Saturday, August 24, 2019

Digital Sales Tax v. Tariffs on French Wine

Even before Donald Trump departed for the G7 in Biarritz France, he threatened another trade war this time with the host country over the digital sales tax:
U.S. President Donald Trump on Friday reiterated criticism of a French proposal to levy a tax aimed at big U.S. technology companies and threatened again to retaliate by taxing French wine. Speaking to reporters at the White House before leaving for a Group of Seven summit in France, Trump said he is not a “big fan” of tech companies but “those are great American companies and frankly I don’t want France going out and taxing our companies.” “And if they do that ... we’ll be taxing their wine like they’ve never seen before,” he said.
A tariff on French wine might help New York’s Finger Lake area as well as California wine makers so maybe Trump is hoping to win over California and New York in the 2020 election. Or maybe Trump does not know that some states impose digital sales taxes:
The sales tax laws have been updated to include digital goods and services in different ways across the different US states, and the application of these laws has been troublesome for most state and local governments. Quick Stats: There are 27 states that tax digital products. There are 23 states that do not tax digital products. 5 states do not have a retail sales tax at all; these include, Alaska, Delaware, Montana, New Hampshire and Oregon. For the states that tax digital products, the tax rate varies from 1% to 7%, depending upon the state and the type of digital good.
The push for a digital sales tax (DST) in Europe is discussed by the Congressional Research Service:
Several countries, primarily in Europe, and the European Commission have proposed or adopted taxes on revenue earned by multinational corporations (MNCs) in certain “digital economy” sectors from activities linked to the user-based activity of their residents. These proposals have generally been labeled as “digital services taxes” (DSTs). For example, beginning in 2019, Spain is imposing a DST of 3% on online advertising, online marketplaces, and data transfer service (i.e., revenue from sales of user activities) within Spain ... Proponents of DSTs argue that digital firms are “undertaxed.” This sentiment is driven in part by some high-profile tech companies that reduced the taxes they paid by assigning ownership of their income-producing intangible assets (e.g., patents, marketing, and trade secrets) to affiliate corporations in low-tax jurisdictions. Proponents of DSTs also argue that the countries imposing tax should be entitled to a share of profits earned by digital MNCs because of the “value” to these business models made by participation of their residents through their content, reviews, purchases, and other contributions. Critics of DSTs argue that the taxes target income or profits that would not otherwise be subject to taxation under generally accepted income tax principles. U.S. critics, in particular, see DSTs as an attempt to target U.S. tech companies, especially as minimum thresholds are high enough that only the largest digital MNCs (such as Google, Facebook, and Amazon) will be subject to these specific taxes. DSTs are structured as a selective tax on revenue (akin to an excise tax) and not as a tax on corporate profits.
Let’s take the Spanish affiliate of Google as an example. It currently retains very little corporate profits as most of Google’s profit ends up in tax free Bermuda via the old Double Irish Dutch Sandwich trick. Google’s consolidated profit margin is near 30% and I guess one could argue that the Spanish affiliate is entitled to 8% of this 30% although many transfer pricing practitioners might argue a local distribution affiliate deserve much lower profit margins. It all comes to do what are Google’s intangible assets and who owns them. Of course the IRS might argue that the U.S. parent owns the valuable intangible assets except for the fact that they made a deal with Google many years ago. Now it would be very odd to argue that Amazon-Spain deserves an 8% operating margin since Amazon’s consolidated margin is half of that. And of course Uber’s profit margin is negative as noted here:
Tax authorities in the United State and several other countries are investigating Uber, even though it's a loss company and therefore owes no income taxes.
The Congressional Research Service addresses these concerns:
Proponents of DSTs argue that profits earned by MNCs in the digital economy are not adequately taxed on a worldwide basis, as many of these firms have reduced their effective tax rates through international tax planning strategies…Critics of basing DSTs on this position could make several arguments. First, revenues lost from profit shifting are lost revenues to the country with the right to tax the corporation that owns the asset, not the country that is home to the corporation’s customers. Although many developed economies are concerned with ensuring that profits are taxed from their proper source under international tax laws, a country that imposes a DST on foreign MNCs’ income (in which they have no right to tax) is not consistent with the rationale of recouping revenue lost from the profit shifting practices of that country’s firms. Second, tax strategies enabling MNCs to pay little to no tax have been used by a broad array of firms that rely on intangible assets for the majority of their profits, and these firms are not limited to industries in the “digital economy.” ... Third, tax policies in a number of countries have recently changed or are scheduled to change in ways that will reduce incentives for profit shifting. These changes will most likely affect firms with the most aggressive profit-shifting strategies, including some digital economy firms ... Fourth, DST proposals are unlikely to affect profit-shifting behavior. As explained above, a tax on corporate profits, in a very general sense, taxes corporate income minus the costs of production. In contrast, DSTs are imposed on gross revenue derived from certain business activities (or “turnover”) and do not take into account costs or net profits earned by the taxable firm. Thus, economic incentives for MNCs to shift profits remain unchanged by DSTs as they do not affect profit-maximizing decisions at the margins.
All of this reminds me a lot of our discussions over the Destination Based Cash Flow Tax, which I criticized. Maybe DST is not the best way to deal with transfer pricing manipulation but Trump’s proposal to tax French wine strikes me as a very bad idea.

Thursday, August 22, 2019

Cheerleading for Austerity


Not content to follow a news strategy that maximizes Trump’s prospects for re-election, the New York Times leads today with a story that combines economic illiteracy and reactionary scaremongering in a preview of what we’re likely to see in the 2020 presidential race.

“Budget Deficit Is Set to Surge Past $1 Trillion” screams the headline, and the article throws around a mix of dollar estimates and vague statements about growth trends, leavened with quotes from budget scolds from both Republican and Democratic sides of the aisle.  (That shows balance, right?)  After terrorizing us with visions of a tide of red ink, the article concludes with a ray of sunshine in the form of prospects for a Grand Bargain under a lame duck Trump that would cut benefit programs like Social Security and Medicare to put us once again on a stable path.

Where to begin?  Should we start by mentioning that nowhere in this lead article does it give the single most relevant statistic, the ratio of the federal budget deficit to the size of the overall economy—the money part, GDP.  The raw size of the deficit itself is meaningless, and the trillion dollar line is meaningless squared.  As Dean Baker likes to say, the article shows its respect for our powers of thought by informing us the deficit is a Very Big Number.  Scared yet?

Measurement aside, the article simply assumes that “large” deficits are unsustainable and bad, and that only irresponsible political motives prevent action on them.  In the name of a nebulous, unspecified Evil of Debt, the population of the US must be subjected to a regime of austerity, beginning with cuts in the programs many depend on to keep themselves and family members out of poverty.  Worse, it opines, Democrats will run for office next year on a platform of spending increases, demonstrating they are the party of ruin.  We can only hope, goes the argument, that they are just saying these things to get votes from the gullible public, and once in power they will join the deficit-cutting crusade.

No reason is given for the assumed Evil of Debt, and it’s no surprise, since it’s based on ignorance, willful or otherwise.  To begin with, federal debt is denominated entirely in US dollars, so servicing is not a problem.  Countries that borrow in foreign currencies, like Greece (which had no control over the euro) and Argentina, can default; that’s not a problem for the US.  Second, government debt is private wealth, and the relevant question is whether there are too many or too few government bonds in private portfolios.  If private wealth holders are satiated with public debt and prefer other securities, it would be a problem.  But that would be a world in which interest rates on the debt would be high in order to sell them, and rates are about as low as they can go without flipping negative (as they have elsewhere).

Meanwhile, government debt is an injection of spending power into the economy that counterbalances the leakage of a significant, ongoing trade (and current account) deficit.  That’s not quite the right way to put it, since private and public net deficits, taken together, are the current account deficit.  Once you understand what this means, you can’t avoid the economic shrinkage—austerity—aspect of deficit-cutting, since that’s what keeps the identity identical at any point in time.  Of course, that doesn’t mean the government’s deficit is at the right level, just that the pluses and minuses of adjusting it have to be considered concretely.  Is it difficult to imagine that, at a time when interest rates are very low and the need for new infrastructure and other public investment is very high, that the current level of borrowing may well above that terrifying $1 trillion figure?

What we have today is just one article, by itself not very significant.  We have seen, however, that the drumbeat of repeated media misinformation can create a climate of opinion that makes idiotic policies appear reasonable; just look across the Atlantic at Brexit.  The time to expose ignorance and propaganda is always now.

Record Income Taxes?

I should read more posts from Kevin Drum:
The Yahoo News reporter comes close to explaining what happened by noting that there were more returns in 2018 than 2017. As you might guess, this happens every year as the US population increases. So let’s take a look at personal income tax receipts adjusted for inflation and population growth ... In reality, income tax receipts were down 2.6 percent in 2018 compared to 2017. What this means, unsurprisingly, is that when you cut tax rates you get less revenue. When you fail to account for things like inflation and population growth, nearly every year is an “all-time high.” But that’s meaningless.
Let’s turn to BEA Table 3.2. Federal Government Current Receipts and Expenditures. Personal current taxes (nominal) rose from $1613 billion in 2017 to $1620 billion in 2018 but current tax receipts fell from $2019 billion in 2017 to $1956 billion. You see our Yahoo News reporter was omitting the drop in corporate profits taxes which fell from $251 billion in 2017 to $147 billion in 2018. So even in nominal terms, we saw a decline in tax revenues. Kevin continues:
Someday our nation’s press is going to stop producing innumerate pieces on the economy and learn how to do simple adjustments that tell the real story of what’s going on.
Maybe our Yahoo News reporter can take this additional information on taxes and recast the absolute nominal figures into real per capita terms for us!

Wednesday, August 21, 2019

"Tougher On Trade Than Trump"?

This is how the NY Times has presented things day before yesterday, apparently lamenting that the Dem candidates are going to have a tough time presenting themselves as "tougher on trade than Trump."  This somehow presumes that this is what they must do to win the election, and at least one has been making virtually this claim: good old Bernie.  A few have mumbled vaguely about Trump hurting farmers in the Midwest, but not too loudly as it seems that hardly any of them have anything that can be called clear positions on the  trade issue. Really the only one so far more than Bernie is Elizabeth Warren, who at least is tying trade deals to strong environmental and labor conditions, including imposing border fees on other nations with lower taxes on carbon emissions than the US.  Of course, this is currently a bit farcical given that it is the US that generally has the lower such enforcement, although she is proposing to tighten that up.

Of course, Trump has gone all gonzo on the trade issue, having it both ways, if not more.  So he announced more tariffs on Chinese goods, bragging that the Chinese are paying these and that he is succeeding in hurting China more than Americans.  But then after the stock market took one of its largest dives a week ago after he made this announcement, and lots of commentators started predicting a recession, he delayed some of these until after the Christmas shopping season, suddenly apparently realizing that it is American consumers who actually pay the tariff.  His sudden fear of possible recession has even led to mumblings about possible new tax cuts, including even for fica payroll taxes, although this has since been denied.

This reminds me of one of the least remembered episodes from the Obama administration.  A part of the fiscal stimulus Obama engineered was a temporary fica payroll tax cut.  Curiously a few years later when he undid those cuts, the most eager supporters of reimposing the old higher tax rates were the GOP members of Congress, although they did not speechify about it.  But then, doing so would have made it clear how hypocritical all of their talk about never supporting tax increases was.

Barkley Rosser


Wednesday, August 14, 2019

Eco-Fascism Roundup

Below is a collection of essays written in the wake of the El Paso mass shooting and the alleged shooter's manifesto:

What is Eco-Fascism, the Ideology Behind Attacks in El Paso and Christchurch?
Luke Darby
GQ
@dukelarby

The Eco-Fascism of the El Paso Shooter Haunts the Techno-Optimism of the Left
Jesse Goldstein
Society + Space
@JesseGoldstn

Eco-Fascisms and Eco-Socialisms
Max Ajl
Verso Books
@ajl_max

After the El Paso Massacre, the Choice Is Green Socialism or Eco-Fascism
Jeet Heer
The Nation
@HeerJeet

El Paso Terrorism Suspect’s Alleged Manifesto Highlights Eco-Fascism’s Revival
Alexander C. Kaufman
HuffPost
@AlexCKaufman

Eco-Fascism: the Racist Theory That Inspired the El Paso and Christchurch Shooters
Tess Owen
Vice News
@misstessowen

Eco-fascism: The ideology marrying environmentalism and white supremacy thriving online
Sarah Manavis
New Statesman
@sarahmanavis

The El Paso Shooter Embraced Eco-Fascism. We Can’t Let the Far Right Co-Opt the Environmental Struggle.
Natasha Lennard
The Intercept
@natashalennard

To Fight Hate, Celebrate Capitalism
Jeffrey A. Tucker
American Institute for Economic Education
@jeffreyatucker

Goats and Dogs, Eco-Fascism and Liberal Taboos
Tom Walker (Sandwichman)
EconoSpeak
@sandwichman_eh

UPDATE:here are some more articles & essays

Why an Heiress Spent Her Fortune Trying to Keep Immigrants Out 
Nicholas Kulish and Mike McIntire
New York Times
@mmcintire
@nkulish

Eco-fascism: justifications of terrorist violence in the Christchurch mosque shooting and the El Paso shooting
Berhard Forchtner
Open Democracy
@openDemocracy

An alternative to the new wave of ecofascism
Micah White
Guardian
@beingMicahWhite

The Menace of Eco-Fascism
Matthew Phelan
New York Review Daily
@CBMDP
@NYRDaily

Nature writing’s fascist roots
Richard Smyth
New Statesman
@RSmythFreelance

Understanding the Alt-Right's Growing Fascination with 'Eco-Fascism'
By Tom Bennett
Vice News

Eco-fascism is undergoing a revival in the fetid culture of the extreme right
Jason Wilson
Guardian
@jason_a_w

Tuesday, August 13, 2019

Goats and Dogs, Eco-Fascism and Liberal Taboos

When remembered at all, Edward Abbey is mostly thought of as an environmentalist and anarchist but there is no gainsaying the racism and xenophobia on display in his 1983 essay, "Immigration and Liberal Taboos." The opinion piece was originally solicited by the New York Times, which ultimately declined to publish it -- or to pay him the customary kill fee. It was subsequently rejected by Harper's, The Atlantic, The New Republic, Rolling Stone, Newsweek, Mother Jones and Playboy before finally being published in the Phoenix New Times as “The Closing Door Policy.”

Various white nationalist blogs applaud what they view as Abbey's foresight and forthrightness regarding immigration, presumably oblivious to how those views relate to his ideas about wealth inequality, industrial development and authoritarianism. Conversely, Abbey fans on the left who seek to insulate his nature writing from the taint of his anti-immigrant bigotry ignore the way in which, as Michael Potts put it, "a xenophobic and racist image of the immigrant as pollution... map[s] cultural and ethnic prejudices on to an idealised landscape." (Dumping Grounds: Donald Trump, Edward Abbey and the Immigrant as Pollution) Abbey's admirers on both the right and the left thus resort either to blinkers or lame apologetic to redeem him for their political preferences.

My interpretation is that Abbey was a curmudgeon and contrarian whose intended target was liberal hypocrisy. Immigrants were merely "collateral damage" of his colorful diatribes. In the pursuit of being provocative, though, he revealed more than he bargained for about his prejudices. It is precisely this flawed complexity, though, that makes Abbey's writing a kind of Rosetta Stone for deciphering the dire social hieroglyphics of our time. Presumably, Abbey did not think of himself as racist. He was indignant when accused of racism. But the institutions of the society he grew up in transmit racism in their DNA.

Saturday, August 10, 2019

Have We Been Blocked?

I just tried to read Econospeak and was told it was blocked due to "porn content."  Has  anyone else run into this?  Are we being hacked and suppressed?  It said "contact system administrator if this is wrong." Can this get fixed, please, somebody?

As it is, I am on vacation in Door County, Wisconsin right now.

Barkley Rosser

Sunday, August 4, 2019

Krugman on Trump and Trade: Not Tariffic

I’m no fan of the Trump tariff tantrum, but weak criticism of it does no one a service.  And while I agree with Paul Krugman on a lot of things, he has a long history of being misguided on trade policy.  Alas, his op-ed in today’s New York Times continues the legacy of the Bad Krugman, not the good one.

Before getting to the theoretical meat, let’s take a moment to observe the holes in his argument that should have been identified and vetted before publication.

1. He cites a graphic from the Peterson Institute for International Economics that claims that Trump’s tariffs on Chinese goods have risen to 21.5% this month from 3.1% under Obama (under the Most Favored Nation provision).  Applied to $500 billion in imports from China, that comes to almost $100 billion more in tariff collections, right?  Not so fast.  He reproduces a FRED chart that shows tariff revenue rising by only about $35 billion during the same period.  He hedges a bit (“the revenue numbers don’t yet include the full range of Trump tariffs”) and then tries to squirm his way out of the evidence that US consumers aren’t really paying $100 billion more for these goods.  We’ll get to the squirm in a moment, but note that some portion of the tariff will be paid by Chinese producers in the form of lower prices to maintain market share, and the evidence suggests that this portion is much too great to simply handwave away.

2. The squirm is Krugman’s assertion that the missing tariff revenue can be partly explained by trade diversion, where some goods formerly supplied by China will now come to us from producers in other countries like Vietnam.  Here there are two problems.  First, trade diversion does not explain the missing tariff revenue, since we are still looking at $500 billion of Chinese exports to the US.  Second, it is wrong to assume, as Krugman apparently does, that the shift from Chinese to Vietnamese suppliers can be interpreted as a hidden tax on US purchasers—“instead of importing from China, we buy stuff from higher-cost sources like Vietnam”—since there a multiple reasons why Vietnam might be a less desired source than China at the same price, such as quality, delivery reliability or Chinese domestic content rules.  Yes, there might be some diminution in the satisfaction we get from substituting non-Chinese goods, but this is not a tax in the macroeconomic sense.

3. Finally, to the extent tariffs function like a tax on domestic consumers—and of course they do insofar as we pay them—they can be offset through fiscal expansion.  Krugman is right to snicker at the Trump tax cut, whose benefits mostly accrued to corporations, which in turn mostly used them to finance stock buybacks.  So far, so good.  But in principle we could institute other, more beneficial types of fiscal expansion; in fact, that’s a central pillar of the Green New Deal.  So the bottom line is that, while there is a modest fiscal drag from unproductive tariffs on Chinese goods, what makes this a macroeconomic problem is that there isn’t a corresponding fiscal lift from environmental and infrastructure spending.

Now on to the theoretical problem, which psychologically if not analytically drives everything else.  Krugman is a high priest of the doctrine that trade balances are caused by capital account balances, which in turn are caused by macroeconomic “fundamentals”.  You can read all about it in the textbook he coauthored with Maurice Obstfeld; it will set you back only $300.  (Not mainly PK’s fault, of course.)  It shows up in his op-ed when he says, “Trade balances are mainly about macroeconomics, not tariff policy. In particular, the persistent weakness of the Japanese and European economies, probably mainly the result of shrinking prime-age work forces, keeps the yen and the euro low and makes the U.S. less competitive.”

The theory that trade balances are determined by macroeconomic aggregates (via impacts on exchange rates) is as close to being objectively wrong as any in economics.  First, the trade balance, or more accurately, the current account balance, is not one thing which can cause or be caused by another thing called the capital account, which expresses differences in national savings and investment.  They are one identical thing, the country’s international position.  We are talking identities here, three little parallel lines (≡), not two (=).  It is essentially what economists call a general equilibrium problem, where what is to be determined is not this component or that but all of them simultaneously, much the way the demand for natural gas can’t be said to “cause” the demand for coal, or vice versa, but both are reflections of underlying factors.  Elsewhere I’ve laid out the evidence that, based on what we know about transmission mechanisms, there is no general dominance of “macro” factors over “micro” ones.

If you want to know why some countries like the US have trade (and current account) deficits year after year, while others, like Germany, China and the Scandinavian countries, have chronic surpluses, the places to turn are international political economy and the varieties of capitalism literature in sociology and political science.  That would give us an entirely different agenda for repositioning the US within the global division of labor and finance, not Trumpian but not Krugmanian either.

Friday, August 2, 2019

Barro’s Misstated Case for Federal Reserve Independence

I guess I should applaud Robert Barro for standing up for the independence of the Federal Reserve and hoping it can resist political pressure to lower interest rates too much. But there are two aspects of his case that strike me as silly to say the least starting with his opening sentence:
In the early 1980s, the chairman of the US Federal Reserve, Paul Volcker, was able to choke off runaway inflation because he was afforded the autonomy necessary to implement steep interest-rate hikes.
This statement glosses over the fact that we had a macroeconomic mess in 1982. This mess was in part to blame on an ill advised fiscal stimulus initiated the moment St. Reagan took office. But clearly the Federal Reserve overreacted. To be fair – Barro continues his magical history tour in a reasonable way until we get this absurdity:
one could infer the normal rate from the average federal funds rate over time. Between January 1986 and August 2008, it was 4.9%, and the average inflation rate was 2.5% (based on the deflator for personal consumption expenditure), meaning that the average real rate was 2.4%. The long-term normal real rate can be regarded as an emergent property of the real economy. From an investment and saving standpoint, economic equilibrium balances the benefit from a low safe real interest rate (which provides low-cost credit for investors) against the benefit from a high real rate (which implies higher returns for savers). In the Great Recession, the federal funds rate dropped precipitously, reaching essentially zero by the end of 2008. That was appropriate, owing to the depth of the crisis. But what few expected was that the federal funds rate would remain close to zero for so long, through the end of then-Fed Chair Ben Bernanke’s term in January 2014 and beyond.
While it is nice that one conservative economist has finally decided that the low interest rates policies during the Great Recession were appropriate and not the harbinger of hyperinflation, Barro seems to be saying the long-run real interest rate has been the same for the last 23 years. There has been a lot of research to suggest otherwise. Rather cite all of this research, let’s just check out the interest rate on the 10-Year Treasury Inflation-Indexed Security, which used to hover around 2 percent before the Great Recession but is now less than 0.3 percent. I agree with Barro that the Federal Reserve should resist Donald Trump’s push for significantly lower interest rates at this time but I also hope that the Federal Reserve resists the temptation to increase real interest rates as much as Barro’s devotion to some 23 year average would suggest.

A Serious Problem For Dems

It is that progressive Dems some time ago glommed onto the idea that protectionism is "progressive."  It has been going on so long and has become so ingrained that Bernie Sanders has been running around bragging about how he is more protectionist than Trump.  Elizabeth Warren has been a bit more subtle about it, calling to renegotiate all existing US trade agreements to make them super strong on labor and environmental standards.

The problem is that one of the biggest disasters of the Trump presidency has been his trade wars, now pushed further with his latest move to raise tariffs on another $300 billion in Chinese imports.  Stock markets and oil markets took huge dives all over the world on this.  The Fed has just cut interest rates to offset the negative effect on the world economy of Trump's trade wars.  Trump has delivered a big fat zero in terms of anything positive from his protectionist moves, and even industries that were crying for protection, such as steel and and autos, are now complaining about his trade wars.  And this has done a big fat zero for workers as well, whom supposedly our great "progressive protectionists" claim they are spouting their now completely irrelevant drivel.

This is going to be one of the biggest issues in the coming campaign, and while so far almost nobody is focusing on it, both Sanders and Warren are complete and totally worthless disasters on it.  I find this very frustrating given that on so many other issues they make a lot of sense.

Barkley Rosser

Thursday, August 1, 2019

Climate Equity: What Is It?

While action against climate change languishes, the rhetoric keeps getting more intense.  For several years now it hasn’t been enough to demand climate policy; we need climate justice.  We will not only eliminate fossil fuels in a decade or three, we will solve the problems of poverty and discrimination, and all in a single political package.  It sounds good, but what does it mean?

You might look for an answer in new legislation introduced by AOC and Kamala Harris, the Climate Equity Act.  As reported yesterday, it establishes a federal Office of Climate and Environmental Justice Accountability, whose job would be to evaluate all proposed regulations according to their impact on low income communities.  No doubt this would bring more attention to issues at the intersection of green politics and social justice, which is all to the good, but creating new layers of oversight still doesn’t answer the question, what is climate justice?

Is justice about taking care of, say, the bottom 20% of the income distribution?  The bottom half?  Some other number?  And what counts as an impact?

The first thing to notice is that, by limiting matters of justice to low income communities, the bill reinforces a politics that divides the world into the socially excluded, the poorest and most vulnerable, on the one hand and everyone else on the other.  The majority of voters are effectively enlisted as allies of those at the bottom.  This is the consequence of drawing the line where they do.  A very different politics was proposed by Occupy, placing 99% of us in one camp and the top 1% in the other.

The second thing is, again as reported, the bill does not specify what impacts are critical or what criteria should be applied to them; it is a plan to have a plan.  Presumably the justice accountability specialists will know how to do this, which is useful since, apparently, we are still debating it.

The limitations of AOC-Harris become clearer when you consider what the centerpiece of any meaningful climate policy has to be: suppressing the use of fossil fuels, which will entail putting a steep price on them.  (This can be done either with a permit system or taxes, quantity controls or price controls; permits are by far the better option.)  We are talking hundreds of dollars per metric ton of carbon, which translates to several dollars per gallon of gas at the pump and similar added costs for heating, electricity and other energy uses and sources.  Will this have a devastating effect on low income communities?  Absolutely, and it will be nearly as unbearable for everyone below the top fifth or so.  Fortunately, we also know the solution: rebate the carbon money back to the public, using the progressive formula of equal rebates to all households.  This approach does the best possible job of protecting the living standards of the majority of the population, at the same time assuaging, as much as any program can, the fears that might make a stringent carbon policy politically unattainable.

This is not everything a carbon policy has to do, but it is the one part that is non-optional.  It does not single out low income communities for protection, however, and one could argue that every dollar that goes to someone in the middle of the distribution in the form of a rebate is one less dollar for those near the bottom.  If climate justice is simply about that bottom tier, the politics of AOC-Harris are deeply misguided.  On the other hand, we can avoid a lot of superfluous bureaucracy by simply insisting that all, or close to all, carbon revenues be returned to those who pay them in higher energy prices, and that this be done according to a progressive formula like equal lump sums.  That would mean we would stop beating around the bush when it comes to identifying policy impacts and adopt a majoritarian conception of social justice.

Incidentally, the article accepts as proven that low income communities “are disproportionately affected by climate change because they are often in flood zones, near highways or power plants, or adjacent to polluted lands known as brownfields.”  Not really.  It is true that the poor are always more vulnerable to any social or environmental disruption because they can’t afford to prepare for or escape it, but climate change is pretty close to an equal opportunity ravager.  Low elevation land can be at greater risk, as it was with Katrina, but sea level rise particularly endangers coastal property—typically higher end—while forest fires are an existential threat to the high income homeowners who have chosen to nestle their getaways in what they thought would be sylvan paradises.  The real social justice concerns about climate change are global: the truly vulnerable are those living in tropical regions subject to extreme heat, drought and flooding risks, and more violent storms.  I’d love to see legislation that takes that moral emergency seriously.