Jul 9, 2015
This is an excellent, feasible proposal would get widespread political support in the US. Europe needs the US to join the climate action wagon, but the US is currently not a political leader or credible player in climate change mitigation. This program would rapidly allow the US a credible leader in creating a sustainable future, adding the critical mass to international initiatives. Thus, this initiative may be the catalyst to phase change in the quest for climate change mitigation.
Jul 9, 2015
Thanks Brett. You hit on an important element in the value of a strategy for putting a price on carbon. I think there will be real progress once the U.S. is seen clearly as a leader in the effort, rather than an impediment. The hope is that the Inhofes of the world get overwhelmed and marginalized.
Jul 9, 2015
Very succinct, well-reasoned and logically presented. An excellent proposal that would allow the U.S. to lead the effort in this critical area.
Jul 9, 2015
Really great proposal Bill! If this catches on it could change the future for our children.
Jul 11, 2015
I support Bill Ferree’s proposal. It is an interesting political approach to reducing CO2 emissions by being tax neutral, offsetting a straightforward carbon tax with a reduction via a FICA rebate (or equivalent). His alt1 allows the approach to move forward on a state by state basis, if a federal approach is delayed or fails. It allows third party environmental activists to move forward on a pilot basis to test political success on a limited scale. Nevertheless, affected corporate interests would still be difficult to overcome.
Jul 11, 2015
Thanks for the comment. You are absolutely right about resistance from affected corporate interests. However companies are starting to recognize that there will ultimately be a price on carbon. Even Exxon-Mobil is on record as planning for $60/ton. My guess is that is due at least in part to the fact that they've made large investments in natural gas property and will profit as coal is forced farther to the sideline and displaced by gas for electricity generation.
Jul 13, 2015
A refreshing and feasible plan that unites the big and small - presents a real way forward for the U.S. without avoiding the obvious need for political involvement. Presented very logically with a solid grasp of actions needed. Thanks, Bill!
Jul 18, 2015
An excellent plan Bill - I can only hope that the political will to start this process is there before we reach the disastrous tipping points to come if we don't act in the next few years, and indeed time is running out. All of the climate changes we have seen are a result of less than 1 C, and even if we do the full monty on limiting CO2 now we are guaranteed to get to 2 C warming in two decades. But the energy companies have poisoned the well of public opinion, and own most of the politicians on a global basis. You have presented a practical, do-able plan and I certainly hope it gets implemented.
Jul 20, 2015
Sep 4, 2015
This plan proposes to pair a 1) steep payroll tax cut with 2) a carbon tax. It should be noted that those revenue streams are distinct: primarily trust funds for the former and general revenues for the latter. That is, this proposal would irreparably deplete the Social Security and Medicare trust funds -- likely and rightfully provoking very strong opposition from a wide swath of organized constituencies and advocacy groups. Many of these interested stakeholders are not the same as those that would be lobbying on the carbon tax component, so the plan essentially creates more battle fronts. Given the retirement crisis facing America, it's also terrible policy, not just bad politics. The proposal would essentially seek to solve the political challenges associated with national carbon pricing schemes by creating a different set of political, policy, and strategic problems.
There are many many policy and political issues raised by this proposal, but the above is among the most obvious. I would urge the judges to carefully consider those concerns.
Sep 5, 2015
Thanks for the comment. You have obviously read and understand the proposal. You raise a very serious issue, one that gave me pause before submitting the idea.
This proposal is not tinkering at the edges. Three very big issues are addressed, and there is potential for big impact.
Integrity of the social safety net is without doubt extremely important. Revenue from a carbon tax -- dedicated to the trust funds -- can provide adequate revenue for those funds. This revenue stream could be locked to trust funds just as FICA taxes are locked now. As emissions gradually decline, modest increases in the CO2 taxation rate will be adequate to maintain the needed revenue level.
You posit that America faces a retirement crisis. I think this is entirely false, at least as far as the ability to fund existing Social Security obligations is concerned. If there is crisis at all, it is largely a manufactured one used for political purpose. Social Security and Medicare will be just fine if we continue to fund them, albeit at possibly a slightly higher level in the not-too-distant future.
The bigger retirement concern is the inability of a large part of the workforce to save anything for their retirement years because their income is just too small. The income and wealth gap between a very large part of the workforce and the current economy’s really big-time winners is historically large. Social Security is a lifeline because for far too many there is none other. The trend for the past few decades is toward greater inequality. In addition to the impact on individuals, this is dangerous for the society as a whole. At extremes, it usually ends in disaster of one kind or another. Predicting who, if anybody, who will be spared is very difficult.
This proposal would be significant in reversing the dangerous inequality trend. More money will end in the hands of the American worker.
The biggest issue, the subject of this whole exercise is the need to end manmade greenhouse gas pollution. Those who understand this most clearly are starting to also recognize that solution requires mastering the political playing field. We know, or should know by now, that the “other side” uses every trick—lying, introducing false trails, threat, bribery and outright political power to delay dealing with the issue.
They are quite willing, as well, to try to dissuade us from an effective strategy by showing us that some part of it might be difficult. That some political constituency (retirees) might initially be afraid of the strategy proposed here is not reason to shy away from it. Shying away from every step that will reduce CO2 emissions will result in doing absolutely nothing about the problem.
Truth is, this is a fight for survival. We have to acknowledge this simple fact and get on with it.
I can imagine your retort will be that your concern is that we fight smart. No disagreement there. I may yet be persuaded that there is a smarter political strategy. As of yet, none have come to my attention. I think it’s too early to conclude that any element of one is off the table.
Sep 6, 2015
I appreciate your courteous, well-intended response. I should first note that this exchange ultimately serves to inform the judges evaluating the proposals, which cannot be modified at all during this stage. Thus the question before them is whether they want to be perceived as helping to mainstream a proposal that would permanently cut the revenue stream into the Social Security and Medicare trust funds while depleting them of $333 billion initially, according to your estimate.
A core political problem with your proposal is that the large interests mobilizing against carbon pricing would likely exploit the payroll tax provision to generate outcry on the right. Not only would we expect the "keep your government hands off my Medicare/Social Security" protests, one should expect attacks along the lines of "these big government types want to raid Medicare/Social Security AND raise my energy taxes." On the left, the proposal will also needlessly draw the progressive movement's enmity, especially given how many are currently working to increase Social Security benefits.
(Part of the misunderstandings reflected in your response seems to be rooted in conflating the retirement security crisis with the politically manufactured "crisis" around Social Security. They are not the same. While Social Security remains a bedrock American institution, there is wide agreement on all sides that the overall retirement security crisis is real. That is why many progressives are calling for a restoration of a higher payroll tax rate & boost in Social Security benefits and why some others, notably conservatives, are calling for Social Security cuts now to supposedly avoid Social Security cuts later.)
As a technical policy matter, your proposal as finalized did not seem to state that carbon tax revenues would be transferred back into the Social Security and Medicare trust funds in order to hold those trust funds completely harmless. (Apologies if I missed that detail.) Your comments here suggest that you would consider *partial* transfers from general revenues back into the trust funds — but that policy tweak would nonetheless deplete the trust funds, just not as fast. (Indeed, in contrast, the temporary payroll tax cut provisions in the 2009 economic recovery package were paired with a hold harmless transfer from general revenues.)
In fact, you now seem to be proposing something far more radical: upend the financing structure of Social Security and Medicare altogether so that they are not just deeply cut, but also funded—indirectly and via multiple steps—through a carbon tax. Such a policy design would raise very serious concerns and issues, as well as deep controversy. There is a reason, for example, why our retirement social insurance systems are financed by taxes on labor income: it acts as a vital direct link between work and retirement after work. You are proposing to severe that link as a matter of policy, as well as make the financing more uncertain given the potential volatility of carbon tax revenues and likely difficulty of enacting more increases when necessary. Furthermore, forcing at least a third of Social Security and Medicare funding to pass through general revenues first is needlessly calling for trouble, politically and policy-wise; one only needs to look at how Medicare funding is now partially funded by general revenues for an illustration.
So, again, for the above reasons and others left unstated (in order to avoid writing a dissertation on the fly here), the proposal raises serious concerns. I do think there's genuine value in brainstorming creative, smart ways to jolt the Washington political landscape into supporting, or at least not opposing, carbon pricing — but the rationales offered here to deeply cut the payroll tax do not seem persuasive. They will instead likely create more political roadblocks for proponents and climate advocates while needlessly endangering Americans' retirement security at the worst of times to do so, not pave the path forward for a national carbon tax.
Sep 7, 2015
Thanks again for the exchange. I'm a firm believer that we get to better ideas and understanding when we bat them back and forth.
The proposal is to cut FICA rates by one third. This will result in a $333 billion reduction in revenue to the trust funds from that (particular) stream. That reduction would be replaced with a dedicated flow from the CO2 emissions tax. There is no change in the total revenue stream into the Social Security and Medicare trust funds.
You are right that legacy energy interests will try to undermine this strategy by every method that they think may work. One beauty of the proposal is its simplicity. It is: Collect a tax on pollution and use the proceeds to reduce the payroll cost of funding Social Security and Medicare. It should be very easy to show that there is no impact on benefits or on the health of the funds from which the benefits are paid.
Regarding progressive movement enmity, I just don’t see it. The proposal has no impact on benefits, current or future.
I’m not sure what “retirement security crisis” you refer to. It is true that people have inadequate savings put aside to be able to spend an extended period unemployed, “in retirement” and having the same lifestyle and consumption patterns of their most productive working years. For them it will mean an uncomfortable belt tightening.
Social Security and Medicare are not in crisis. Projections of future shortfalls should be taken seriously, but much of the crisis talk is about political preference. Conservatives would prefer to reduce benefits in order to assure that any future actual shortfall does not require some future tax increase.
You point out a failure on my part for not being more explicit in stating that the CO2 revenue would be dedicated to Social Security and Medicare funding. I see no reason why all trust fund money has to come from payroll taxes. Similarly, there is no reason why carbon tax revenue must flow through or be considered general revenue. All of the new tax revenue can be dedicated to the trust funds. The only requirement is that the entire package must be revenue neutral and that Social Security and Medicare trust funds remain unharmed.
You are correct that there are reasons for tying social insurance to labor income. Social Security, as we know it now, is based on good economics, a general agreement that old people shouldn’t live in poverty and on the politics that existed when the deal was cut in the first place, and as they existed at the time when later modifications were made. There is merit to the idea that everybody should have some skin in the game, i.e. everybody should understand that it is some of their money in that fund aggregate, so they will watch to see that it is managed wisely.
That does not translate however, to the notion that the program should be funded solely by a 15% (Social Security and Medicare combined) adder onto the labor component cost of doing business. I propose that a third of that burden be shifted over to a carbon tax.
Regarding volatility, carbon fuel prices are volatile. CO2 emissions are not very volatile over the short-to-medium term, so revenues should be stable.
If the tax has its desired effect in terms of reducing emissions, the carbon tax rate could be adjusted upward over time. Assuming emissions from coal burning are reduced by half and electric car adoption accelerates, a reduction of 760 million tons of annual emissions is plausible at the end of five years. This effect is primarily because coal electricity, with the tax, will be clearly uneconomic, costing about double the cost of solar electricity. This would amount to a 14% reduction in the total CO2 annual rate. A 14% upward adjustment to the tax would take it to $70/ton. It would add another $.10/gallon for gasoline.
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