Are U.S. physicians overpaid?

Filed Under (Health Care) by Nolan Miller on Sep 28, 2011

Let me begin by stating that the answer to this question is “no.”

Now that I’ve headed off the slew of angry calls from my family, the reason why I’m writing about this question is a recent article in the journal Health Affairs by Miriam Laugesen and Sherry Glied entitled “Higher Fees Paid to US Physicians Drive Higher Spending For Physician Services Compared to Other Countries.”  The study compared fees paid to general practitioners and orthopedists in the US with those paid in Austrailia, Canada, France, Germany and the UK.  They summarize their findings as:

“Public and private payers paid somewhat higher fees to US primary care physicians for office visits (27 percent more for public, 70 percent more for private) and much higher fees to orthopedic physicians for hip replacements (70 percent more for public, 120 percent more for private) than public and private payers paid these physicians’ counterparts in other countries. US primary care and orthopedic physicians also earned higher incomes ($186,582 and $442,450, respectively) than their foreign counterparts. We conclude that the higher fees, rather than factors such as higher practice costs, volume of services, or tuition expenses, were the main drivers of higher US spending, particularly in orthopedics.”

In light of this finding, one might be tempted to conclude that physicians in the US are overpaid relative to other countries.  However, while it is true that physicians in the US make more than physicians in other countries, in order to interpret this finding it is critical to note that high earners in the US in general make more than high earners in other countries.  Relative to other countries, the US income distribution is more skewed, meaning, for example, that the highest 1% of earners in the US make more than the highest 1% of earners in other countries.

Now, we might ask ourselves, what is the relevant comparison group for a US physician?  A US college student who is deciding whether to be a physician doesn’t compare the income that could be made as a physician in the US with the income that could be made as a physician in German.  He or she compares the income to be made as a US physician with the income to be made as a US lawyer or MBA.  In other words, the right question isn’t whether US physicians are paid too much relative to German physicians, but whether US physicians are paid too much relative to others at the top end of the US skill/eduction/income distribution.  With respect to this point, the answer seems to be that incomes for US physicians are largely in line with incomes to other high earners in the US.  (Not to be too hard on Laugesen and Glied, they discuss this point at the end of their article.)

The issue of how physician incomes fit into the broader income distribution is discussed in a paper from earlier this year by David Cutler and Dan Ly that appeared in the Journal of Economic Perspectives.  They compare incomes for general practitioners and specialists to the income of “high earners,” (people in the 95th to 99th percentile of the income distribution) in 13 other OECD countries.  In the US, this ratio is about 1.37 for specialists.  In the other OECD countries, the ratio ranges from 2.56 in the Netherlands to 0.8 in the UK, with the average being 1.45.  For GPs, the ratio of income for US physicians to that of other US high earners is 0.92.  In the other countries, this GP ratio ranges from 0.68 in Norway to 1.41 in Canada, with the average being 0.98.  Thus, in both cases, US physician earnings seem to be in line with earnings of high earners, with the US being slightly below the OECD average for both GPs and specialists.

So, what do we make of the two studies?  Well, Laugesen and Glied have a point that high physician incomes appear to drive the high cost of healthcare in the US relative to other countries.  But, the reason why US physicians earn so much isn’t because “the system is broken,” they “take advantage of the system” or some other nefarious motive.  Rather, US physicians earn a lot because high earners in the US earn a lot.  So, the skewness of the US income distribution is in part responsible for the high cost of health care in the US.

This point is potentially important for understanding how we might reduce healthcare costs in the US.  Often, proposals to reduce Medicare spending focus on reducing provider payments.  However, if this reduces physician incomes we might expect that in the long run, as physician incomes drop relative to other professions, we’ll have fewer physicians and more lawyers, MBAs, etc.  As long as wages in these competing professions remain high, it will be difficult to squeeze down on physicians too much without driving them out of medicine.  If the highest-ability students are the most likely to move to a different profession, we might find that those who still choose to be doctors are not as good: the overall quality of the talent pool of young physicians might drop.  At the same time, to the extent that this reduced physician supply leads to shortages, it will put upward pressure on physician fees, and we’ll be right back where we started from.  In short, it is unclear that we can reduce healthcare costs too much by reducing payments to physicians.

Closing the Barn Door after the Horses Escape

Filed Under (Finance, Other Topics, U.S. Fiscal Policy) by Don Fullerton on Sep 2, 2011

The New York Times today says that the Federal Housing Finance Agency is set to sue major U.S. banks such as Bank of America, JPMorgan Chase, Goldman Sachs, and Deutsche Bank, among others.  The U.S. government argues that the banks sold packaged mortgages as securities to investors while ignoring evidence that the homeowners’ incomes were inflated or falsified.  That is, the banks failed to perform the due diligence required under securities law.  When many of those homeowners were unable to pay their mortgages, the securities backed by the mortgages tanked.  Housing and financial crises ensued.

Kinda late, isn’t it?  Well, certainly it’s too late this time, to prevent the housing and financial crises of the past few years.  What is the point of the suit, then?  Does the U.S. Federal government really need the money that they can get from these banks, as damages, and will they give it back to all of us who lost money during those years?  The U.S. might sue for around a billion dollars, which is peanuts these days.  Divided by 333 million Americans, that would be about three dollars each.  Why bother?

An important conceptual point here is the difference between ex post liability (after the fact) and ex ante incentives (beforehand).   The point of this suit is not to collect a billion dollars after the fact, although arguments are made about the fairness of those liable to pay for damages.  Rather, the point is to provide the proper incentives to private companies before the next time.  To a private company, a billion dollars really is a lot of money.  If they have to worry about the loss of a billion dollars, for ignoring their legal responsibilities, then maybe next time they’ll be more careful to follow the law.

Government regulation can take alternative forms.  One alternative is to send auditors and inspectors into every bank, every day, to check what they are doing.  That would be very expensive.  A cheaper alternative is to let the banks decide for themselves if they are exercising due diligence, but with the “threat” hanging over their head that they might get sued if they don’t.

Green Taxes Part III: Potential Revenue for Illinois?

Filed Under (Environmental Policy, U.S. Fiscal Policy) by Don Fullerton on Jul 15, 2011

In my last two blogs, I wrote about ways to meet the Illinois state revenue needs, ways that might work better than the increase in the income tax.  This blog continues the list of possible “green taxes”.  In general, a green tax applies either directly on pollution emissions or on goods whose use causes pollution.  For raising a given amount of revenue, the basic argument for green taxes can be summarized by the adage: “tax waste, not work”.   That is, a tax on pollution might have good effects on the environment, because it discourages pollution.  In contrast, an income tax discourages earning income.

In early January 2011, the State of Illinois enacted legislation to raise the personal income tax rate from 3% to 5% and to increase the corporate income rate from 4.8% to 7%.  Along with a cap on spending growth, these tax increases reduce the state’s projected budget deficit in 2011 by $3.8 billion (from $10.9 to $7.1 billion).  The governor justified the tax increases on the grounds that the State’s “fiscal house was burning” (Chicago Tribune, January 12, 2011).  In my piece with Dan Karney for a recent IGPA Forum, we don’t debate what caused the fiscal crisis in Illinois, nor argue the merits of cutting spending versus raising revenue.  Instead, we just take it as given that politicians decided to raise revenue as part of the solution to the State’s deficit.  Then we analyze the use of a few green taxes as alternative ways to raise revenue.

While many green taxes are possible, we focus on four examples that have the potential to raise large amounts of revenue: carbon pricing, gasoline taxes, trucking tolls, and garbage fees.  Indeed, as we show, a reasonable set of tax rates on these four items can generate as much revenue as the income tax increase.  We apply each hypothetical green tax directly to historical quantities of emissions (or polluting products) in order to obtain an approximate level of potential revenue generation. 

In a short series of blogs, one per week, we now discuss each of the four green taxes and their potential for revenue generation.  In past weeks we covered Carbon Pricing and Gasoline Taxes.  This week we cover Trucking Toll and Garbage Fees.

Every day hundreds of thousands of vehicles crowd Illinois’s roads and highways.   Data from the Federal Highway Administration indicates that over 50,000 trucks (six tires and over) cross into Illinois from neighboring states along the interstate highway system.  While these trucks bring needed goods to Illinois, they also congest the roads, degrade the road surfaces, and fill the air with soot.  They also become involved in vehicle accidents that cost the lives of many in Illinois.  To compensate the state, Illinois can impose a toll for long-haul trucks using Illinois’s highways.  For example, a $5 per truck toll on 50,000 trucks daily would raise almost $100 million annually.  (In comparison, the existing Illinois toll road system generates approximately $600 million annually.)  The truck toll can be implemented using existing transponder technology deployed at weigh stations along the interstate highways.  (As an aside, we note, the constitutionality of state trucking tolls is not clear, because the federal government determines the rules of interstate commerce; however, major portions of the existing interstate highway system are subject to tolls, including the heavily travelled I-95 corridor in Delaware. )

Next, residents of Illinois generate approximately 19 million tons of garbage per year (or more than one ton per person per year), and 60 percent of that waste ends up in landfills.  Currently, large municipal waste landfill operators currently pay state fees that total $2.22 per ton of solid waste dumped.  But few municipalities in Illinois charge fees designed to discourage the creation of waste by residents (Don Fullerton and Sarah M. Miller, 2010, “Waste and Recycling in Illinois,” Illinois Report 2010, pp.70-80). 

However, empirical evidence shows that taxing garbage at the residential level does reduce garbage production (Don Fullerton and Thomas C. Kinnaman, 1996, “Household Responses to Pricing Garbage by the Bag,” American Economic Review, 86, pp. 971-84).  Yet the exact garbage taxation mechanism varies by program.  For instance, a fee can be levied on garbage bags themselves or on the containers that hold the garbage bags.  Regardless, a tax rate equivalent to one penny per pound of garbage would generate almost $240 million in revenue per year, or 6.3% of the expected revenue from the income tax increase.

Finally, consider a Portfolio Approach.  Remember, at issue here is not whether to raise taxes.  We presume the State has decided to raise taxes by $3.8 billion (as done already through the income tax increase).  Here, we merely explore alternative ways to raise revenue other than through the income tax. 

Anyway, instead of implementing only one of the green taxes describe above, Illinois could choose to implement several green taxes simultaneously.   This portfolio approach would keep rates low for each individual green tax, but still generate large amounts of total revenue that can add up to a large share of the total expected revenue from the recent income tax hike.  According to the numbers in all three blogs, one simple and moderate plan would combine the following green taxes and pay for more than  half of the needed revenue:  A carbon tax of $10/ton would collect $1 billion (raising electricity prices by about 7.5%), a gas tax increase of 14 cents per gallon would collect $0.7 billion (raising gas prices by about 4.4%), a trucking toll of $5 would collect $100 million, and a garbage fee of one penny per pound would collect $240 million.  Then the recent income tax increase could be cut by more than half.

Moreover, green taxes have the added benefit that they provide incentives to reduce the polluting effects of carbon emissions, gasoline use, truck exhaust, and household garbage generation.

Green Taxes Part II: Potential Revenue for Illinois?

Filed Under (Environmental Policy, U.S. Fiscal Policy) by Don Fullerton on Jul 7, 2011

Last week, I wrote about carbon pricing as a way to meet the Illinois state revenue needs (instead of an increase in the income tax).  This week, in the “continuation”, I write about a possible increase in the gasoline tax.  First, I’ll set the stage again.

In early January 2011, the State of Illinois enacted legislation to raise the personal income tax rate from 3% to 5% and to increase the corporate income rate from 4.8% to 7%.  Along with a cap on spending growth, these tax increases reduce the state’s projected budget deficit in 2011 by $3.8 billion (from $10.9 to $7.1 billion).  The governor justified the tax increases on the grounds that the State’s “fiscal house was burning” (Chicago Tribune, January 12, 2011).  In my piece with Dan Karney for a recent IGPA Forum, we don’t debate the reasons for the underlying fiscal crisis in the State of Illinois, nor argue the merits of cutting spending versus raising revenue to balance the budget.  Instead, we just stipulate that politicians decided to raise revenue as part of the solution to the State’s deficit.  Then we analyze the use of “green taxes” as an alternate means of raising revenue that could mitigate or eliminate the need for increasing income taxes.

In general, green taxes are taxes either directly on pollution emissions or on goods whose use causes pollution.  In the revenue-raising context however, the basic argument for green taxes can be summarized by the adage: “tax waste, not work”.   That is, a tax on pollution might have good effects on the environment, because it discourages pollution.  In contrast, an income tax discourages earning income.

While many green taxes could be implemented, we focus on four specific examples that have the potential to raise large amounts of revenue: carbon pricing, gasoline taxes, trucking tolls, and garbage fees.  Indeed, as we show, a reasonable set of tax rates on these four items can generate as much revenue as the income tax increase.  We apply each hypothetical green tax directly to historical quantities of emissions (or polluting products) in order to obtain an approximate level of potential revenue generation. 

In a short series of blogs, one per week, we now discuss each of the four green taxes and their potential for revenue generation.  This week: Gasoline Taxes.

Gasoline sales in Illinois are subject to a state excise tax set in 1990 at $0.19 per gallon.  In addition, other state fees and a federal excise tax of $0.18 per gallon are applied to gasoline sales for a total tax rate in Illinois of $0.61 per gallon, according to the American Petroleum Institute.  However, economic studies find that the existing tax rates on gasoline are below the optimal rate that would account for all the costs of pollution and time wasted due to traffic jams.  For instance, the “optimal” U.S. total gasoline tax has been estimated to be about $1 per gallon, according to Ian Parry and Kenneth Small (2005), “Does Britain of the United States Have the Right Gasoline Tax” [American Economic Review, 95(4): 1276-89].  Illinois would have to raise the tax rate by 40 cents to reach that $1 total optimal rate.  The third line of table 2 shows that a $0.40 per gallon gasoline tax hike would collect approximately $2.0 billion (just over half of the $3.8 billion from the income tax increase).  Yet that tax increase would raise by 12.4 percent the $15.9 billion Illinoisans spend annually on gasoline.

Table 2 includes alternative calculations of revenue generation levels from a gasoline tax.  For example, a generic 5 cent per gallon excise tax increase would generate $250 million (see table 2 line 1). 

The existing $0.19 per gallon excise tax in Illinois is not indexed to inflation, so the real revenue to the State from the gasoline excise tax has steady fallen over time.  The second line of table 2 calculates that the state could adjust the tax rate back to its 1990 purchasing power by raising the rate 14 cents per gallon (from 19 cents to 33 cents).  That would just account for inflation since 1990.  The increase in revenue would be $700 million (which is 18.3% of the expected revenue from the income tax increase).

Illinois residents would then pay 4.4% more for gasoline, INSTEAD of paying more income tax.  The point is that the gas tax would discourage driving and air pollution, instead of discouraging workers from earning income.

 

 

Why the U.S. Should Want to Reduce Climate Damage to Other Nations

Filed Under (Environmental Policy) by Don Fullerton on Jun 10, 2011

The usual argument against unilateral U.S. effort to cut greenhouse gas emissions and reduce climate change is that we’d impose significant costs on ourselves, with most benefits going to other countries.   Thus, we should wait for an international agreement.  By the way, an international agreement is not going to happen.  Meanwhile we wait, which means more global warming, sea level rise, and increased extreme weather events like floods, droughts, and hurricanes.   That argument may also include the claim that U.S. agricultural productivity might increase from a little global warming, and the U.S. is rich enough to protect itself against sea level rise. 

According to that logic, we can’t worry too much about damages to other countries, as we can’t take care of the whole world by ourselves.

The problem with that logic is that those costs to other countries will unavoidably become costs on us!  Take two examples.  First, a Reuters article points out that “a third of Bangladesh’s coastline could be flooded if the sea rises one meter in the next 50 years, creating an additional 20 million Bangladeshis displaced from their homes and farms.”   Some large percentage of the nation could disappear under water.  And that’s only one such nation.  Global warming and sea level rise could displace hundreds of millions of poor people.  The U.S. will find itself unable to turn its back on such a disaster, for humanitarian reasons.  Moreover, the costs would come back to haunt us in other ways, through increased wars and other political disruptions of great danger to the U.S. itself.

A second example appears in a recent NY Times article about the effects of global warming on agricultural productivity.   It starts by describing terrific recent technological advances: “Forty years ago, a third of the population in the developing world was undernourished. By the tail end of the Green Revolution, in the mid-1990s, the share had fallen below 20 percent, and the absolute number of hungry people dipped below 800 million for the first time in modern history.”  But those technological advances have leveled off, while growing demands have reflected huge growth in worldwide population and incomes.  The resulting grain price spikes have contributed to the largest increases in world hunger in decades, perhaps 925 million last year (see screen-shot).

What is the role of human-induced climate change?  The level of carbon dioxide in the atmosphere has already increased by 40 percent since the Industrial Revolution.  We are on course to double or triple this level within a hundred years.  This climate change contributes to extreme weather events.  “Many of the failed harvests of the past decade were a consequence of weather disasters, like floods in the United States, drought in Australia and blistering heat waves in Europe and Russia. Scientists believe some, though not all, of those events were caused or worsened by human-induced global warming. …  In 2007 and 2008, with grain stockpiles low, prices doubled and in some cases tripled. Whole countries began hoarding food, and panic buying ensued in some markets, notably for rice. Food riots broke out in more than 30 countries.”

The world’s population was less than 3 billion in 1950.  It is now about 7 billion, and is expected to grow to 10 billion by the year 2100. “Unlike in the past, that demand must somehow be met on a planet where little new land is available for farming, where water supplies are tightening, where the temperature is rising, where the weather has become erratic and where the food system is already showing serious signs of instability.”

Suppose the U.S. is only to look out only for itself.  Forget altruism.  Forget unilateral efforts to save the world.  Wouldn’t we merely be protecting ourselves by doing something now to reduce worldwide political instability that could result from a hundred million refugees and famines of that magnitude?

Don’t be fooled . . .

Filed Under (Finance, U.S. Fiscal Policy) by Don Fullerton on Apr 15, 2011

 . . .  by proposals to cut taxes.  Fiscally, such proposals are dangerously irresponsible.  The U.S. debt is huge, and the annual deficit is adding to it daily.  Increasing proportions of our debt are owned by China and other countries.  We need to reduce the annual deficit, just to reduce the huge current interest payments on the debt, which crowd out other beneficial forms of government spending. 

As much as the taxpayers might wish for tax cuts, those tax cuts would only add to the nation’s future fiscal woes.  The claim that a tax cut might raise revenue is counterintuitive, pandering, and certainly not supported by any recent economic history.  President Reagan enacted the biggest tax cut in history at the time, and the deficit ballooned.  He also had to backtrack several times with tax increases to fix the problem.  President Clinton raised taxes, which was followed by one of the strongest sustained recoveries in our nation’s history (and years of U.S. budget surplus).  President Bush cut taxes again, which was followed by deficits that exceeded those of the Reagan Administration.   It’s only logical, face it, that tax cuts lead to deficits!

Given the current huge U.S. deficit, the only responsible course is some combination of spending cuts, continued borrowing during a period of deficit reduction, and selected tax increases.  We have choices to face, about who should suffer from those spending cuts and who should face the  tax increases, but none of THAT debate can deny the fundamental reality that somebody has to suffer from spending cuts, and somebody has to face tax increases.

Many gas taxes, but falling over time

Filed Under (Environmental Policy, U.S. Fiscal Policy) by Don Fullerton on Apr 1, 2011

Per gallon of gasoline, are we paying more in taxes over the years, or less?   In my last post, I examined the Federal gas tax and inflation adjustments.  As it turns out, the overall price of gasoline adjusted for inflation just hasn’t changed that much over the past fifty years!  Regarding the Federal tax of 18.4 cents per gallon as a tool to collect revenue, however, the impact is significantly weakened by inflation.  It is a “unit tax” (fixed over time per unit of gasoline), and so it becomes a smaller fraction of price as the gas price rises.  In contrast, any “ad valorem” tax would be a fixed percentage of price (like an 8% sales tax).  When inflation increases the price, an ad valorem tax rises with it.

State and local gas taxes in Illinois are a bit more complicated. In 1990, the State of Illinois raised the gas tax from 16 cents to the current 19 cents per gallon – another “unit” tax.  The flat blue line in the figure below looks at that same fixed 19 cents per gallon since 1990.  The orange line shows its “real” value, adjusted for inflation, all in current 2011 dollars.  It shows that the 19 cents today is really the equivalent of 33 cents back in 1990.  So the real value of the state’s unit tax on gasoline has fallen from 33 cents to 19 cents per gallon.

In addition to the 19 cent per gallon state gas tax, we also pay 2 cents per gallon to the city of Urbana.  Furthermore, gasoline is subject to the general sales tax, which in Urbana is 8.75%.  (It is composed of 5% to the state, 2.25% to the city, 0.5% to the county, and another 1% to the school district). 

Here is how it all works.  Suppose the net-of-tax price of gas kept by the service station is exactly 3 dollars.  Then the combined state and local ad valorem sales tax (8.75%) applies to that $3.00 per gallon.  That tax would be $0.2625 (in other words, 26.25 cents).  Then the federal unit tax is 18.4 cents, the state unit gas tax is 19 cents, and the city unit gas tax is 2 cents.  The total of all those taxes is 75.65 cents per gallon.  These four major taxes per gallon are shown in the table.

Level of Tax

Tax in Cents per gallon

Federal unit tax

18.40

Illinois unit tax

19.00
Urbana unit tax

2.00

Combined sales tax

26.25

TOTAL TAX

75.65

 

That total 76-cent tax adds to the $3 per gallon price, and you pay $3.76 per gallon.   (And actually, a few other minor taxes are ignored here, such as the “Underground Storage Tank” fee and other environmental fees!)

 Yet only the ad valorem sales tax can keep up with inflation.  With every year that a unit tax on gasoline is not updated, the tax loses its value and fails to collect as much real revenue.   The State of Illinois revenue from the 19 cent gas tax is falling in real terms with inflation, as all the necessary expenditures by the State are rising.

Here we go again, …

Filed Under (Environmental Policy, Health Care, Retirement Policy, U.S. Fiscal Policy) by Don Fullerton on Feb 25, 2011

Yes, I’ve written about the budget before, and perhaps I’m getting repetitive.  But it’s important, and surprising, so I’ll give it another go.  But nevermind President Obama’s recent release of a proposed budget for next year.  That document is already irrelevant!  Let’s start with the current budget. 

Current federal spending now is over  $3 trillion per year.  The deficit is $1.6 trillion.  The U.S. House of Representatives approved a plan to cut spending by $60 billion.  The Republicans chose not to change spending on defense and homeland security, nor entitlement programs like Social Security, Medicare, and Medicaid.  The problem is that then other discretionary spending must be cut for some government agencies by as much as 40%.  And yet that total $60 billion cut is only a drop in the bucket.  It cuts the annual deficit only from $1.6 trillion to 1.54 trillion!

My point is that you can’t get there from here.  First of all, it’s not wise to cast such a wide net, without thinking, making cuts of 40% or more to discretionary programs simply because they are called discretionary.  It means cuts to national parks, environmental programs, and federal employees who provide many public services people want.

Second, who says we need to leave defense and entitlements untouched?   Within just a few years, Medicaid will cost about $300 billion per year, Medicare will cost $500 billion, and Social Security will cost $800 billion, and defense $800 billion.  ALL of domestic discretionary spending will be only $400 billion.  By those round numbers, $60 billion from that last category is a 15% cut.   The same $60 billion cut proportionally from all of those categories would be only a 2% cut.  That’s what I mean by a drop in the bucket.

Anyway, that plan would still cut the deficit only from $1.6 trillion to $1.54 trillion.  The ONLY way to make any sizeable dent in the huge $1.6 trillion deficit is to look at all the current spending, not just at $400 billion of domestic discretionary spending, but at the $800 billion of defense spending, $800 billion of social  security, $500 billion of Medicare, and/or $300 billion of Medicaid.

And who says taxes are sacrosanct?  A $1.6 trillion deficit means we are spending more than our income, so one just MIGHT think that problem can be approached from both ends.

How Much Should Congress Leave to the Regulators?

Filed Under (Environmental Policy, U.S. Fiscal Policy) by Don Fullerton on Feb 11, 2011

The very existence of the Environmental Protection Agency (EPA) has long been a point of contention between the two political parties.  What is, and what ought to be the role of the EPA with regard to policy making?  Congress cannot possibly enact laws that contain every detail about subsequent implementation, monitoring, and enforcement.  And they should not put everything in the law anyway, in order to allow enough flexibility to deal with future contingencies.  Besides, those in Congress don’t have the science background necessary to decide all of the details of some technological aspects of pollution prevention.

The law does not say that every electric power plant must reduce emissions of each pollutant to no more than some number, like 37 micrograms per cubic meter.  Instead, the law from Congress just says that EPA should protect human health to an adequate margin of safety.

Yet some would prefer that the EPA disappear, along with every agency having any regulatory power.  This agency, which was conceived in 1970 under Richard Nixon, has analyzed and supported some of the most important pieces of legislation of the last forty years, ranging from the Endangered Species Act to – more recently – the new emissions standards going into effect this year. 

In 2007, the United States Supreme Court ruled in a 5-4 decision called “Massachusetts vs. EPA”, that the EPA could in fact regulate greenhouse gases under the Clean Air Act, on the grounds that such emissions do affect human health.  When combined with the new Republican-dominated Congress, we have set the stage for yet another ideological battle. 

Throughout the past decade, much of the discussion about controlling carbon dioxide emissions has largely centered around the idea of Cap and Trade.  That system would effectively put a price on each unit of pollution emissions.  It would create a market where the need for emissions and the cost of emissions are balanced in a way that can achieve economic efficiency.  However, the most viable attempt at this in recent years, the Waxman-Markey bill of 2009 (H.R.5454), passed the House and not the Senate.  It would not even get past the House in this term.  

The question then becomes, what exactly are the cards that the EPA retains in their deck? 

A recent article is titled “Greenhouse Gas Regulation Under the Clean Air Act” by researchers at Resources for the Future (RFF, by Burtraw, Fraas, and Richardson).  It seeks to explore the options available to the EPA, in-depth.  What they find is that the EPA can implement measures that will reduce greenhouse gas emissions significantly in a measured and cost-effective manner.  For this to happen, however, they argue that the EPA must become bold and decisive in their actions. 

Bold action may be taken as an example of government overreach, and so the EPA must be careful.

Republicans are currently in discussion to introduce the Energy Tax Prevention Act of 2011 .  They recognize that the EPA holds some powerful cards after the Supreme Court ruling in 2007, and they want to take that power away.  This Act would shift the EPA’s ability to regulate from the Agency to the legislative branch.  Yet such an action could take any decision-making ability from the scientists and put it in the hands of the politicians.  As EPA leader Lisa Jackson said, “Politicians overruling scientists on a scientific question – that would become part of this committee’s legacy.’”  Herein lies a problem with democracy.  The people in charge of making the decisions that affect us all, often have little knowledge of the actual issues at hand.  After all, Republicans from oil-rich states like Oklahoma still claim global warming is nothing but a hoax.

If It’s Difficult, Then Let’s Just Not Do It?

Filed Under (U.S. Fiscal Policy) by Don Fullerton on Dec 17, 2010

Last week, when President Obama announced his compromise with Republicans over the Bush era tax cuts, the general perception throughout the media left one feeling like the Democrats just had their milk money stolen.  All the talk of being taken hostage by the Republicans did little to ease that feeling.  After working through all the talking points, politicking, and pandering, however, this much is clear: the debate has no obvious winners and losers.  Both sides are getting watered down versions of what they really wanted. The basic premise of the deal is as follows:

  1. The Bush era tax cuts are extended for everyone for the next two years. 
  2. Unemployment benefits are extended for 13 months. 
  3. The estate tax is back, in modified form. 
  4. Social Security taxes are cut for one year.

 The tax cut at the top may help the rich more than desired by Democrats, but then the extra Social  Security tax cut will help low-income families, and ALL those cuts will help stimulate the moribund economy.

The crux of the Republicans argument is that we are in danger of a double dip recession if the tax cuts expire, a talking point the White House has not been shy about echoing in recent days.  Interesting to note is a perceived contradiction by Republicans whereby they refuse to approve anything that might add to the national debt, such as the 9/11 Emergency Responders bill.  Yet, extending the tax cuts implies 3.9 trillion dollars in lost revenue over the next ten years.  The GOP counters that since the cuts are currently in effect, it’s not technically adding to the deficit. 

 What is missing from the equation here is any viable long term plan agreed upon by both parties.  Yes, we get to do it all again, in just two years!   The long term deficit can still be cut, but any meaningful cuts will have to include Medicaid, Social Security, and the military.  God speed the politician brave enough to raise those issues.  Our elected officials are really doing little more than pushing these problems off for the next 24 months, as one party attempts to out-politic the other.  It’s a Ponzi Scheme, as pointed out in my earlier blog!

 If the American Congress could tackle as many issues every month as they are through the month of December, American politics would look a lot different.  We have seen critical votes attempting to resolve critical issues ranging from the 9/11 Responders health care, Don’t Ask, Don’t Tell, and now the Bush era tax cuts, the estate tax, unemployment benefits extension, and more, all rolled into one.  If only Congress could exist as a permanent lame duck!