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Popular Media As the COVID-19 pandemic rolls on, leaving death and economic destruction in its wake, governments around the world have responded with massive ‘stimulus’ programs funded . . .
As the COVID-19 pandemic rolls on, leaving death and economic destruction in its wake, governments around the world have responded with massive ‘stimulus’ programs funded by issuing debt. Many governments, including the US, UK, and most EU governments now have debt: GDP ratios that exceed 100 per cent. Unless economic growth rebounds rapidly, the repayment of this debt is likely to become a major burden.
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Regulatory Comments Emission trading programs have the potential dramatically to reduce the costs of abating pollution. When such programs are well designed, they can reduce abatement costs . . .
Emission trading programs have the potential dramatically to reduce the costs of abating pollution. When such programs are well designed, they can reduce abatement costs by as much as 50%.
Most emission trading programs address local ambient air pollution. As such, problems associated with the harmful redistribution of pollution from one place to another are relatively easy to address through the application of simple rules, such as an absolute cap on emissions in a certain location. Some greenhouse gases (GHGs), such as carbon dioxide (CO2), are not local pollutants and so do not justify such local restrictions. However, there is at present no global system in place that would cap GHG emissions. As a result, jurisdictions that impose local caps on GHG emissions may experience a shift in economic activity, as large emitters of GHGs choose to relocate their activities to jurisdictions with less onerous restrictions on GHG emissions. This is called “carbon leakage”. While carbon leakage may potentially lead to increased CO2 emissions, excessive measures to prevent its occurrence may be worse than the disease they are intended to cure
State aid rules are designed to promote competition within the EU. Historically, the EU has granted exemptions to state aid rules for certain measures that are intended to mitigate the potential for carbon leakage. Unfortunately, previous exemptions have contributed to a weakening of the functioning of the EU Emission Trading System (ETS) and likely contributed to its near-collapse on at least two occasions.
The current exemptions terminate at the end of December 2020. This comment evaluates the proposal to establish new exemptions to state aid rules after the current exemptions terminate. We find that, in their current form, the proposed new guidelines would permit Member States to grant state aid (in the form of free ETS allowances) that would ultimately be deleterious to its stated goals of reducing European CO2 emissions. Furthermore, the draft guidelines leave too much room for protectionist subsidies and the distortion of competition between electricity producers.
Popular Media To fill an anticipated $876 million budget hole in the 2019-21 biennium, the Oregon Health Authority is pursuing a $300 million increase in taxes on tobacco products, . . .
To fill an anticipated $876 million budget hole in the 2019-21 biennium, the Oregon Health Authority is pursuing a $300 million increase in taxes on tobacco products, including e-cigarettes and other vapor products. The agency has not provided any indication what an e-cigarette tax would look like, which invites the question whether e-cigarettes and other vapor products should be taxed at all and, if so, at what rate?
ICLE White Paper ICLE has released a white paper entitled Vapor products, harm reduction, and taxation: Principles, evidence and a research agenda, authored by ICLE Chief Economist, Eric Fruits.
More than 20 countries have introduced taxation on e-cigarettes and other vapor products. In the United States, several states and local jurisdictions have enacted e-cigarette taxes.
Most of the harm from smoking is caused by the inhalation of toxicants released through the combustion of tobacco. Non-combustible nicotine de-livery systems, including e-cigarettes, “heat-not-burn” products, smokeless tobacco and other nicotine delivery systems, are generally considered to be significantly less harmful than combustible cigarettes.
Policymakers face a wide range of strategies regarding the taxation of va-por products. On the one hand, principles of harm reduction suggest vapor products should face no taxes or low taxes relative to conventional ciga-rettes, to guide consumers toward a safer alternative to smoking. On the other hand, the precautionary principle as well as principles of tax equity point toward the taxation of vapor products at rates similar to conventional cigarettes.
Analysis of tax policy issues is complicated by divergent—and sometimes obscured—intentions of such policies. Some policymakers claim that the objective of taxing nicotine products is to reduce nicotine consumption. Other policymakers indicate the objective is to raise revenues to support government spending. Often missed in the policy discussion is the effect of fiscal policies on innovation and the development and commercialization of harm-reducing products. Also, often missed are the consequences for cur-rent consumers of nicotine products, including smokers seeking to quit us-ing harmful conventional cigarettes.
Policy decisions regarding taxation of vapor products should consider both long-term fiscal effects, as well as broader economic and welfare effects. These effects might (or might not) suggest very different tax policies to those that have been enacted or are under consideration.
Our research concludes the economics of harm reduction with respect to vapor products is an area in need of reliable empirical research.
Principles of harm reduction recognize that every proposal has uncertain outcomes as well as potential spillovers and unforeseen consequences. Nev-ertheless, the basic principle of harm reduction is a focus on safer rather than safe. Policymakers must make their decisions weighing the expected benefits and expected costs. With such high risks and costs associated with cigarette and other combustible use, taxes and regulations must be devel-oped in an environment of uncertainty and with an eye toward a net reduc-tion in harm, rather than an unattainable goal of zero harm.
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TOTM The Economist takes on “sin taxes” in a recent article, “‘Sin’ taxes—eg, on tobacco—are less efficient than they look.” The article has several lessons for policy makers eyeing taxes on e-cigarettes and other vapor products. Historically, taxes had the key purpose of raising revenues. The “best” taxes would be on goods with few substitutes (i.e., inelastic demand) and on goods deemed to be luxuries.
The Economist takes on “sin taxes” in a recent article, “‘Sin’ taxes—eg, on tobacco—are less efficient than they look.” The article has several lessons for policy makers eyeing taxes on e-cigarettes and other vapor products.
TOTM On November 3rd, the president of the United States spoke at the Hotel Lowry in St. Paul, Minnesota, in what was billed repeatedly as a . . .
On November 3rd, the president of the United States spoke at the Hotel Lowry in St. Paul, Minnesota, in what was billed repeatedly as a bi-partisan address. The president ridiculed reactionaries in Congress who he claimed represented the wealthy and the powerful, and whose “theory seems to be that if these groups are prosperous, they will pass along some of their prosperity to the rest of us.” The president drew a direct line between prosperity and increased “fairness” in the distribution of wealth: “We know that the country will achieve economic stability and progress only if the benefits of our production are widely distributed among all its citizens.” The president then laid out an ambitious agenda focused on creating jobs, improving education, expanding health care, and ensuring equal rights for all.
TOTM An interesting story in the WSJ Online today about American International Group (AIG)’s use of a standard tax write-off and the political firestorm it is . . .
An interesting story in the WSJ Online today about American International Group (AIG)’s use of a standard tax write-off and the political firestorm it is creating…all because the Washington establishment thought it could hide behind semantics during the bailout era.
Read the full piece here.
Popular Media A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares. The rule, part of a broader . . .
A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares. The rule, part of a broader “passengers’ bill of rights”-type regulation promulgated by the Department of Transportation, is being sold as a proconsumer mandate: It purportedly protects consumers from the sticker shock that results when they learn that the true consumer price for a flight, due to taxes and mandatory fees, is much higher than the advertised price.
But how consumer-friendly is this rule? Won’t it be easier to raise taxes and fees when they aren’t presented as a line item, when consumers aren’t “startled” to see the exorbitant amount they’re paying for government services? Value-added taxes (VATs), which tax the incremental value added at each stage of production and are generally included in the posted price for an item, have proven easier to raise than sales taxes, which are added at the register. That’s because the latter are more visible so that increases are more likely to generate political opposition. While VATs are common throughout Europe, they’re virtually non-existent in the United States, in part because we Americans have recognized the important role “tax sticker shock” plays in creating political accountability.
Consumer advocates, nevertheless, are lauding the new Department of Transportation rule. They don’t seem to realize that higher taxes are bad for consumers and that taxes are more likely to rise when the government can hide them. They also seem to care little about consumer sovereignty. Don’t consumers have a right to know how much they’re paying to have scads of Homeland Security officers bark orders at them and gawk at their privates?
Filed under: advertising, consumer protection, regulation, taxes
Popular Media Free lunches are hard to turn down for a city staring into the fiscal abyss. As it faces dwindling revenues and the increased demand for public services that usually accompanies a recession, Philadelphia, like most other U.S. cities, is looking for new ways to make a buck.
Free lunches are hard to turn down for a city staring into the fiscal abyss. As it faces dwindling revenues and the increased demand for public services that usually accompanies a recession, Philadelphia, like most other U.S. cities, is looking for new ways to make a buck. However, with unemployment above 10 percent and a fear of providing even more excuses for businesses and more-affluent residents to flee for the suburbs, the city is not inclined to hike income and property taxes.
Spurred by this bleak outlook, Mayor Michael Nutter, like politicians in New York, California, and a host of other places, has hit upon an ingenious idea. Given that, among its other problems, Philadelphia is wrestling with a growing obesity epidemic, why not kill two birds with one stone and tax sodas? While taxing cheesesteaks or Tastykakes might lead to protests up and down Broad Street, a few additional cents’ tax on each soda sold in the city holds the prospect of expanding the budget while trimming waistlines.
This double-dividend argument has been used before by public finance scholars in other contexts, from fossil fuels to alcohol. While almost all taxes are problematic because, in the process of raising revenues, they discourage a desirable activity, taxing “bad” activities supposedly generates cash flow while discouraging the underlying activity.
Unfortunately, like many free lunches, the health benefit from a soda tax is a mirage. Not only is the tax unlikely to generate much revenue as soda drinkers substitute away from the sugary beverages, most of the evidence suggests that they will substitute toward consuming other foods and beverages that are just as bad or worse for their health.
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