Tuesday, August 18, 2009
It's sensible, though higher than I thought. Using Ironman's tool, it appears that if you think the deadweight cost is 100%, you can even use the Obama Administration's assumption of a multiplier and still show that stimulus doesn't stimulate.
Meanwhile, another tax the Administration is thinking about, cap and trade, turns out to be really bad for poor people. Corbett Grainger and Charles Kolstad in a new paper from the National Bureau for Economic Research (abstract here for free; this appears to be an ungated version):
For a tax of $15 per ton CO2, an average household in the lowest income quintile would pay around $325 per year, while an average household in the wealthiest quintile would pay $1,140 annually. Although wealthier households would pay more in absolute terms, as a percentage of annual income, lower income groups bear a disproportionate share of the burden. The poorest quintile�s burden (as a share of annual income) is 3.2 times that of the wealthiest quintile�s. The burden as a share of annual income for the lowest income group ($7,500-9,999) is almost four times higher than the burden-to-income ratio for the highest income group in the data ($200,000-250,000).You can use a tax instead of cap-and-trade specifically in the analysis, as the effect should be identical in either case. You could compensate lower income families for cap-and-trade with, say, a reduction in payroll taxes (which as just as regressive), but when you decide to give away most of the permits, you don't have any money to transfer.