Monday, April 26, 2010

More to Graham's Climate Backdown Than Meets the Eye?

Consider this sequence of events:

(1) The EPA releases a draft tailoring rule which will give the agency a framework for regulating carbon dioxide and GHG emissions by heavy industrial emitters in the U.S.

(2) Senators Kerry, Graham and Lieberman begin work on a revised version of climate change/cap-and-trade/environmental protection (what ever the word du jour is) legislation - rumored to include a provision which would hamstring the EPA's ability to regulate carbon emissions.

(3) The EPA submits its draft tailoring rule to the White House for final review, indicating that its finalizing and formal release could be imminent (per EPA Administrator Lisa Jackson, most likely in May).

(4) Senate Majority Leader Reid - in a desperate gambit to save his seat in the November elections - shifts the priorities of the Senate legislative calendar from climate change to immigration reform.

(5) Senator Graham, angry at the sudden switch from climate to immigration, withdraws from negotiations, putting an indefinite pause on moving the legislation forward - and blocking the provision preventing the EPA from exercising oversight.

In the few days since Graham pulled back, there have been numerous columnists and bloggers theorizing that he took this action because of pressure from Republican leadership. I'm not sure I agree, and here's a wild theory I've come up with along those lines: he pulled out because of White House pressure. While the President publicly says climate change legislation remains a priority, could he privately want the authority to regulate heavy emitters in the hands of the Executive Branch? By pressuring the one Republican senator willing to negotiate on the Senate legislation (or was he promised something in return?) to step aside, the Administration could potentially have killed the bill and the provision taking away EPA oversight.

So perhaps everyone gets what they want: Graham gets some sort of payoff later on; Reid gets his immigration bill and (presumably) secures his reelection; and the Administration gets to control a big sector of American manufacturing. Far-fetched? Perhaps - but certainly plausible...

Sunday, April 25, 2010

The Value-Added Tax (-man Cometh)

I can remember hearing it often: " I will not raise taxes on anyone making less than $250,000 a year." No how; no way. My family was not going to be hit with higher taxes; thank you, President Obama! I'm so glad to know that...

What? That's not true, you say? My taxes will go up? That can't be right - except I'm looking at numerous news reports saying that the President and his fiscal commission are considering the implementation of a value-added tax (VAT) that would hit everyone in the United States. I'm also reading how phenomenally the implementation of a VAT in Europe has worked out for our neighbors across the Atlantic. Let's look for a moment at excerpts from an April 15, 2010 story in the Wall Street Journal on this topic:

VATs were sold in Europe as a way to tax consumption, which in principle does less economic harm than taxing income, savings or investment. This sounds good, but in practice the VAT has rarely replaced the income tax, or even resulted in a lower income-tax rate. The top individual income tax rate remains very high in Europe despite the VAT, with an average on the continent of about 46%.

In the U.S., VAT proponents aren't calling for a repeal of the 16th Amendment that allowed the income tax—and, in fact, they want income tax rates to rise. The White House has promised to let the top individual rate increase in January to 39.6% from 35% as the Bush tax cuts expire, while the dividend rate will go to 39.6% from 15% and the capital gains rate to 20% next year and 23.8% in 2013 under the health bill, from 15% today. Even with these higher rates, or because of them, revenues won't come close to paying for the Obama Administration's new spending—which is why it is also eyeing a VAT.

One trait of European VATs is that while their rates often start low, they rarely stay that way. Of the 10 major OECD nations with VATs or national sales taxes, only Canada has lowered its rate. Denmark has gone to 25% from 9%, Germany to 19% from 10%, and Italy to 20% from 12%. The nonpartisan Tax Foundation recently calculated that to balance the U.S. federal budget with a VAT would require a rate of at least 18%.

Proponents also argue that a VAT would result in less federal government borrowing. But that, too, has rarely been true in Europe. From the 1980s through 2005, deficits were by and large higher in Europe than in the U.S. By 2005, debt averaged 50% of GDP in Europe, according to OECD data, compared to under 40% in the U.S.

Certainly, if the Administration were considering such a tax, they would come right out and say it. Hey, Austan Goolsbee, you'll be straight with us, won't you?

So there we have it - an official White House spokesman telling us ... absolutely nothing, although clearly demonstrating his ability to give fantastic non-answers to basic questions. What makes it worse is that he's an economist giving non-answers; where's Paul Krugman when you need him? At least he'd give you a straight answer...