Suggestion for Progressive Policymakers

July 5, 2009

Right now, two major agenda items are in front of the U.S. Congress: health care reform and cap-and-trade. Those on the left of the political aisle (progressives) are seeking policies that would promote greater access to health care for many in America, while also trying to combat what they believe is a major problem: climate change.

But the current cap-and-trade bill (Waxman-Markey) is terrible. Even if you believe global warming is a problem, Waxman-Markey is a ridiculous way of trying to combat it. The biggest problem is the amount of giveaways in the bill. Over 80 percent of the emissions permits are just given away. That could end up leaving about $80 billion on the table per year. That’s $80 billion that could be raised with little economic distortion.

Now move over to health care. Democrats in Congress are looking everywhere for revenue…soda taxes, higher taxes on alcohol, limiting deductions for high income people, you name it. They just want money to finance their goal of universal health care.

Which brings me to this suggestion for the progressives in Congress. Instead of giving away $80 billion in permits per year, why not use that as a significant down payment on your health care agenda? And then if you believe that these revenue levels from carbon permits will not be around forever, gradually eliminate (or limit) the exclusion of employer-provided health insurance by say not indexing a $20,000 threshold for inflation. This would reduce many of the transitional effects of imposing greater limitations on the current exclusion.

This is not a first-best policy scenario in my view as I don’t necessarily agree with all the initial assumptions, but it’s better than anything that I have seen proposed by either Congress or the administration. It’s better from an economic efficiency perspective, and it’s probably even better from the point of view of most progressives. The only parties that wouldn’t like this I guess are the special interests seeking protection for their industries from cap-and-trade taxes.


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