Death and/or Taxes

Tag: Death and/or Taxes

The Answer is a Carbon Tax. What’s the Question?

GERARD HandA few weeks ago I gave a talk at the weekly Greenfire meeting and the Lawrentian had a very nice summation of its intent and content.   I will point out one area where I think the reporter seems to have misunderstood my intent:

He spent much of the presentation promoting CCS [carbon capture and sequestration] as “the critical enabling technology that would reduce emissions,” and supporting a carbon tax.

I did spend quite a bit of time talking about CCS,  but I don’t think I was promoting it.  My conclusion is this:

I conclude that not only is CCS not likely to be implemented, but that the future of U.S. coal itself is in serious question. The idea that any coal plants equipped with CCS and financed with private sector capital will be built is pretty much unthinkable at this point.

I suppose I could believe the above statement and still think that CCS is a great idea, but I’m not sure that I ever felt strongly enough about it to “promote it.”  Although coal plants have pretty low operating costs, they are extremely capital intensive. The plants we were looking at had about a 40% premium for adding the CCS component. Moreover,the external costs are very high, even with CCS. In many ways I would say the same about mandated fuel efficiency (i.e., the CAFE standards),  where I can see a reasonable case to be made to go that route, but I wouldn’t go that route if I didn’t have to.

One thing I do continue to promote is the idea of a tax as a means to reduce energy use, specifically with respect to the otherwise “unpriced” external costs.  This is from a paper I co-authored ten years ago about U.S. fuel efficiency standards:

For a fleet that averages 17 to 20 MPG, the appropriate tax for an external cost of eight to 10-cents per mile would be in the range of $1.36 to $ 2.00 per gallon. This needed increase in the gas tax is the most important implication that can be drawn from the recent criticisms of the CAFE program – current costs of highway injuries and deaths, congestion, and air pollution are enormous and require a dramatic public policy response. Raising the gas tax by $1.36 to $2.00 would induce a sharp reduction in vehicle miles traveled and encourage consumers to demand fuel-economy improvements in new vehicles.

And we weren’t alone.

Not surprisingly, I have pretty much the same views about reducing carbon emissions — a tax on carbon emissions is the way to go.   This is a proposal that has much in the way of potential benefits  and has near-unanimous support across the economics profession. (!)

Although many people think economists are a wacky, impractical bunch, in this case there are some governments paying attention.  In particular, Australia implemented a carbon tax not terribly long ago, and the results are as encouraging as they are predictable.

Australia’s greenhouse gas emissions from the electricity sector are down about 7.6 per cent since the carbon tax was introduced in July 2012…  Emissions from the power sector have been dropping, particularly since the introduction of a $23 a tonne price on carbon in mid-2012, making renewable energy supplies more attractive. Demand for electricity has also been dropping as manufacturing shrinks and energy efficiency efforts take hold.

I guess all of that is a positive, minus the manufacturing shrinking part.  Though, if the value of the manufactured products don’t warrant high enough prices to cover the social costs of carbon, then that displacement is a textbook case of scaling back on overproduction of “bads”.

Will Taxes Cause Golfer to Miss the Green?

As you probably know, the recent changes to the tax law mean that the most taxpayers are going to share more of their income with the government in the coming years.  Or perhaps you didn’t know?

Well, taxes went up for everyone who continues to work, at least.  Economists often worry that tax increases will have a deleterious effect on the economy, causing some to lose jobs and others not to be able to find jobs. 

Economists also sometimes worry that workers will quit working because taxes take such a severe bite that it simply isn’t worth punching the clock any longer.  Indeed, earlier this year the French government enacted a 75% tax on the wealthy, causing Gerard Depardieu (no relation) to flee the country.   Many who favor more modest government expenditures cheered Depardieu as he thumbed his nose at le percepteur.

Closer to home, golf phenom Phil Mickelson is now openly talking about “going Depardieu” after seeing a combination of federal and state tax increases that are shrinking his wallet.  But a funny thing happened on the way home from H&R Block,  someone took a look at the numbers and found Mickelson’s case less compelling.

Here’s a taste:

For starters, courtesy of President Obama’s re-election and the subsequent fiscal cliff negotiations, Mickelson will experience an increase in his top tax rate on ordinary income from 35% to 39.6%, and an increase in his top rate on long-term capital gains and qualified dividends from 15% to 20%. Clearly, when faced with tax hikes of that magnitude, it stops making economic sense for Mickelson to continue to swing a metal stick up to 70 times a day in exchange for the $48 million he earns on an annual basis.

Now, we know that when a man of means stands up to decry his tax burden someone will be there to ridicule him.  But, what makes Mickelson’s case special is that the source of this snark is none other than Forbes magazine.

Here’s some perspective on the high end of the U.S. income distribution:  The family cutoff to be in the 1% seems to be about $500,000 per annum.  Between tournament purses and product endorsements, Mickelson earns somewhere just south of $50 million.

That’s a long tail.

Be Careful What You Ask For

Have you heard the one about the Frenchman who asked for higher taxes on himself?

A little over a year ago, some of the most prominent and wealthy executives in France signed a petition seeking higher taxes on themselves. Yes, higher taxes…

You may know what happened next: François Hollande, the country’s socialist president, proposed a 75 percent marginal tax rate on all income over $1.3 million. (The highest marginal tax rate on the first $1.3 million would be 45 percent, up from 41 percent.) Marginal tax rates on capital gains would rise to as much as about 60 percent.

Now many of the nation’s wealthiest executives — including some who signed the original petition — and entrepreneurs, private equity managers and others who are millionaires, or want to become millionaires, are crying foul. In a sign that executives are moving, or threatening to move, to lower-taxed countries, high-end real estate in Paris is being thrown on the market.

Another post that would seem to speak for itself, except for this:

The purpose of the tax is more populist than mathematical: the marginal income tax increase is estimated to raise only about $300 million.

To give that some perspective, France’s budget deficit last year was on the order of $150 billion, so $300 million is equivalent to about 0.2% of the shortfall.

Tax them Back to the Stone Age!

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Do you think we should increase taxes on the rich?  Most of us do, to the tune of about a 70-30 split in favor of bumping up those taxes.  But what does that mean, exactly?

Reason Online takes up this question by asking people how high someone’s income has to be before they are rich.  Not surprisingly,  the answer depends on who you ask.  If you ask someone with an income less than $50,000, the median response is that $200,000 a year is rich, but even $100,000 seems rich to a significant fraction of that cohort.  On the other hand, if you ask someone who earns between $100,000 and $200,000, the response is that it takes $300,000 before you are rich.

A better survey question might be, should we raise taxes on people with incomes over $200,000?  My guess is you might still get majority support, with substantial defection from those at and round $200,000 a year.