most puzzling part of your footwork, the pro-tax anti-deficit interlude. For in this passage, you may not be contradicting yourself, but you are not exactly contradicting me either. I am not sure who it is you are debating with here, or who you think believes in the "libertarian faith." Not me. I like my libertarianism grounded in reality and reason. I don't know who put the jam in your jelly with the "starve the beast" hypothesis. Wasn't me. I don't know who is calling for debt financing. Not me.<br />
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For the record, the Green Energy Tax Cut proposal pays for itself as follows: the elimination of all direct subsidies for energy ($16.6 billion for oil, coal, nuclear, renewables, biofuels, etc.), agriculture <a href="http://www.cato.org/pub_display.php?pub_id=1509">($20 billion)</a>, and vehicles; elimination of all proposed and existing federal programs to invest directly in alternative energy including nuclear ($30 billion); elimination of mandate programs; elimination of all proposed cap and trade programs; legalization and taxation of hemp. Total saving: about $66 billion per year, minimum.<br />
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In addition, if your colleague Chris Edwards is right that <a href="http://www.cato.org/pubs/tbb/tbb_1107_49.pdf">reducing US corporate taxes by 14% would maximize tax revenues</a>, then if the revenue curve is bell shaped, reducing them by 28% would most likely be revenue neutral. (These numbers serve only to illustrate; other economist might offer other figures.) That means green energy corporate taxes can likely be cut by up to these amounts and pay for themselves with no offsets. (Very likely green energy corporate taxes can be cut by more than these amounts because tax cuts in the energy sector flow through easily, with multiplier effects, to the rest of the economy, producing more economy wide growth and tax revenue than your average corporate tax cut.) A well designed Green Energy Tax Cut plan could produce both a textbook Laffer curve revenue increase, and a spending reduction by replacing wasteful programs.<br />
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The only pro-tax argument you make that addresses my proposal is your notion that tax cuts should be avoided because they encourage over spending by reducing its marginal cost to the tax payer. But deliberately raising taxes in hopes that spending will decline strikes me as a rather backwards policy, not supported by evidence. Cato's in house regression analysis found "no clear relationship" between tax cuts and spending. That implies that while tax cuts do not "starve the beast," you actually have no evidence that tax hikes reduce spending either. Tax rates seem not to affect spending, apparently. So better to tackle the spending directly, and impose balanced budget requirements or debt limits, as many states do. The pro-growth, Laffer curve benefits of tax cuts should not be lost because doing so will not reduce spending, according to your evidence.<br />
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<span style="font-size: 130%;"><span style="color: #6633ff;">The Bottom Line</span></span><br />
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Analysis of your principle arguments reveals the following. Relative to green energy tax cuts, carbon taxes and politically distributed subsidies would have higher administrative costs, decrease desirable economic activity to a far greater degree, create more dead-weight loss, and produce less economic efficiency as a consequence. Political subsidies and carbon trades would also be less visible to third parties, so more liable to misbehavior. Green energy tax cuts would improve compliance, pass on tax cut benefits to the entire economy, and eliminate dead-weight loss. As such strategic green energy tax cuts are preferable because they avoid the greater economic inefficiency of the other alternatives, and actually confer a net benefit, acting in effect like a broad tax cut for the whole economy.<br />
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Indeed, a successful green energy tax cut today becomes an excellent argument for an actual economy-wide tax cut tomorrow. If we can point to a revived and greener auto industry, a strong stable US economy, US world leadership in the burgeoning green energy sector, the majority of global green energy investment passing through US capital markets, massive advances in energy efficiency and emissions reduction, increased energy competition and supply, lower, more stable energy prices, millions more jobs, increased tax revenues, cleaner, more diversified energy companies, and finally, the Big Government Energy Disaster averted, this can all become a teachable moment. Cato would look like a champion, with a great new argument for eliminating tax and spend social policies and slashing taxes across the board.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com9tag:blogger.com,1999:blog-5256136730392159236.post-33742846138226860872008-12-13T01:39:00.046-05:002012-11-07T22:49:15.715-05:00Of Blind Spots Left & Right / Dr. Chu / Europe's Green Tax Cut<blockquote>
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Yesterday, for the first time, <a href="http://www.europeanvoice.com/article/2008/12/deals-on-climate-change,-economy-and-lisbon-treaty/63414.aspx">the European Council adopted a new policy of green tax cuts</a> for a broad array of energy efficient products, from boilers to automobiles. The measures are part of the €200 billion <a href="http://ec.europa.eu/economy_finance/thematic_articles/article13502_en.htm">Economic Recovery Plan</a> announced by the European Commission on November 26, and reported <a href="http://greenenergytaxcuts.blogspot.com/2008/12/european-commission-embraces-green-tax.html">here</a>. The Council also adopted a new climate change plan, featuring concessions in a revised emissions trading structure that allows poorer countries that are heavily dependent on coal to get a large amount of free pollution permits.<br />
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Remarkably, almost none of the major media have even mentioned the new green tax cut policy in their coverage of the Council's actions yesterday. Likewise, no one covered the original announcement of the policy, <a href="http://greenenergytaxcuts.blogspot.com/2008/12/european-commission-embraces-green-tax.html">except this blog</a>. It is as though the Congress passed a carbon tax for the first time, and the New York Times neglected to mention it.<br />
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So why the blind spot? Commenting last week, one reader, John Banner, offered the following plausible speculation:<br />
<blockquote>
One possible reason for that omission may be that this aspect of the recovery plan was deliberately released without fanfare by the European Commission for political reasons, in order to downplay the role of Britain and France in proposing the policy. Possibly, the EC felt that other Member States would more willingly adopt the policy if it was not perceived as simply a British/French triumph.</blockquote>
Could be. But the blackout goes beyond this one story. This idea has not emerged from either the left or right in America, as it did in Europe, until now. My guess is that, for the media and both the American right and left, the fact that green tax cuts combines elements from both camps, rather than making it interesting, makes it seem like some half-breed mutant idea, best scurried past with eyes averted. It is not pure enough for ideological comfort. So they ignore it, rather than examine it as a fresh alternative.<br />
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This is a speculation, mind you. I'd rather hear policy wonks speak for themselves. But my sense is that many liberals and some progressives are unlikely to get excited about a tax cutting policy proposal because they have spent years or decades denying that the Reagan and Bush tax cuts had any stimulus effect. They distrust the claims of supply-side economics that tax cuts can increase tax revenue by stimulating economic growth. Some are far more ideologically comfortable with policies that raise taxes (like a carbon tax or trade systems, windfall profits tax, etc.) with the prospect that any revenues can be spent on regulation, research, Federal eco-investments or some other favorite program. They are largely tone-deaf to criticisms that such tax-hikes can cripple the economy or cause widespread suffering, and instead rationalize that shifting green will create jobs, spur innovation, and stimulate the economy through cost saving from energy efficiency. While progressives largely support the existing and very successful limited tax incentives for hybrid cars and renewable energy, the idea of pushing this approach to the next level runs afoul of their basic American liberal ideology on taxation.<br />
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Interestingly, Europe's green tax cuts were first proposed by the center-left British Labour Party. Perhaps this was possible because the European left has not spent three decades denying the stimulus effect of tax cuts, and instead accepts the classical liberal view that tax cuts do act as a stimulus. As I will discuss below, I believe this view is gaining acceptance among the highest level of Obama's advisers, who are ahead of the ground troops in this respect.<br />
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For some conservatives, their lack of mind-share available for green tax cuts lies in that that they simply don't see a problem that needs solving. Many are global warming deniers. This is certainly true of many at conservative think tanks. Others, with the exception of people like <a href="http://www.centerforsecuritypolicy.org/Home.aspx?CategoryID=47&SubCategoryID=115">Frank Gaffney</a> and <a href="http://en.wikipedia.org/wiki/James_Woolsey">James Woolsey</a>, even deny that oil dependence is a problem. So <a href="http://knol.google.com/k/jerry-taylor/should-there-be-a-system-of-federal/1adq09v7leuu4/3#">the argument goes</a>, why do anything that creates an economic distortion, if there is no problem to fix in the first place?<br />
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The answer to conservatives is simple: hello, it's a TAX CUT. As Milton Friedman once said, "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible." A green tax cut will have all the same benefits of any tax cut, plus the added stimulus of reducing energy costs by expanding supply and reducing demand. So, if you want, forget global warming, forget oil dependency. One problem conservatives should agree needs solving is rising taxes and an economy sliding into depression, and the best conservative answer to that is a tax cut, particularly one reducing spike-prone energy costs. Among themselves, conservatives should agree a green tax cut would be far more beneficial than many of the tax, spend and regulate enviro-policies currently on the table. Besides, a green tax cut is probably the best chance they have of seeing a major tax cut in at least four years because of the popular interest in shifting green. By championing aggressive green tax cuts, conservatives could help save the economy, the auto industry, the planet and capitalism itself. (If they weren't so busy shooting their own feet.)<br />
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The answer to progressives is that the looming depression squeezes out proposals that might damage the economy, as carbon tax or trade systems would by hiking energy costs up front. The Obama administration needs pragmatic green policies that are pro-growth in every respect, from the start, not just as a by product of eventual energy efficiency. As the world slides into depression, eco-wonks should ponder why (a) green tax cuts are part of the European Economic Recovery Plan, but carbon trading is not; and (b) why many poor countries, like Poland, would not go along with the carbon trading system unless their pollution credits were free. The reason is that the green tax cuts really are a green economic stimulus, and a carbon trade pseudo-tax system is, up front, a drag on the economy, however laudable in other respects.<br />
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<a href="http://www.treehugger.com/files/2008/12/eu-unveils-new-climate-change-plan-20-20-20.php">Some commentators lament that Europe's climate goals are insufficient</a> and were weakened by political opposition. That is because carbon trading and mandates cause pain, anger and opposition. These policies will never get us to the goals we need to reach because of the political/economic backlash they create. Eco-wonks need to focus on incorporating and preferring policies that are genuinely pro-growth from the get-go, like green energy tax cuts, if they wish to reach the right targets.<br />
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Commenting on <a href="http://greenenergytaxcuts.blogspot.com/2008/12/european-commission-embraces-green-tax.html">my last post</a>, Tim Reed asked a great question:<br />
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What do you think of <a href="http://community.nytimes.com/blogs/comments/dotearth/2008/12/10/energy-choice-nobelist-with-climate-passion.html?s=1&pg=3">this</a>? Chu mentions improving the tax environment for green energy without specifics, then goes right on to carbon caps and trading.</blockquote>
Here is the quote Tim is referring to:<br />
<blockquote>
Q. What is your vote for the best role of government in shaping long-term efforts? (Is FutureGen the right kind of model? If not, what is..? is N.I.H. a good model? Is the Energy Department the wrong venue?) A lot of economists say industry is just not able to focus that far forward in R and D. Do you agree?<br />
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A. We need to alter the playing field with tax and fiscal polices (such as a carbon cap and trade with a minimum trading value so that companies could plan for sensible, long-term investments). This has to be done in order to account for the so-called “externalities” - real costs that are not yet included in the price of various forms of energy. Developed countries have made this step with air and water pollution by enacting outright regulations and installing a cap and trade system.<br />
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Once industry is assured that the bottom will not fall out (such as price of oil, gas, or the trading value of avoided carbon, etc., suddenly plummeting) long-term investments will be made. The wind industry in Denmark and Germany proceeded in this way. Off the top of my head, $70/avoided ton would work wonders in spurring long-term investments and innovation.</blockquote>
Dr. Steven Chu, who is reported to be the top choice for Obama's energy secretary, is right about negative externalities and the need to adjust the playing field through tax policies. However, the tax policies he favors (a cap and trade pseudo-tax) could act as a significant drag on the economy, by effectively hiking taxes and energy prices. He has apparently not yet realized that the same incentive to shift green can be put in place, with a far more pro-growth outcome, by employing an aggressive "un-carbon" green energy tax cut.<br />
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However, I hold out great hope for Dr. Chu, and think he is at least friendly to the idea of tax incentives. In August, <a href="http://greenenergytaxcuts.blogspot.com/2008/11/election-day-who-has-green-energy-edge.html">the Obama campaign made a significant shift towards supporting tax incentives</a> for clean vehicles and renewable energy. As a high level advisor to the campaign, Chu was at least part of the team that gave their blessing to that change. Further, Dr. Chu's Berkley colleague Prof. Daniel Kammen, among others, is a leading proponent of the innovative BerkleyFIRST program that provides municipal financing for private solar power installations. The program greatly lowers the cost of such installations in part because of some hidden green tax cuts: first, municipal bonds are triple tax free, and Berkley pays no taxes, so the borrowing cost can be much lower than privately available; second, the loan payments are turned into a part of the home owner's property tax, and so become tax deductible from income, further reducing costs beyond what private financing could accomplish. I intend to post more about BerkleyFIRST soon, but the point here is that I believe some of Chu's close colleagues are increasingly aware of the value of green tax relief as part of an integrated solution.<br />
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Perhaps this is wishful thinking, but I believe that at the highest levels of the Obama team, there is a developing, <span style="font-style: italic;">sotto voce</span> awareness of the potential of green tax cuts, but it is still brewing. However, despite European developments, there is little or no awareness about the policy among the media, or rank-and-file left or right in America.<br />
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Regrettably, I am doing a whole lot of speculating about what a whole lot of people think or know or don't know. And some of them I haven't even met. I'd love to hear: what do you think abut the European green tax cuts? The press blackout? The blind spots of left and right? How far can the concept go?Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com3tag:blogger.com,1999:blog-5256136730392159236.post-1761766502148361792008-12-07T20:37:00.021-05:002012-11-07T23:00:49.502-05:00Europe Moves to Adopt Green Tax Cuts<span class="body"><br /> Last week, in a dramatic about face and historic first, the European Commission, which drafts legislation for the EU, embraced green tax cuts as part of its <a href="http://ec.europa.eu/news/economy/081127_1_en.htm">European Economic Recovery Plan</a>. </span><span class="body">The heretofore non-existent policy had been proposed only in just the last year by prominent politicians from both the left and the right, notably British PM Gordon Brown and French President Nicolas Sarkozy.</span><br />
<span class="body"><br /> The Commission proposes "reduced VAT rates for green products and services, aimed at improving in particular energy efficiency in buildings," and indicates it will "urgently draw up measures for other products which offer very high potential for energy savings such as televisions, domestic lighting, refrigerators and freezers, washing machines, boilers and air-conditioners." The plan also calls for "Member States to provide further incentives to consumers to stimulate demand for environmentally-friendly products." In particular, "Member States should [reduce] property tax for energy-performing buildings" and also reduce taxes for "lower emission cars."<br /><br /> This same green tax cut proposal was <a href="http://www.iht.com/articles/2007/11/01/business/france.php">first put forward</a> by center-left British Labour Prime Minister Gordon Brown just a little over a year ago, and quickly garnered the support of center-right French President Nicolas Sarkozy. Brown argued strongly that </span>"Lower taxes can make a big difference to whether people buy environmentally friendly goods." <span class="body">However, the European Commission quickly <a href="http://www.christiantoday.com/article/eu.executive.quashes.britains.green.tax.plan/17328.htm">shot it down</a> just last March. Since then, however, Sarkozy has become President of the European Union (with an ambitious green agenda) and the world economy has entered its worst crisis in decades. The EU is now willing to consider all means of economic stimulus at its disposal, and green tax cuts are now, for the first time ever, part of that mix.<br /><br /> The speed with which this proposal has gone from introduction to acceptance at the highest levels of the European government, in just about one year, is remarkable. While clearly the EC could be bolder and go even further with this concept, such as VAT (and other) tax reductions directly for ultra-high-mileage vehicles and green energy from renewable sources, it is likely that this is just the start, and there is more to come. That it has been championed by politicians from both the left and right is also noteworthy. Indeed it begs the question, if the European left and right can so quickly agree on the value of this policy, particularly as one of the few green policies that doubles as an aid to economic recovery, why isn't it even on the radar of their American counterparts?<br /><br /> If anyone has any ideas as to why, I'm all ears...<br /><br /></span>Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com5tag:blogger.com,1999:blog-5256136730392159236.post-90909381581506531732008-11-22T23:10:00.019-05:002012-11-07T23:02:20.366-05:00How to Save the Auto Industry (Without a Bailout)Ever since the Big Three auto companies flew in with tin cups and private jets seeking a $25 billion bailout loan from Congress, the media and most pundits have been fixated on three extreme alternatives: <a href="http://www.heritage.org/Research/Economy/wm2135.cfm">bankruptcy</a>, bailout, or <a href="http://www.michaelmoore.com/words/mikeinthenews/">government takeover</a>. But there are other alternatives that avoid these extremes, if only folks would ask the right questions.<br />
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First, let's think through the problem. Has anyone else noticed the irony that the Treasury Dept. is spending $700 billion to encourage the credit markets to loan more money, but the auto companies, instead of going to the private debt market as they should -- are coming straight to the Congress? Aren't we bailing out the credit markets so that they will make exactly this kind of loan?<br />
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The right question to ask here is NOT should we bail them out, take them over, or let them go bankrupt. That is what everyone is asking. The right question, which nobody is asking, is: what can we do to encourage the private sector to finance the Big Three?<br />
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What is the problem? Detroit's labor costs are too high, and they are not producing the right kind of cars for the current market -- affordable, extremely fuel efficient vehicles, not the expensive gas-guzzlers they produce -- so their business model is unprofitable.<br />
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Logically, then, to encourage private financing, we need to find ways to help Detroit become profitable, either by reducing their costs, or by helping them produce affordable, green-powered vehicles profitably, or both. We also need to look for ways to make loans and other financing more profitable to investors.<br />
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Too bad the media, Congress and the punditocracy are all focused on extreme, unpalatable and not-so-helpful solutions: bailout, bankruptcy or government takeover. No one in these opposing camps seems to be asking how we can avoid such extremes: fix the problems, encourage normal loans and investments, and make the auto industry greener and more profitable without all the drama.<br />
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Here's one way:<br />
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We can spur both new loans and new equity investment if we make it extremely profitable and attractive for the auto industry to move in the right direction, towards producing and selling advanced green energy vehicles. We can do that in short order if we make the entire business of producing such green vehicles 100% tax free. To reduce costs and boost sales, revenue from green vehicles should be free of all state and local sales taxes, and all federal income tax. Further, the cost of all materials and components needed to build such vehicles should be tax free as well, to reduce costs and increase green vehicle profitability even more. Interest on loans or bonds to finance the development, production or purchase of such vehicles should be income tax free, making such loans more profitable. The stock and dividends of companies producing green vehicles should be capital gains tax free, in proportion to the percentage of revenue derived from such vehicles in the previous year, attracting more equity investors and encouraging management to shift green to escape taxes. All the above should hold true for businesses producing the infrastructure needed to support green vehicles, such as electric, hydrogen and natural gas fueling stations, all 100% tax free.<br />
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If we take these steps, we will vastly reduce the costs and increase the profitability of producing green vehicles. We will also make loans for producing and purchasing such vehicles more profitable and attractive to lenders, simply by making the interest tax free, but also by making the underlying business more profitable. Overall, we will immediately spur enormous debt and equity investment in a revitalized, highly profitable Big Three dedicated to selling as many green vehicles as possible, in order to maximize profits and minimize taxes for each company and their shareholders. Essentially, we would be creating a green goldmine for investors, one that is good for both America and the Earth.<br />
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The benefits of this approach extend well beyond the auto industry. A <a href="http://www.pnl.gov/energy/eed/etd/pdfs/phev_feasibility_analysis_combined.pdf">study by the Pacific Northwest National Laboratory</a> estimates PHEVs have the potential to cut US oil imports by 52%, or 6.5 million barrels per day. Plug-in vehicles <a href="http://www.pnl.gov/energy/eed/etd/pdfs/phev_feasibility_analysis_combined.pdf">can reduce energy costs</a> nationwide by using underutilized, off-peak energy, which is generally cheaper and would otherwise go to waste. Local trips could cost as little as the electric equivalent of <a href="http://www.raponline.org/Pubs/Jim_Lazar_PHEV_and_Smart_Grid_Final_12-31-07.pdf">$1/gallon</a> of gasoline. These savings and benefits could be even more dramatic if combined with a smart grid and renewable energy sources, such as wind and hydro power, further reducing emissions and allowing the PHEVs to act as an on-demand power storage system, storing cheap off-peak power from an increasingly green grid, for use during expensive peak-load times -- with vehicle owners pocketing a profit. If tax freedom were extended to ALL green energy technology (vehicles, clean/renewable energy sources, smart grid development, etc.) that would supercharge investment in green energy, <a href="http://greenenergytaxcuts.blogspot.com/2008/11/since-you-ask.html">reducing overall energy costs</a>, while stimulating the economy and creating millions of new jobs.<br />
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And of course, one of the nicest aspects of this approach is that it does not require a dime of upfront federal spending. Further, it lets the market (not the government) decide which green auto technology wins.<br />
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Is this somehow an unfair subsidy of green over gasoline vehicles? Many economist argue that oil, coal and gas guzzling vehicles are already heavily subsidized in a number of ways, such as the infamous <a href="http://abcnews.go.com/Business/story?id=3326593">$25,000 Hummer tax credit</a>, but even more fundamentally in that these vehicles contribute heavily to the social costs of global warming, foreign oil dependency and oil-related wars, but get a free ride by forcing the taxpayer to pick up these costs. But raising taxes on carbon fuels and carbon producing technologies, such as automobiles, while correcting the free ride problem, would be disastrous for a struggling economy and a struggling auto industry. Tax freedom for green energy and green vehicles is another way to correct the free ride problem, but one that stimulates the economy, rather than depressing it. Instead of a carbon tax, we can implement a no-carbon tax cut for a much better pro-growth outcome.<br />
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Are we going too far with 100% tax freedom for green vehicles? Not at all, because Detroit and the American economy are in dire straits right now. There is no excuse to not pull out all the stops right now. Our economy is dangerously vulnerable to wild spikes in the oil market, which vulnerability can only be reduced by reducing demand for oil. This we must do fast, at full speed, not half-speed, or more oil spikes will greet us if and when our economy begins to recover, possibly choking off any rebound. We have a long, long way to go before 100% of American vehicles are highly fuel efficient, and an even longer way to go before 100% of vehicles use 100% renewable energy. We can always reassess and maybe throttle back later when we have reached a reasonable midpoint goal, when say the auto industry is profitable again and 50% of all vehicles sold are plug-ins and deliver 100 mpg or better. But right now, we need a profitable, green auto industry and less dependence on foreign oil. It is a rule of economics: if you want more of something, tax it less. Ergo, no tax on green autos.<br />
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Tax freedom for advanced green energy vehicles is manifestly in the national interest, not just to save the automobile industry and millions of jobs, not just to avoid economic depression, but in order to reduce the ongoing strategic, economic, environmental and security risks posed by foreign oil dependency and global warming. But even disregarding the larger goals, it is nice to know there is a sensible alternative to bailouts, bankruptcy or socialism, and one that lets the markets work as they should.<br />
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************<br />
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Given the unattractive options being floated by the punditocracy, one worse than the next, I hope this original proposal can help move the national debate in the right direction. If you agree, please help by forwarding this link on to your friends, <a href="http://www.usa.gov/Contact/Elected.shtml">elected representatives</a>, the <a href="http://www.change.gov/page/s/energyenviro">Obama Transition Team</a>, the media, the blogosphere, and anyone you know who might be interested and helpful. And thanks!Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com2tag:blogger.com,1999:blog-5256136730392159236.post-58638641581721237382008-11-19T23:05:00.015-05:002012-11-07T23:04:03.459-05:00Since You Ask...Today I received an email <a href="http://www.change.gov/page/s/energyenviro">video link</a> from John Podesta, leader of the Obama-Biden Presidential Transition Team asking that I (and millions of others, no doubt) send my policy suggestions to the Energy & Environmental Policy Transition Team leaders, Heather Zichal and Carol Browner.<br />
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Perhaps the point is not that they need fresh energy policy ideas, but more to demonstrate their inclusiveness and openness to all viewpoints. Or is it? Maybe, just maybe, they really do want to hear some fresh energy policy ideas, as the looming economic abyss threatens to put all their best plans on hold. Now I don't want to be too cynical, because it would be nice if they really are open to new ideas. But think about it: with trillions going to the current bank bailout, and who knows how many other bailouts lined up behind that, how are they going to afford the $150 billion they plan to invest in the renewable energy industry? Further, since the current economic meltdown was precipitated in part by skyrocketing energy prices, can they really risk making matters worse by instituting a cap-and-trade carbon "tax" that would only make energy even more expensive? Will there even be any windfall profits to fuel this agenda -- as they hope -- if the economy is on a respirator?<br />
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Perhaps the smartest players in the transition are thinking, hey, maybe we need a plan B, something cheap, effective, but not economic suicide, and honestly wondering if anyone has any bright ideas.<br />
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Here is what I suggested:<br />
<blockquote>
Dear John Podesta, Heather Zichal & Carol Browner:<br />
<br />
Thank you for sincerely seeking new ideas from outside the fold. Since you ask, I'd be happy to suggest a low cost but ambitious solution to many problems, one that you may not have considered.<br />
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All the biggest problems we face (the economy, jobs, the auto industry, oil dependency, global warming, the Iraq War) have at least one common solution, and almost nobody has figured it out yet:<br />
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MAKE ALL GREEN ENERGY TECHNOLOGY 100% TAX FREE.<br />
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It is that simple. We don't have to spend money, or hike taxes. Bailout or bankruptcy are NOT the only options for Detroit. We can create millions of new jobs and fix the environment/economy/auto industry/oil dependency with a smart, green tax cut. No sales or income tax on revenue from clean, renewable energy or technology (like plug-in, flex-fuel hybrids) that radically decrease oil consumption. No tax on the interest on loans for green energy investments. No capital gains tax on companies' stocks and dividends in proportion to the percentage of their revenue that comes from green energy technology. That simple policy will supercharge private investment in clean and renewable energy technologies... on the order of $300 billion per year, or more. That will create millions of new jobs fast -- many more than you could create by federal spending alone. That includes billions of new investment in the US auto industry, as investors see a greener path towards an increasingly tax-free auto industry. Further, it will encourage oil, coal companies and utilities to voluntarily go green, in order to escape taxes. A carrot frequently works better than a stick.<br />
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Slashing taxes on green energy will directly lower the cost of green energy, but also lower the cost of ALL energy. Economic law states that increased supply results in decreased price. So new green energy investment will increase the total energy supply, decreasing the price of all energy, including oil and coal. Increased energy diversification and competition will create a permanent downward pressure on energy prices. Cheap energy will in turn stimulate every other sector of the economy, creating millions of non-energy jobs as well. By contrast, a carbon tax, or cap-and-trade, would raise the cost of energy, crippling the economy, and putting more people out of work.<br />
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Take note: NO FEDERAL SPENDING IS REQUIRED. Further, any tax revenue reduction will be minimal initially -- since green energy is now just a small part of the economy -- and as it grows, revenues will grow from green energy payroll taxes and other sources. A focussed tax cut on this one sector of the economy can lift all others by keeping the price of energy low for all, and producing massive domestic employment. A tax cut here will produce a massive tax revenue surge from the rest of the economy. Tax freedom for green energy will make the US the world leader in green energy investment in President Obama's first term -- in fact, most world green energy investment will go through the US for the tax advantage.<br />
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So forget the $150 billion federal "investment" over 10 years -- that is PEANUTS compared to what is really needed here and now, and what the private sector can do if you make green energy technology tax free. And please forget the stupid cap-and-trade proposal that does not really work and will only raise the price of energy, and further depress the economy. Tax freedom for green energy technology provides the same tax differential as a carbon tax, with the same incentive to shift green, but will stimulate rather than depress the whole economy by pushing energy prices lower.<br />
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(Oddly enough, tax-free green energy is logically the double-negative of a carbon tax: the no-carbon tax cut. Similar but diametrical concept, superior result.)<br />
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A 100% tax cut for renewable, clean energy technologies, vehicles and infrastructure is the cheapest and most effective stimulus you could provide right now for our struggling economy in general, and for financing a green revitalization of the auto industry in particular. And it is the absolute best and fastest way to achieve your goal of creating a clean, green economy, and creating millions of new jobs. </blockquote>
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Let's see if anyone is listening.<br />
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Oh, by the way: YOU, FRIENDLY READER, CAN HELP. Please email the link to this page <a href="http://greenenergytaxcuts.blogspot.com/2008/11/since-you-ask.html">(<b>http://tinyurl.com/5g83bx</b>)</a> to your friends, family and <a href="http://www.usa.gov/Contact/Elected.shtml">elected representatives</a> -- and let's not forget the <a href="http://www.change.gov/page/s/energyenviro">Obama Transition Team</a>! To anyone who might be interested, tell them, please, to take a look at the idea and the link, that Tax Free Green Energy is the best way to save the economy and the planet at the same time, and that we prefer our energy cheap, green and tax free. Then ask them, please, to feel free to raise questions or comment, and pass it on.<br />
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Maybe somebody will eventually tell the President.<br />
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We can do it. Yes we can!Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com1tag:blogger.com,1999:blog-5256136730392159236.post-65014267023434899212008-11-13T22:17:00.005-05:002012-11-07T23:04:26.911-05:00The Wrong Wish List: What the Green Energy Lobby WantsSurfing to <a href="http://greenwombat.blogs.fortune.cnn.com/2008/11/13/the-renewable-energy-industrys-obama-wish-list/">Green Wombat</a>, Todd Woody's Energy/Technology column at Fortune, we can read about the renewable energy industry's five item wish list they hope to get next year from the Obama administration. The list contains two good ideas, two that are OK, and one that is just freaking terrible. While generally positive for renewable energy, the list does not contain the one GREAT idea that the industry really should ask for, which would make most of the rest unnecessary.<br />
Here is the list as reported by the Wombat:<br />
<ul>
<li>A five-year extension of the production tax credit for the wind industry (it currently has to be renewed every year) to remove uncertainty for investors.</li>
<li>A major infrastructure program to upgrade the transmission grid so wind, solar and geothermal energy can be transmitted from the remote areas where it is produced to major cities. </li>
<li>Impose a national “renewable portfolio standard” that would mandate that utilities obtain a minimum 10% of their electricity from green sources by 2012 and at least 25% by 2020. Two-thirds of the states currently impose variations of such requirements.</li>
<li>Mandate that the federal government - the nation’s single largest consumer of electricity - obtain more energy from renewable sources.</li>
<li>Enact a cap-and-trade carbon market.</li>
</ul>
The Wombat notes that none of these are new ideas. More to the point, they are not great ideas. The last one is -- potentially -- an economy killer.<br />
More effective than ANY of the above would be simply to make ALL renewable, clean energy technologies 100% tax free: free of all sales, income and capital gains taxes. No tax on plug-in, flex-fuel hybrids; no tax on electricity from wind/solar/hydro. No income tax on profits from such revenues. No capital gains tax on the stock of such companies, in proportion to the percentage of revenue derived from green energy technologies. As a nation, we need MASSIVE new PRIVATE investment in green, renewable energy. The only way to get there is by giving green investors a long-term, permanent incentive that keeps working regardless of swings in oil prices. And investors and consumers LOVE tax free. That is how you do it. <br />
And that is what the industry should be asking for. And it makes sense, because renewable energy does not impose the high, negative externality costs on society (pollution, global warming, foreign oil dependency) that some carbon fuels do. Therefore renewable energy deserves a significant tax advantage versus oil and coal.<br />
So what is wrong with the industry's wish list? Let's start with the worst of it.<br />
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Cap-and-trade -- especially the Obama version -- is basically a carbon tax by another name. But you may ask, didn't I just call for a tax differential between renewable energy and oil or coal? Sure, but the effects of a green tax cut versus a carbon tax hike would be quite different. Both would promote a change to renewable energy, but the carbon tax would wreck the economy by jacking up energy prices. A Green Energy Tax Cut creates the same tax differential and will accomplish the same shift over to renewable energy, but instead with an global economic boom led by entrepreneurs keeping the cost of energy as cheap as possible through increased competition. Energy has become expensive enough as it is… do these folks want to make it even MORE expensive? What are they thinking? Do they want to bring on a depression? We need cheap energy to thrive.<br />
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It is sad to see the renewable energy industry -- which should be unambiguously protective of the common good -- calling for a policy that might benefit the industry in the short run, but would severely damage the world economy overall. Especially when there is a much better alternative at hand.<br />
The five year extension of the production tax credit is the best item in their wish list by far. They just need to think a little bigger: Make renewable energy 100% tax free. Also, to nit pick, production tax credits (as a front end subsidy before the company has earned a single dollar or produced any energy) are questionable policy from the point of view that they can make an unprofitable or fictitious business seem profitable to the initial investors, but it really only appeals to those investors needing a tax shelter. However, if the tax incentive is on the back end, the elimination of all sales or income tax on actual revenue earned, or capital gains tax elimination, while that is a huge incentive to any and all investors, it also requires that the basic business be profitable in order to make sense. The tax benefits only kick in if there is actual revenue and profit. That is better for the taxpayer and the consumer, because is costs less here and now, and there is no subsidy for unprofitable or fictitious business models. Basic market mechanisms are preserved that allow the low cost green energy producers to thrive and win.<br />
Two of the items, the "smart-grid" infrastructure proposal and the "renewable portfolio standard" mandating utilities increase their use of renewable energy... these are wonderful goals, but frankly unnecessary policy proposals if green energy technology becomes 100% tax free. If a company can lower the capital gains tax due on its stock, or decrease its sales and income taxes by increasing its green energy revenues, it will certainly make that shift. Utilities certainly will build the grid to reach wind and solar energy sources, and will rush to sell more renewable energy, if they have the incentive to do so. They only need the carrot, not the stick.<br />
In fact the stick (i.e. mandates) can backfire and make enemies, if the utilities push back politically to escape the mandates. That is what happened with the EV1. But there is no reason the utilities would not become a political ally with the renewable energy industry if the proposal instead avoided mandates and provided a path for the utilities to lower their taxes by going green.<br />
Many of the industry proposals will cost a fair amount up front. There will be great pressure on Obama to cut spending. The industry would do well to offer an alternative that will be far more effective in sparking an explosion of private green energy investment, but costs nothing up front.<br />
The renewable energy lobby should start asking for the right thing. And it would do better to avoid asking for expensive, unnecessary stuff that places undue burdens on the public or on other industries. Making all green energy tech 100% tax free would supercharge private investment in (and public demand for) clean renewable energy, while letting the market pick the winners. It would also make the US the world leader in green investment in Obama’s first term.<br />
<br />Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-3774691627250027582008-11-04T08:43:00.003-05:002008-11-04T10:33:34.606-05:00Election Day: Who has the Green Energy Edge Now?Since August, when he offered no specific tax incentives for green energy, Obama has made a significant shift in his energy policy that makes him a bit more Green Tax Cut friendly that McCain: Obama now pledges a $7,000 tax credit for "advanced vehicles," which is more than the $5,000 in the McCain plan. He also wants to extend the Production Tax Credit for renewable energy for 5 years, which is a bit more specific that McCain's call to "rationalize" the system of tax credits for renewable energy.<br /><br />This gives some hope that an Obama administration is warming to the idea of green energy tax cuts -- or at least realizes that tax incentives are the most effective and popular of the existing policies to promote green energy. Of course, I can't help noting that the information on the Obama website seems to change week to week, literally, with the plan being re-written continuously. Since this blog began in July, I have read perhaps five different versions of the Obama energy plan, with very significant changes. For instance, the current version of the plan does not mention the $25 billion a year Federal Venture Capital Fund for renewable energy that I criticized in August as a foray into Venture Socialism.<br /><br />So far, the changes seem to be in the right direction. However, there is still much that is unhelpful and perhaps counterproductive in both the Obama and McCain plans. Ironically, McCain's notion that his administration will start construction of 45 nuclear power plants also rings of socialism -- these plants should only be build if private investment judges them commercially viable once all insurance, risk and waste transport and storage costs have been figured in.<br /><br />Obama's plan retains $150 billion in renewable Federal renewable energy investment over 10 years, and a hidden carbon tax in his cap-and-trade plan -- both ideas are problematic and have been discussed in previous posts. There is much to be wary of here. According to <a href="http://article.nationalreview.com/?q=YzBiYmIyNTI4NzNjMjhkMjRkY2U3YTY5ZWJkMWExNWI">reporting by Deroy Murdock</a>, as early as last January, Obama made statements indicating that he would not mind bankrupting much of the American coal industry via his cap-and-trade plan. One can only hope Obama is moving away from such unhelpful thinking, as is indicated by recent shifts in his energy plan.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com5tag:blogger.com,1999:blog-5256136730392159236.post-64542050724571402292008-09-30T11:11:00.005-04:002008-09-30T11:45:16.248-04:00Steve Hargreaves is right!It seems the actual renewable energy industry folks are saying what I am saying: both Presidential candidates, and Congress, and many big name environmental advocates, are failing to provide leadership on the one policy that the renewable energy industry REALLY needs: green energy tax cuts. Everyone and anyone interested in promoting green, renewable energy should take a quick look at <a href="http://money.cnn.com/2008/09/05/news/economy/renewable_tax_credit/index.htm?iref=werecommend">Steve Hargreaves brief article</a> for CNNMoney.com about how both candidates and Congress are ignoring the assistance that renewable energy really needs: long-term, predictable tax incentives to spur development, investment and demand. Then, if you have a minute or ten, call your representatives and favorite Presidential candidate, and tell them to help pass green tax cuts NOW, and make this policy central to the campaign.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0tag:blogger.com,1999:blog-5256136730392159236.post-70716333627912756702008-08-03T16:25:00.013-04:002008-08-04T23:26:57.069-04:00Obama's Energy Plan (Part 1): Venture Socialism?I want to like Obama. I really do. He's young, dynamic, eloquent. Many of my best friends and nicest relatives support him. He sounds like he might be a "New Democrat," looking for innovative, market-oriented, small government solutions.<br /><br />But he is just not.<br /><br />Take a look at his <a href="http://www.barackobama.com/issues/energy/">energy plan</a>. The most striking aspect of the Obama plan is what it does NOT include: not a single kind word for all the various existing tax incentives that have spurred along the development of hybrid cars, solar power and other clean technologies. These incentives have been hugely successful in convincing millions of Americans to buy cleaner, more efficient hybrids, or put solar panels up on their roofs. Expanding these successful programs is key to moving America over to green energy. But not a single mention of these in the Obama plan. No commitment to either expanding or even maintaining these policies.<br /><br />That omission should be profoundly disturbing to any serious environmentalist.<br /><br />Anyone interested in keeping government lean and efficient should also be disturbed, because these tax incentives are the one extremely effective solution that does not require new taxes, spending or regulation, that does not grow the government.<br /><br />By contrast, <a href="http://www.johnmccain.com/Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm">McCain</a><a href="http://www.johnmccain.com/Informing/Issues/17671aa4-2fe8-4008-859f-0ef1468e96f4.htm">'s energy plan</a> is way ahead of Obama's in his support for a wide array of existing and new tax incentives for green energy. We will take a look at that later -- McCain does not go as far as he should in supporting complete tax freedom for green energy -- but for now, back to Obama.<br /><br />Obama should be applauded for the few incentives he does propose: incentives to encourage cellulosic ethanol, E85 pumps at gas stations, and retooling of auto plants to produce more fuel efficient cars. But those three narrow incentives are nowhere near enough... and smack of government bureaucrats trying to pick winners and losers in the green energy universe for political reasons. For instance, ethanol may not be the best solution out there for a transportation fuel, compared to say, plug-in natural gas hybrids. Ethanol does not reduce carbon emissions or dependence on foreign oil, while natural gas vehicles do both, dramatically. But ethanol has a very powerful farm lobby behind it. Green energy development should not be driven by such politics. Green energy tax cuts should be broad based, across the board, letting the market pick the winners among the most cost effective, carbon neutral/negative technologies available.<br /><br />So if Obama does not support existing and successful green energy tax incentives, what does he support? Unfortunately, most of his solutions are typical Big Government initiatives, based on increasing taxes, spending and regulation. I will come back to the new taxes and regulations in my next post. But the worst aspect of Obama's plan is the new spending, which Mr. Obama calls "investment."<br /><br />Obama proposes $150 billion investment over ten years for a variety of green energy technologies, plus an additional $50 billion over five years for a "Clean Technologies Venture Capital Fund." In addition, he plans to double federal energy R&D budgets, and proposes unspecific amounts for investment in "clean coal," clean tech worker re-training, and clean tech manufacturing conversion.<br /><br />So you may ask, what is wrong with all that? After all, this blog proposes that we need massively more green energy investment. Well the research part of it is good, very good. We need good solid research on these technologies, both private and public. No problem there. The problem is with the various investment schemes.<br /><br />Obama is proposing to launch the very first federally-funded venture capital firm ever. Sounds exciting, sure. The problem is, when you do that, it is no longer venture capitalism. It is venture socialism. And that -- state investment in and ownership of key industries (i.e. socialism) -- carries a host of pitfalls that true (i.e. private) venture capitalism avoids.<br /><br /><blockquote>1) It fosters corruption, and can easily turn into a protection/payola racket. We absolutely do not want to train our green CEO to come clamoring to politicians for their personal access to the public teat. Politicians should never be able to wield that kind of power -- it is incredibly corrupting. Companies end up being given investments for political payback reasons -- because they gave the right campaign contributions and other perks -- not because they are the most efficient green energy company. Bureaucrats and politicians start picking winners and losers based on the size of their lobby, not the competitiveness of their technology. All such investment decisions should be strictly private, and NEVER EVER put into the hands of politicos.<br /><br />While Obama and the people around him may have the best of intentions, one has to wonder how many of his contributors are wealthy green entrepreneurs who have done the math and figured that, for their $25,000 contribution, they get a favored spot in the line for the $25 billion a year that B.O. plans to "invest." If so, it stinks. We need to close the doors on all payola schemes, not create new ones.<br /><br />2) State funding becomes a crutch for inefficient businesses that never bother to learn how to be independent because they have political connections. Many state owned businesses, like Amtrak, lose money continuously, and become dependent on state financing to survive. The best way to avoid that fiasco with green energy is to never let such companies become dependent on state financing in the first place. Making green energy tax free avoids that pitfall, because, even with such tax advantage, such companies still must be profitable to survive and keep their (private) investors happy. State funding allows favored companies to operate indefinitely at a loss; tax exemption does not.</blockquote><br />Lastly, Obama's state-funded investment schemes are simply not enough to do the job that needs to be done. We need way, WAY more new investment than $25 billion a year, and the only way we can get the investment numbers we need is to massively motivate private investors and consumers.<br /><br />Look at the numbers: Last year, world investment in renewable energy technologies was $148 billion. If we want to reach the point where clean, renewable energy accounts for 50% to 100% of the US and global market in 10 - 20 years, we need to raise global green energy investment by about 500%, from the present $150 billion annually, to $750 billion. $25 billion is really peanuts . You are only going to get the kind of numbers we need through the free market, by radically changing the economic picture, by making the entire green energy sector tax exempt on account of the good it does our nation and the planet.<br /><br />If the US does that, we will certainly hit our annual $750 billion globally in the next president's first term, and most of it will be invested through the tax-advantaged US markets, making the US the world leader in in green energy, supplying both US and international needs. Obama's plan won't get us there, can't deliver those numbers, and will cause our green energy sector to fall behind Europe, China, South Asia and Latin America.<br /><br />The crying shame of all this is that Obama really should be backing green energy tax cuts, and NOT these quasi-socialist state investment schemes. Not only because the former policy will actually jump start a green energy revolution and the later will not. But also, because, doing so would certainly burnish his image as a "New Democrat" favoring innovative small government, free market solutions. Instead, it seems he is being ill-served by his advisors, who would rather have a scheme that allows the future Obama administration to write multi-million dollar checks to outstandingly rich green entrepreneurs (and potential donors) who may give a few thousand to the campaign right now.<br /><br />Sadly, these advisors are leaving Obama open to some very serious criticism, and give McCain the opportunity to put himself forward as the truly green candidate. However, it is not too late for either Obama or McCain to step forward and seize the initiative on this issue.<br /><br />To be continued soon re Obama's energy taxes and regulations, and then the McCain plan. T. Boone Pickens plan next week. Stay tuned.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com7tag:blogger.com,1999:blog-5256136730392159236.post-84529384763378419642008-07-21T12:32:00.002-04:002008-07-21T12:58:35.745-04:00Tax Nudge versus Tax Free?An anonymous comment on the last post speculated that a "tax nudge" might be sufficient to solve our present problems, rather than the complete tax elimination that is here proposed on green energy. While a "nudge" is certainly a step in the right direction, it is not enough. Here is my reply to anonymous explaining why:<br /><br /><blockquote>I doubt a mere tax nudge is sufficient. If we want to reach the point where clean, renewable energy accounts for 50% to 100% of the US and global market in 10 - 20 years, we need to raise global green energy investment by about 500%, from the <a href="http://www.unep.org/Documents.Multilingual/Default.asp?DocumentID=538&ArticleID=5849&l=en">present $150 billion annually</a>, to $750 billion. The only way to do that is with a massive reallocation of private investment, which will need to be driven by some major incentives such as proposed here. If the US makes green energy 100% tax exempt, I have no doubt that not only will we reach those investment goals in a few short years, but that most of global green energy investments will funnel through the US, making us the leader in a new era of prosperity driven by clean technology. If we do less than that, the leadership will be taken by others, the transition will take many more decades, while global warming and our national foreign oil addiction proceed apace.<br /><br />Remember, the incentives must be of sufficient magnitude to persuade the carbon industry to diversify, happily and without backlash, to carbon-free sources.</blockquote><br /><br />I will explore this point more in future posts. NickName, commenting on the first post, made an excellent point about the need to define green energy. I will flesh that out a bit more in future posts. <br /><br />If any of you have information of interest regarding green energy or proposals to promote it and end global warming, please post them in the comments, and I will try to explore them, in future posts. <br /><br />Coming later this week: analysis of the energy proposals of John McCain and Barack Obama.Rod Randolph Richardsonhttp://www.blogger.com/profile/15347412633097611934noreply@blogger.com0