I agree with Mark and Mike that CAFE standards are a terrible tool for the goal of reducing global warming. Global warming is caused by burning carbon-based fuels. Therefore, you want to make burning those fuels more expensive. The simplest way to do so, and the way that also raises money for public programs, is a tax on carbon. Period. CAFE standards are silly, Rube Goldberg device. They encourage car companies to produce cars for which, because they don’t effect the cost of gasoline, there is no market. Raising the cost of gas, through a carbon charge, creates a market. This is Econ 101.
CAFE standards have a single virtue, and that is political. Carbon taxes are highly traceable, in the sense that the pain that citizens feel can be easily traced back to its original cause, which is discrete votes by lawmakers. Politicians don’t like hurting people when their decisions are traceable, and they avoid doing so whenever possible. Hence, their solution is CAFE standards, which, precisely because they have a Rube Goldberg structure, make tracing negative effects to their legislative cause difficult if not impossible. (try figuring out the negative campaign ad related to them and you’ll get the idea).
If you want to impose taxes in ways politicians find palatable, you have two choices. First, you can make the traceability chains between the tax and the ultimate pain more complicated and thus harder to pin on individual politicians’ decisions. VAT, which ends up hidden in the costs of goods and services, is one such tax (which is why in Europe it’s almost 20%). The other strategy is “linkage”: connecting the tax directly to a highly visible and valuable benefit. We impose large taxes on Social Security, but so far as I know no one has been voted out of office for increasing them (at least not directly) because they’re connected to SS benefits, and increases can be explained as necessary to protect the program.
I am against, with every fiber of my being, Mark’s well-meaning but wrong suggestion of using a carbon tax to pay for Social Security, while scrapping the payroll tax. My posting below not withstanding, Social Security basically works, as is, both politically and in policy terms. It’s the largest and most effective program of social insurance we’ve got. I’m enough of a temperamental conservative not to want to screw with things that work. There are changes we can make basically within the parameters of the program to make it more progressive and ensure its fiscal balance (like increasing the cap on taxable earnings). Leave it alone.
On the other hand, as I suggest below, the obvious next step in expanding social insurance is universal health care. There’s a case where we don’t already have an obvious funding source to pay for social insurance, and we need one. Current budget rules dictate that a funding source will have to be identified (even if we think that, over time, a universal, national program will slow the growth in health care spending). Attaching a carbon tax to universal health care both solves the revenue problem with expanding health care, and the political problem associated with imposing a new tax (by linking it to a highly visible and valued benefit). There is still a political risk here, but it’s more reasonable than trying to sell the carbon tax on its own, or raising some other tax not linked to a high-profile public problem (global warming).
The only problem I can see with this is that the tax and the benefit are pretty remotely linked (there’s really no connection between the two problems, so it looks a little jerry-rigged). Also, if the carbon tax works, the revenue from it will go down over time. That’s why you don’t want to make it the sole revenue source for universal health care. But Medicare isn’t purely funded out of the tax that’s on your pay stub, but people still have a sense that the taxes and benefits are somehow connected.
Any buyers?
NOTE: All the traceability chains stuff above rips off Douglas Arnold’s monumentally brilliant Logic of Congressional Action, which should be mandatory reading for everyone, but especially people in public policy programs. Everyone should follow the link and buy it.
Yes, we need universal health care. It is criminal we dont have it yet. If prevention is the focus it will be very much cheaper than the way we have it now.
You are vastly underestimating the effects of corporate inertia, corporate push-back, and customer lock-in. To wit: General Motors has and has had for 20 years the ability to build vehicles that get better fuel economy. One of the reasons they have not is the feedback loop between customers who think their preferences are entrenched and constituencies within the corporate behemoth (somewhat less behemoth-y these days for sure). This lock in makes it impossible for even the most brutal division manager or CEO to force the kind of change he knows is needed for the long term.
CAFE, and emissions laws, actually help the managers who want change by giving them an external club to smash down the pushback. "Increase the fuel economy or we will both end up in jail" actually can work to cut through corporate politics.
Look at Honda vs. GM in 1980. The Big 3 deployed exactly these same arguments against CAFE and the Clean Air Act. Honda just shut up and got to work building more efficient cars and engines. I loved my 1976 Oldsmobile, but I doubt I would let my kids drive one today. And the kicker is my Ford Fusion has more horsepower, better performance, and _vastly_ better fuel economy than that "Rocket 350". A large part of the reason for that is the club of laws, not the varying incentives of gas prices.
Cranky
PS I also think the US needs a gas tax that goes up $0.05 every other month for 5 years, possibly with a rebate mechanism for the poor.
I appreciate your desire to keep the SS program intact, and the legitimate concern that major changes could break it. Still, you're pretty much writing off all sorts of relevant facts:
The tax, which is one of the largest now in the budget, is our most regressive. Furthermore, payrolls are really about the last thing you want to tax, since payroll taxes lower wages directly when they don't kill jobs outright.
The tax at this point is largely being used to finance tax cuts for the very rich, rather than for SS. That's outright criminal. But it's the reality.
If we don't do something about carbon emissions, there's a substantial probability of a global economic meltdown that will imperil SS, as one of the less significant results.
"I am against, with every fiber of my being, Mark's well-meaning but wrong suggestion of using a carbon tax to pay for Social Security, while scrapping the payroll tax. My posting below not withstanding, Social Security basically works, as is, both politically and in policy terms. It's the largest and most effective program of social insurance we've got. I'm enough of a temperamental conservative not to want to screw with things that work. There are changes we can make basically within the parameters of the program to make it more progressive and ensure its fiscal balance (like increasing the cap on taxable earnings). Leave it alone."
Leave the payroll tax alone? Please, no! As Alex points out, the payroll tax is extremely regressive, and, frankly, unfair. (That my boss and I will pay roughly the same in marginal taxes on our next raise, even though he makes $75k more than I do, rankles me badly.)
As a funding source for universal health insurance why not use the funds that are already paying for American health insurance, corporate coffers. Unless one feels that a government system would be less efficient then the current for profit insurance scam (which would require rejecting all evidence from Medicaid, Medicare, and the VA medical system) it would be possible to do this with an increase in corporate taxes significantly lower than the savings businesses which currently offer benefits would reap. Businesses which don't offer benefits would be hurt but a little bit of pain for them isn't the biggest issue for me. Add in the savings both to corporations and individuals by eliminating the Medicare portion of payroll taxes (and this would be a nice time to increase the social security take to cover the funding issue, people could still be left with a bit more in their pocket at the end of the day)
Corporations save money, people save money; politically this is a win-win. Off course a single segment of the economy is wiped out but if the HMO's can't adapt to the changing global environment in which the US health care system hurts US competitiveness well then that's the way the market crumbles