Power And Dollar

Gore finally made the endorsement to obama.  At about the same time, obama WSJ published their interview with obama regarding the other half of the fiscal policy, the spending side.  WSJ’s article does not capture everything Obama has in his website.  But then, WSJ’s responsibility is to synthesize the information, not to copy and paste.

WSJ highlights Obama’s $150B spending.  The source of the funding comes from the cap and trade energy auction.  The price of energy of course will go up.  No one has produced figures on how much the gas, heating gas and electricity will cost with this tax revenue source.  However, the tax revenue is expected to rebate back to the consumers’ utility bills.  If we assume the 300 million Americans are all eligible for this rebate, then each gets $500 back.  If we assume only the 100 million American tax filers are eligible, then it is $1,500 each.  

This has not figured in the program admin cost.  My usual figure is 1/6 of the total amount is program admin cost, i.e. $25B of the $150B.

Obama can achieve the same goal without incurring new program admin cost.  Instead of incurring new program admin cost, Obama can increase the personal exempt.  $1,500 in utility bill rebate is equivalent to $15,000 increase in tax exemption.  And this is not only about taxes, but also about strengthening his cause for energy independence.  Here is why.

When there is a rebate to the utility bill, the consumer needs to consume a certain amount of utilities, be it gas, heating gas or electricity.  Therefore, the incentive to modify energy usage is at best unchanged.  Consumers will be less mindful of usage simply because they may think they will get some money back.  The price after rebate maybe unchanged and if that were the case, then it is simply a job creation program for more civil servants.  All these unintended consequences are defeating the purpose of minimizing energy consumption and energy reliance on fossil fuel, foreign dependence and minimizing trade deficit.  

However, if the cap and trade revenue is refunded through income tax exemption, then the incentive to save energy consumption is stronger.  The tax refund can now be recycled into the discretionary income.  One may pay down his mortgage debt or buy another bicycle.  But having a rebate on the utility bill requires a consumer to consume a certain amount of energy.  Obama already refuses to cut corporate tax and chooses to cut personal income tax exactly because his platform is focusing (knowingly or not) on lifting domestic aggregate demand. 

Fiscal expansion policy does lift domestic aggregate demand.  However, an increase in aggregate demand by a single decision maker is not as effective as having the increase decided by the consumers themselves.  There is an efficiency issue.  And it is also a democratic issue.  Who is to say what is wanted by whom?