Monday, May 25, 2009

Update: Cap 'n Trade vs. Carbon Tax

Recently, I wrote a post for explaining the difference between a cap and trade system and a carbon tax to reduce carbon emissions. As action in Congress has heated up, this topic has been receiving much attention in the blogosphere. Here is a rundown:

The Miami Herald reported on a bill introduced by two Republicans, Jeff Flake (AZ) and Bob Inglis (SC), and one Democrat, Dan Lipinski (IL), that would tax carbon emissions. They offered it as an alternative to the Democratic leadership's cap and trade bill that passed out of the House Energy and Commerce Committee on May 21, 2009. Their bill would be tax neutral by lowering the payroll tax by whatever amount is raised through the carbon tax. In explaining his support, Flake says, "The first axiom of economics is if you want less of something, you tax it. Obviously, we want less carbon, so we tax it."

Phil Levy at Foreign Policy has a good summary of the cap and trade versus carbon tax debate. He also writes:
For ease of use and immunity from political meddling, the carbon tax is the clear winner. Taxes can be applied early in the fuel distribution process, which makes the logistical task much easier. That sort of upstream application would make attempts at political interference much more transparent, as well. So what about uncertainty? The big critique of a carbon tax is that it cannot guarantee a country will come in under a pre-set emissions cap. If the desire to pollute is really, really high one year, we could find that a given tax won't serve as a sufficient deterrent, and we'll blow past our limits.
The House cap and trade bill shows clearly that Levy's concerns about "political meddling" are justified. As John Broder at the New York Times reports, several exceptions have already been included in the bill to get the support of members from energy producing states. He writes:

When Mr. Waxman first unveiled his plan in late March, at least a dozen of the panel’s 36 Democrats had qualms of it. These so-called Brown Dogs were mainly from states dependent on coal for power and manufacturing for jobs, and needed assurance that their constituents would be protected.
In weeks of closed-door negotiations with these Democrats, Mr. Waxman doled out billions of dollars worth of free pollution permits, known as allowances, to cushion any price shock caused by imposing a cap on emissions of heat-trapping gases.

I wonder how many more "allowances" will be added to the bill by the time it goes through three, or more, additional committees and the House and Senate floors?

Meanwhile, Joshua Tucker at The Monkey Cage uses a rational choice approach to try to discern why most congressional Republicans are supporting the status quo over either of these two approaches.

As both Levy and Tucker point out, industries that emit carbon are backing cap and trade because they see it as a preferable alternative to a carbon tax. It gives them more flexibility, plus, they may be hoping for one of those "allowances." So, if Flake and Inglis were to get their fellow Republicans to join them in backing a revenue neutral carbon tax, we would have the unusual situation of the Democrats on the side of the polluters while the Republicans oppose them.

Finally, if you are still confused about what cap and trade actually is, here is a helpful video from the public radio program Marketplace.

Friday, May 22, 2009

The Credit Card Bill and My Credit Card Bills

About two years ago I missed a credit card payment. Due to a bank and post office holiday, I miscalculated how long it would take for my check to arrive. A bill that was due on a Friday did not arrive until Monday. I had to pay a late fee, which I expected. I also had to pay an interest rate slightly above 30% for about eight months, which I did not expect. Not only that, the bank (Citigroup) increased the rate on another card that I did pay on time to the same amount. Plus, a separate bank increased the rate on its card too, even though I had paid it on time also (a practice known as universal default, which was banned by the Federal Reserve in December). For the next eight months, I struggled to just be able to pay the minimum payment.

I thought that Congress should know about these banking practices, which I viewed as unfair. This was the first time I sent an email to my congressman (Soloman Ortiz, a Democrat) and two senators (Kay Bailey Hutchison and John Cornyn, both Republicans). (If you were to ask me why this was the first time, since I frequently encourage my students to do the same, I would mumble something about the free-rider problem and quickly change the subject.)

I received responses from all three, but the most memorable was the e-mail from Hutchison’s office. It contained the customary thank you and appreciation for my letter, but the next to last paragraph also contained this sentence: “However, I also believe consumers must be responsible for their own actions, and the responsibility should not rest entirely on the credit card industry.” What? So, credit card companies should be able to charge more than 30% interest because I was one business day late with a payment? I understand that banks need to charge greater interest on riskier loans, but I don’t understand how one business day late classifies me as a risky lender. I understand that I owed a late fee for my “irresponsibility,” but I don’t understand a 30% interest on that card and another card I paid on time.

Most likely, Senator Hutchison did not read the letter. The response I received was probably a form e-mail that gets sent to everyone who writes her office about credit card complaints. But that is exactly the problem, and illustrates a larger issue with the Republican Party.

Senator Hutchison’s instinctive reaction to any credit card complaint was to inform the credit card holder that they need to be more responsible, as if the banks can do no wrong. She, and the Republican Party as a whole, is tone deaf when it comes to the problems of the middle class. This explains, in part, why Republicans have suffered major defeats in the last two elections.

There is an old joke that a Republican is a Democrat who has been mugged, alluding to the perception that Democrats are more concerned with the rights of crime suspects than equipping law enforcement with tools to fight crime. In the future, it may be said that a Democrat is a Republican that has been mugged by their bank. I don’t think the banks were protecting themselves from irresponsible costumers, I think they were mugging costumers. They were taking something that did not rightly belong to them. It was the bankers who were behaving irresponsibly, not me.

If Republicans ever want to regain the majority they will need to avoid knee-jerk responses to every consumer complaint. Looking at the votes on this week’s credit card bill, some may be learning that lesson.

The credit card bill passed by Congress this week, and signed by the president today, will address some issues I, and many others, had with credit card companies. In sum, it will require the following:

* Banks must provide 45 days notice before changing your interest rate.

* They cannot change your interest rate on existing balances, unless you are more than 60 days late with a payment.

* Payments must be applied to higher interest rate balances first.

* Banks cannot let you charge more than your limit, then charge you a fee, unless the card holder chooses to allow this option.

* Minors (under 21) will need an parental co-signer (a provision meant to curb the marketing of cards to college students).

Most Republicans in the House (113 out of 178) supported the bill, but some, such as House Republican Whip Eric Cantor, opposed it. Cantor argued that the bill will increase interest rates and make credit less available. Perhaps, he is correct. Though, the credit card industry is highly competitive and consumers have grown accustomed to shopping around for the best rate. Companies will still need to offer low rates to remain competitive. As far as making credit less available, wasn’t the availability of easy credit the problem that got us into the current financial mess? So, maybe that would not be such a bad outcome.

In the Senate, the bill passed with 90 votes, and Kay Bailey Hutchison voted Yea.

Monday, May 4, 2009

RIP: Jack Kemp

Conservatives lost one of its most influential thinkers last Saturday with the passing of Jack Kemp.

Kemp was a member of the US House, HUD Secretary, Bob Dole’s running mate in 1996, and a star NFL quarterback.

Kemp will be remembered for his advocacy of supply-side economics, which influenced Ronald Reagan and led to the tax cuts in the Reagan’s first term. He should also be remembered as a Republican who urged his party to not abandon issues dealing with race and poverty. He was an advocate of enterprise zones, for instance, which would provide tax cuts to businesses that invest in areas of high poverty. Now that Republicans are debating the future direction of their party, they would do well to reflect on this part of Kemp’s legacy.

For another eulogy highlighting Kemp’s legacy regarding race issues, listen to Michele Martin of NPRs Tell Me More.

Update: Also, see This Week in Race.