NAFTA 2.0 Will Benefit the Digital Economy

The United States, Canada, and Mexico are set to be free of digital trade barriers, and that deserves a thumbs-up emoji. On September 30th, after more than a year of intense negotiations, a last-minute trade deal was reached to replace the longstanding North American Free Trade Agreement (NAFTA) with the United States-Mexico-Canada Agreement (USMCA). The new agreement – informally dubbed “NAFTA 2.0” – includes major changes to trade in the automotive and dairy industries, while leaving wheat and grain industries largely unchanged. While we have all been closely watching the fate of cars, cows, and corn, what has evaded the headlines is something significant: the digital fingerprints left on our computers and other devices. Whenever we make an online purchase, post on Facebook, or type a query into Google’s search engine, we are creating new digital information which then travels across computers around the globe in what is known as cross-border data flows.

Data is the New Dairy

Brand new in NAFTA 2.0 is a chapter on digital trade which emphasizes free trade principles for the digital world. The addition of this chapter was uncontroversial among the three players, but not inconsequential. The original NAFTA took effect in 1994, preceding the modern Internet. Today, more than half of the world’s population is online, and in 2015 the global electronic commerce market amounted to $22.1 trillion according to the United Nations Conference on Trade and Development, making the Internet economy the globe’s fifth largest economy. Cross-border data flow is integral to how the Internet works — without it, the Internet as we know it would cease to exist. Data is the currency of the Internet economy. For example, Facebook provides services to its users for “free” in exchange for personal information which is then packaged in meaningful ways for advertisers – creating value for all parties. Since these data exchanges either directly or indirectly become linked to commercial activity, they are “traded.” While trade in goods has flattened since 2010, cross-border data flow has been skyrocketing, contributing more to global GDP than trade in manufactured goods.

NAFTA 2.0 Commits to Free Trade in the Internet Economy

The digital trade chapter puts a hard stop to protectionist data measures — trade barriers that attempt to restrict cross-border data flow — in favor of a market liberalism approach to digital trade. The parties agreed not to place customs duties on digital products, not to restrict cross-border data flows, and not to require companies operating in their respective territories to use or build local data servers. The chapter also prohibits governments from requiring companies to disclose proprietary information such as computer source code. All of these provisions favor digital innovation.

Proponents of data protectionism point to concerns over personal information privacy and cybersecurity. It is unlikely that far-reaching data protectionist measures can mitigate those concerns. Requiring data to be stored on servers within a country increases costs and stifles competition while undermining security and privacy since local providers typically lack the expertise of global providers. On the other hand, restricting cross-border data flow reduces public access to information. An extreme example is China’s Great Firewall, which blocks certain websites, including Facebook and Google.

The digital trade chapter also includes safeguards intended to protect public interests. The agreement calls on each country to adopt domestic legal protections for personal information and allows for exceptions to free digital trade to meet public policy objectives such as blocking data flow for national security reasons. The language in the agreement is vague, however, and it is not clear what level of privacy and consumer protection it requires of each country. Currently, the United States has no baseline federal data protection law, while Canada and Mexico have more comprehensive legal protections. Despite some loose threads, the digital trade chapter could set a global standard for future trade agreements.

A Win For Whom?

Some argue that the free flow of data will disproportionately benefit the U.S. economy as it is home to 11 of the 15 leading Internet companies. That may be true, but digital free trade is still a net benefit for all three countries. Mexico has been gaining steam in the app development economy, while Canada is establishing itself as a leader in artificial intelligence. Unimpeded data flows are invaluable for innovation in the tech sector. A 2016 study by the McKinsey Global Institute found that 86% of tech-based startups rely on cross-border data flow. Free trade in the digital space is a win-win-win for North America, and NAFTA 2.0 delivers those wins.

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Three Cheers for Autonomous Vehicle Policy Guidance v3.0

Yesterday, the Department of Transportation (DOT) released the third version of its guidance for the autonomous vehicle industry. In its write-up of the release, The Verge said the plan is “intended to open the floodgates for fully driverless cars.” Autonomous vehicles will be a boon to safety and efficiency in our largest transportation sector. We welcome the deluge.

The changes in guidance likely have the most significant implications for the trucking industry, as noted by Bloomberg:

The U.S. Transportation Department has given a boost to companies working on automated long-haul trucks, saying an artificial intelligence system could constitute a “driver” under federal trucking rules in a bid to ease barriers to the technology.

Long-haul trucking represents some of the lowest-hanging fruit for automation because highway driving is relatively easy for artificial intelligence, boring for humans, and costly for trucking companies (given the labor costs).

In its guidance, the DOT also signaled that it is willing to preempt state and local laws to create a consistent regulatory environment for autonomous vehicles. Given that automotive transportation is almost inherently interjurisdictional, it is critical for the federal government to prevent a patchwork of regulations from stifling innovation and slowing the development of this breakthrough technology.

Among the most promising inclusions in the guidance, the DOT explicitly notes that it will no longer assume that the driver of a vehicle is a human (or that a human is even present onboard). This is a welcome development, and one that the Niskanen Center emphasized in recent comments to the National Highway Traffic Safety Administration (NHTSA). In particular, we argued that while “the definition of a vehicle ‘operator’ or ‘driver’ needs to be updated to reflect non-human operations in an autonomous vehicle,” NHTSA will also need to consider how it intends to define the scope of what constitutes a non-human operator.

Settling on a clear technical definition of, for example, an artificial intelligence, neural network, or machine-learning algorithm capable of safely and effectively operating a motor vehicle is no small task. Nonetheless, this definition will undoubtedly be a cornerstone of any future regulatory regime governing this technology’s deployment, and will likely be the deciding factor in whether and how autonomous vehicles can be successfully integrated on American roadways.

Luckily, this new guidance also lays a strategic roadmap for how the DOT plans on addressing some of these questions, beginning with the clear need to update legacy regulations that pose a barrier to the research, testing, and ultimate deployment of these systems. For example, the new guidance announced a number of forthcoming rulemakings, including one that would consider how to exempt autonomous vehicles from certain standards that only apply to human-operated vehicles.

The guidance also drops the 10 self-drive car sites picked by the Obama administration and expands the pilot program more broadly (mimicking the Trump administration’s drone pilot program). Given the potential of this technology to prevent tens of thousands of deaths each year, we applaud the administration’s push to accelerate testing nationwide.

This clear and non-binding guidance from DOT is a paradigmatic example of the “soft law” governance approach we have championed for all emerging technologies. As we concluded in our regulatory comments submitted to the Department of Transportation earlier this year:

Autonomous vehicles are no longer the purview of science fiction; their advent is rapidly approaching. The sooner we can begin clearing the roadblocks to their deployment, the sooner all Americans can benefit from safer streets.

With the release of updated guidance on how the DOT intends to treat autonomous vehicles, we are one step closer to that safer, more autonomous future.

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from nicholemhearn digest https://niskanencenter.org/blog/three-cheers-for-autonomous-vehicle-policy-guidance-v3-0/

Visa Overstay Analysis

A nonimmigrant lawfully admitted to the United States for an authorized period of time, but who stays in the U.S. beyond the authorized period, has “overstayed” their visa. Should a nonimmigrant fail to maintain their status as a specific nonimmigrant—like dropping out of college—that person is also considered an overstay. Customs and Border Patrol (CBP) maintain all the arrival and departure information of foreign nationals using border crossing and carrier data—it is a complex system of databases that analyzes and cross-references significant amounts of information.

Nonimmigrants who overstay their visas complicate our immigration system. Even though the incidence of overstay is fairly rare, it compromises the integrity of our system. Foreigners participating by way of the Visa Waiver Program (VWP), which allows citizens of 38 countries to travel to the U.S. for business or tourism without a visa, often makes it even more difficult to determine whether individuals left the country, are illegally violating the terms of their entry, or whether they are in the process of or recently completed a lawful extension of their stay in the United States.

To understand the incidence of overstays, and the potential impacts of legislation attempting to curb overstays, read our analysis here.

Note: this information was compiled and presented by Niskanen interns Vanessa Meraz and Meghna Choudhary.

 

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Suppose Democrats win on Medicare for All. What then?

Medicare for All has become a core campaign issue for Democratic candidates this year. They just might win with it. The concept polls well. According to recent data from the Kaiser Family Foundation, 59 percent of Americans say they favor “having a national health plan, or Medicare-for-all, in which all Americans would get their insurance from a single government plan.”

But, suppose the dog catches the bus. What then? Adam Green, co-founder of the Progressive Change Campaign Committee, points out that one of the things that makes Medicare for All work so well as a campaign slogan is its “pleasant ambiguity.” For some, it means a comprehensive plan like that proposed by Bernie Sanders (overview, draft legislation), in which everyone would get first-dollar coverage from a single government agency. For others, it means something much more modest, like adding a government option, modeled on Medicare, for people who buy health insurance on the Affordable Care Act exchanges. For still others, it means something in between.

Sooner or later, Democrats are going to have to start thinking about how to implement Medicare for All if they win. Fortunately, there is a practical and affordable way of doing so that would protect everyone from ruinous medical bills, ensure that everyone pays their fair share, and makes health care transparent, efficient, and consumer-friendly. Read on.

What we can we learn from other countries?

Many supporters of universal health care seem to think that all we Americans need to do is copy the kind of single-payer system that other rich democratic countries already have. There is an element of truth to that. In many ways, U.S. health care falls far short of what other countries provide. In fact, an often-cited international comparison from the Commonwealth Fund, summarized in the following chart, places the United States dead last among 1111 high-income countries in terms of health care performance in spite of the fact that we spend a lot more than anyone else.

What’s going on here? Is there something that the health care systems of all those other countries have in common, something that we can learn from? Yes. Is that something a single-payer model like the Sanders version of Medicare for All? Not really.

Let’s look at a few examples, starting with the best. The Commonwealth Fund assigns the highest performance ranking among the 11 systems covered in its survey to the British National Health Service (NHS). The NHS provides a wide range of services without charge. Many doctors, but not all, are NHS employees, and many, but not all, clinics and hospitals are owned by the government. However, the NHS is not a pure single-payer system.

For one thing, the NHS is much less centralized than many Americans realize. Its English, Scottish, Welsh, and Northern Irish services operate with considerable autonomy. Within the English NHS, administration and policy are further decentralized into more than a hundred NHS Trusts. Furthermore, the NHS does not pay for everything for everyone. For example, it requires most people to make copayments for prescription drugs and dental care, although charges are waived for people who cannot afford them. The U.K. also has a small but flourishing private health care sector that caters to people who choose not to use the NHS. All in all, the government pays 79 percent of all per-capita health care expenses — much more than in the United States, but only the twelfth-highest percentage among the countries shown in the next chart.

Australia, ranked second-highest in performance by the Commonwealth Fund, has a different kind of system. The Australian federal government provides much of the financing, but it plays a more limited role than the British NHS in the actual delivery of services. Additional funding comes from state governments, which are responsible for public hospitals, ambulance services, mental health, and some other services. Local governments provide community and preventive health services. Out-of-pocket payments account for 18 percent of total health care spending. Nearly half of the population has supplemental private insurance to help cover deductibles and copays, and to get shorter waiting times and a greater choice among providers. Government at all levels covers 68 percent of total health care spending.

The Netherlands, ranked third by the Commonwealth Fund, has a different system still. It covers about the same share of total health care costs as the U.K., but it is even more decentralized. Rather than having a single national insurance fund, the Dutch system relies on mandatory purchase of private health insurance. Coverage and premiums of the private policies are closely regulated. Tax-financed subsidies keep premiums low, but some services are subject to deductibles and copays. Additional subsidies are available to people with low incomes, so that coverage is kept affordable for everyone. Most people also purchase supplemental insurance to cover items not in the basic package (dentistry, eyeglasses, and contraceptives, among others), and also to cover deductibles and copays.

The other countries covered by the Commonwealth study use variants or hybrids of the three models represented by the U.K., Australia, and the Netherlands. (See this useful site for detailed national profiles.) None of them has a true single-payer system, whether we use that term to mean one that centralizes health care finance in a single government entity or one that covers all costs for everyone.

So, if not a single-payer model, what do other countries have in common that earns them such high ratings? The answer is, they all have universal affordable access to basic health care. Universal affordable access, then, is the goal that we should focus on if we want America to join the club. Once we commit to that, we are ready to think about designing a system that borrows from the best practices of others while recognizing unique American circumstances.

Paying a fair share

Let’s start with the need for everyone to pay a fair share. Committing to universal affordable access necessarily means committing to a system in which the rich pay more than the poor, but not one that makes every household responsible for all its own members’ medical expenses. Even if health problems were distributed randomly, many poor households and some in the middle class would experience medical expenses that exceeded their entire incomes. The fact that people with lower incomes tend to have more health problems makes the problem of affordability even worse.

Private insurance is not enough, by itself, to solve the problem. Too many health conditions are commercially uninsurable. Insurability requires that risks be due to unpredictable chance, but lifetime care for chronic conditions like diabetes and risks determined by genetic factors are not unpredictable. Actuarially fair premiums for such pre-existing conditions would bankrupt the insured, while lower-than-actuarially-fair premiums would bankrupt the insurers.

One way to handle the problem of uninsurability is to redistribute the burden of health care costs through taxation. For example, the Sanders version of Medicare for All envisions a 6.2 percent tax on employers, a 2.2 percent income-based premium for individuals, increased personal income tax rates for high-income households, and higher taxes on dividends and capital gains.

The tax-based approach is conceptually workable, but it is not the only option, or the best one. An alternative, universal catastrophic coverage (UCC), uses income-based deductibles, rather than new taxes. UCC interprets the principle that everyone should pay a fair share, but not more, to mean that people should never have to forgo medical services because they cannot afford them, but when they can, they should pitch in.

Universal catastrophic coverage is entirely consistent with the overall concept of Medicare for All. Under a UCC version of that plan, everyone would automatically be issued a policy similar to a conventional Medicare or Medicare Advantage policy, with no premium required. For families below a designated low-income threshold, for whom almost any medical expenses would be unaffordable, the deductible would be set at zero. For others, the deductible would be set as a percentage of eligible income, that is, of the amount by which household income exceeds the low-income threshold. For everyone, regardless of income, deductibles would be waived on a package of basic primary and preventive services, such as prenatal care and childhood vaccinations.

For example, suppose the low-income threshold were set at the federal poverty level, currently about $25,000 for a family of four, and the deductible at 10 percent of eligible income. In that case, a family with income of $25,000 or less would have first-dollar coverage with no deductible. A middle-class family with $75,000 of income would have a deductible of $5,000, comparable to the out-of-pocket costs of an ACA silver plan (but without the monthly premium). A wealthy family with an annual income of $1 million would have a deductible of $97,500, which they might decide to cover, in part, with some form of supplemental insurance.

Medicare for All with income-based deductibles would still require a substantial amount of financial support from the federal government. However, careful cost analysis suggests that such a program could be fully funded using money that the federal government already spends on health care through the ACA, Medicaid, conventional Medicare, and the tax expenditures that subsidize employer-sponsored insurance. No new taxes would be required at the federal level. States could choose to sweeten the basic federal program with their own funds if they wanted, for example, by raising the low-income threshold above the federal poverty level or by reducing deductibles.

Which way is better?

In principle, the tax formulas of a Sanders-type Medicare for All plan and the parameters of a UCC version (that is, the low-income threshold and deductibles) could be tweaked to produce exactly the same average burden on households at each level of income. In that sense, neither version is inherently more “progressive” than the other. However, even if the two plans distributed the burden of health care costs the same way among income groups, there are two reasons to prefer the UCC approach.

One is that using deductibles rather than taxes to achieve a fair distribution of the economic burden of health care would help to control administrative costs, which are one of the major factors dragging down the performance of the U.S. system in the Commonwealth study. A plan like Sanders’ would have to collect billions of dollars in taxes from wealthy Americans and would then give a large part of that right back to them in the form of health care benefits more generous than those found anywhere else in the world. Doing that would be a colossal waste of administrative efforts.

Taxation is, notoriously, a “leaky bucket.” Administrative costs both of collecting taxes and of disbursing proceeds mean that the net burdens of tax-financed programs are always greater than their effective benefits. Taking into account indirect economic effects, such as the possible adverse effects of new taxes on jobs and wages, makes the picture even less favorable. It is best to limit taxpayer financing to public services that cannot reasonably be paid for any other way. Essential health care for the poor and protection against catastrophic medical bills for the rest fall into that category. Routine health care expenses for financially secure families do not.

Income-based deductibles would further save administrative costs by simplifying the payment process. Until a family meets its deductible, it pays the provider for care directly. UCC authorities only need to get a copy of the bill in order to keep a tally of the family’s progress toward meeting its deductible. The government gets directly involved in payments only after the deductible is met. The extra staffing that doctors and hospitals now need to deal with multiple insurers, each with its own unique administrative requirements, would be greatly reduced.

Incentives for greater transparency and more careful health care shopping are a second point in favor of deductibles. Consider, for example, the case of MRIs, as discussed in an article in Health Affairs by Sze-jung Wu and associates. The study notes that the cost of an MRI can vary from as little as $300 to as much as $3,000 within a given area, with prices tending to be higher at hospitals than at free-standing imaging centers. The authors report the results of a real-world controlled experiment in which some patients participated in a price transparency program that allowed them to compare various imaging providers in their area. The study found that patients in the price transparency program spent significantly less per MRI than those in the control group. The experiment also observed a tendency for high-cost providers to reduce their prices in areas where the transparency program was operative.

Even under a UCC version of Medicare for All, not everyone would be responsive to economic incentives. Some people who needed an MRI or other procedure would have low incomes and no deductibles; some would have already met their deductibles or would expect to meet them regardless; some would be too stressed by their health problems to shop around; and some might simply not care. However, much the same can be said about transparency and price incentives in a supermarket. Not everyone shops carefully for breakfast cereal, but for every shopper who just reaches for their favorite brand, another carefully compares the price-per-ounce tags and looks for items on sale. Even if comparison shoppers are a minority, their behavior puts competitive pressure on cereal makers to keep prices down. Indirectly, that benefits even the grab-the-nearest-box types.

Although market incentives would help keep prices down, they might not be enough in themselves. They would work better if a Medicare for All plan, whatever its form, included a full range of administrative cost control measures. For example, plan administrators could encourage “bundled payments,” so that providers would get a set amount, say, for a knee replacement rather than billing separately for each X-ray and saline bag. They could require providers to post prices in an easily searched format and supplement the price data with information on quality. They could encourage the use of nonphysician providers for cases that do not require the full skills of an M.D. They could implement reforms that reduced incentives for practicing wasteful defensive medicine. They could use their purchasing power to bargain for favorable prices from drug companies. The list of possible cost control measures goes on and on.

Looking beyond the campaign

As we said at the outset, Medicare for All could play well for Democrats. During the campaign season, the “pleasant ambiguity” of the idea could actually be an advantage. Votes are more likely to turn on the broad goal of affordable access to health care for everyone than on wonky administrative details and program parameters.

Behind the scenes, though, someone is going to have to think ahead. Viewed pragmatically, rather than as a campaign slogan, a comprehensive, single-payer version of Medicare for All has its drawbacks. Taxing the rich and then giving them back their money in lavish health benefits is administratively inefficient. Full first-dollar coverage for everyone would mean that regulatory measures alone would bear the full burden of cost control, without the added push of market incentives. The new taxes required to fund single-payer legislation would create daunting political hurdles.

Those drawbacks are among the reasons that no other country has a true first-dollar, single-payer health care system. The plain fact is that implementing something like the Sanders version of Medicare for All would not mean learning from the experience of other countries, but rather, rejecting their experience.

Many policy analysts on the left also recognize these realities. For example, the influential Center for American Progress has recently released its own detailed health care plan, which it calls Medicare Extra for All. The CAP’s plan aims to take the best features of Sanders’ version and give them a more realistic financial foundation. Medicare Extra differs in several respects from the UCC-type plan we have described here, but there are also substantial similarities, including a guarantee of full first-dollar coverage to people with low incomes and a sliding scale of deductibles and other out-of-pocket payments for those who can afford them. (See this earlier post for a full side-by-side comparison.)

By all means, then, candidates should campaign on Medicare for All, with all of its “pleasant ambiguities,” if that is what it takes to win elections. Then, when it comes time to turn slogans into policy, focus on the pragmatic goals of protecting everyone agai

from nicholemhearn digest https://niskanencenter.org/blog/democrats-medicare-for-all-what-then/

Assessing a “social wealth fund” with Samuel Hammond and Maha Rafi Atal

In the latest episode of Bloggingheads, I sit down with Maha Rafi Atal of the Copenhagen Business School to discuss the rise of socialist rhetoric in the Democratic Party, including new proposals for “co-determination” and the creation of a “social wealth fund.”

A big part of the current debate comes down the the distinction between “democratic socialism” and “social democracy.” As I point out, they may share many vowels and consonants in common but nonetheless represent very different visions of society. In a recent essay for National Review magazine, I explain the distinction this way:

The intra-socialist squabble du jour is illuminating as an example of what the economist Thomas Schelling called the “Titanic puzzle.” Schelling ex­plains (apocryphally) that the Titanic had only enough lifeboats for first- and second-class passengers. As a condition of their less-expensive tickets, steerage passengers were expected to go down with the ship. So when the unsinkable ship sank, the story goes, so did its poorest passengers — to the outrage of anyone with even mild egalitarian intuitions. (In reality, the rule was “women and children first,” and steerage happened to be mostly men. The patriarchy strikes again.)

According to Schelling, no egalitarian intuition is elicited when two different boats, with different fares, offer different levels of safety. It occurs only when the differential is within one boat. This poses a problem for egalitarians, who must somehow reconcile the “macro” equality of society as a whole with the “micro” inequality within any given organization. Thus if your goal is to flatten the organizational structure of every firm, it may come at the expense of efficiency and wealth creation that could be used to equalize incomes at an even higher level. Which bullet one chooses to bite is one way to understand the democratic-socialist/social-democratic divide.

In other words, I see social democrats (and market liberals like myself) as taking seriously the productivity trade-off that comes with the democratic socialist impulse to flatten inequalities within firms, whether it be through co-determination or, more radically, a worker-cooperative / syndicalist model. Instead, I argue the whole point of a shareholder corporation is to take advantage of certain, internal, efficiency-enhancing management hierarchies (In Ronald Coase’s words, the firm is an island of efficient command and control). To the extent that this drives greater productivity, the economic pie becomes bigger for funding broad based social programs that address society-wide inequalities after the fact, and at a much higher general standard of living.

Some of the links mentioned in the video include:

• MP3 of Maha and Sam’s 2009 Apollo Project diavlog
• The infamous Bloggingchefs episode
• Kevin D. Williamson’s piece, “‘Socialist’ Is the New ‘Libertarian’”
• Will Wilkinson’s piece, ““Socialism” vs. “capitalism” is a false dichotomy”
• Sam’s paper, “The Free-Market Welfare State”
• Matt Bruenig’s social wealth fund proposal
• Sam on Elizabeth Warren’s bill
• Mike Konczal on social wealth funds

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from nicholemhearn digest https://niskanencenter.org/blog/assessing-a-social-wealth-fund-with-samuel-hammond-and-maha-rafi-atal/

Why Republicans Should Lead on Carbon Pricing: A Response to Steve Forbes

In July, Representative Carlos Curbelo introduced the Market Choice Act (MCA), which would replace the federal gas tax as the main revenue source for highway infrastructure spending with a carbon tax.The proposed carbon tax would raise more revenue than today’s gas tax, while also reducing annual greenhouse gas emissions more than President Barack Obama’s Clean Power Plan and other potential regulations. Moreover, the MCA institutes a 12-year moratorium on EPA greenhouse gas regulations on power plants and industrial facilities. For its environmental ambition and innovative approach, the bill received praise both from environmental groups and a diverse array of American businesses, including large industrial emitters and fossil fuel companies.

Yet some conservative activists have criticized the MCA, describing it as a costly new tax. One of the most recent high-profile conservative voices of dissent came from Steve Forbes in an op-ed he wrote for The Hill. In the piece Forbes argues that Republican support for the measure betrays explanation, claiming that  it will be costly to consumers, hurt the economy, grant too much authority to the EPA, and open the door for future malfeasance from Democrats. Because Forbes’s arguments are a thorough overview of the reasoning behind conservative opposition to the MCA, they are worth addressing. While he makes some fair points, his critique is also rife with inaccuracies and misunderstandings.

Costly New Tax

Using modeling of the bill from Columbia University, Forbes points out that this new tax will increase gas prices by about 10 cents, even as the federal gas tax is eliminated. While the modeling shows that price increase will fade away over time as demand changes, consumers will pay more for fossil-fuel energy under a carbon tax. Columbia’s modeling indicates that per capita energy spending would increase less than 10 percent by 2030 ($186-278 per capita), which would keep energy expenditures well below their historic highs from a decade ago.

Now, remember that the MCA is offered as a means of increasing federal funding for infrastructure (which is why 70 percent of revenue is dedicated to the highway trust fund). Politicians on both sides of the aisle agree that we need to fix infrastructure and find a permanent revenue source for the highway trust fund. And with rapidly accumulating federal debt, the idea that we may need to raise some new revenue to fund infrastructure is widely accepted.

To meet our infrastructure needs, conservative leaders have already proposed that we increase fuel taxes. Bill Schuster, the retiring Chairman of the House Transportation and Infrastructure Committee recommends that we increase the federal gas tax by 15 cents a gallon. The U.S. Chamber of Commerce has suggested an increase of 25 cents a gallon. Both of these proposals would increase prices at the pump more than the MCA. Instead of simply increasing the gas tax, the MCA replaces it with a tax that has a broader base, larger environmental benefits, and inflation indexing. While Mr. Forbes may not see the merit in that approach, he fails to suggest any method for paying for the infrastructure improvements that leaders on both sides of the aisle agree are necessary.

Economic Disaster

Forbes also argues that the MCA is a new tax that will slow economic growth, and that “this would be a surefire way to severely jeopardize our economic revival. It would crimp the American energy boom and raise energy prices.” While it is true that taxes aren’t free, just how much of a threat the MCA would be to the economic recovery is a question that requires sober analysis.   

The same study that Forbes cites for gas price increases includes estimates of the MCA’s effect on GDP. Over the first 10 years the carbon tax is collected, GDP is reduced by a relatively constant 0.1-0.2 percent. Importantly, the negative effect of the tax doesn’t grow in time. So, while there is a significant, but small cost, the MCA would hardly halt economic growth.

Forbes presents the MCA as a counter to the recent tax cuts, which offer a point of comparison to gauge the prospective effect of the MCA. The same macroeconomic model used by the Columbia-Rice group (the D-Z model) was one of the three used by the Joint Committee on Taxation to evaluate the effects of the recently-passed tax reform. They reported that the tax cuts would increase GDP an average of 0.8 points over 10 years. So the best apples-to-apples comparison that we can make would have the MCA erode less than a quarter of the additional growth from last year’s tax cuts.

Increased energy production is a part of the current economic boom, and the geopolitical implications of the United States becoming a net exporter of energy should not be dismissed. But the MCA, will not, as Mr. Forbes would have it, crimp the energy boom. The energy boom came about because of improvements in development technology, which lowered the costs at which U.S. producers could supply oil and gas to the market. So while there has been a 70 percent increase in domestic oil production since 2010 (and a 30 percent increase in gas production), there has been little or no increase in domestic energy consumption over the last 8 years. The energy boom has mostly led to increased energy exports, which the MCA does not tax.

In contrast, a carbon tax is a demand-side policy that uses prices to let consumers know about the emissions associated with their activities. Some will choose to pay the tax, others will shift to alternatives. Thus the Columbia modeling predicts a shift to cleaner sources of energy (wind, solar, and renewable gas), but similar levels of energy production. The only major change is a further decline in coal burning, which would fall to half of today’s amount by 2030. But coal production has not been, and is not predicted to be, part of America’s energy boom.

Forbes is also concerned with the border adjustments in the MCA, which place import duties on certain goods and rebate the carbon tax for certain exports. Yet claiming that the MCA “would serve as a national sales tax that would automatically increase prices for countless consumer products we use and rely on every day, such as food and clothing,” is simply incorrect. The border adjustment applies to goods that are carbon intensive—meaning that the carbon tax increases cost of their manufacture by more than five percent of the total value of the good produced in the United States. Neither food nor clothing would be subject to a border tax, because they are not carbon intensive goods. Instead the border adjustment would apply to products like iron ore, aluminum, and cement, because producing those products involves a significant amount of greenhouse gas emissions.

Uncontrolled EPA Authority

Forbes also mistakenly says that pricing the emissions from heavy industry amounts to industry targeting, and grants the EPA unprecedented new powers. In fact, if the MCA were to pass, Congress would be exercising its authority to levy taxes, collected by the Treasury, with EPA carrying out a limited and technical ministerial job.

The MCA raises taxes on 20 manufacturing sectors that emit significant amounts of greenhouse gases as a byproduct of their production processes. Only large facilities in sectors with total emissions greater than 250,000 metric tons annually (about what 53,000 cars emit in a year), are subject to the emissions tax. For the 20 sectors named in the bill, such facilities already report their emissions to the EPA. EPA can add new sources of significant greenhouse gas emissions to the tax scheme that are otherwise not specified by this legislation, but only if they meet the significance threshold specified in the Act. Likewise, EPA must remove sources if their emissions decrease below that threshold. To take either of these actions, EPA has to do a rulemaking with all of the attendant comment periods and legal challenges. With such clear, easily measurable, and verifiable conditions, Congress is not giving EPA carte blanche to tax American industry.

A slippery slope

The last concern Forbes brings up is that supporting a carbon tax is opening the door to future malfeasance to liberal congresses and Presidents. The analogy he uses to demonstrate his point—that this bill is akin to homeowners being forced to post notices on their doors and online with instructions for thieves on how to disable their alarm systems—demonstrates a basic lack of understanding the entire purpose of a carbon tax. Carbon emissions are an externality. A carbon price is the homeowner’s sign saying “either keep out or pay me to come in.” The violation of rights here is being perpetrated by the emitters and it is totally fair that the polluter pays.

That a future Congress might change the tax rates or allocation of revenue from a carbon tax is no more a risk than a future Congress raising any other tax or making any other spending decision. And it is one that the MCA recognizes and answers by asking that a series of trade-offs be made and renegotiated and reauthorized after 10 years. If carbon pricing exceeds our hopes for reducing emissions, Republicans can come back then to carve out further regulatory concessions and reauthorize spending as they see fit. If Congressional priorities change, then the carbon revenue can be devoted to making tax cuts permanent, servicing debt, or other productive ends.

Why?

Forbes concludes with a question addressed to the sponsors of the MCA: “Why would you willingly inflict bigger government, more taxes and higher energy costs on your constituents? Voters in your districts might well be asking the same question come November 6.”

It really should be no mystery as to why these Republicans would stake out a leadership position on carbon pricing. First of all, the near-term costs of doing so are outweighed by long-term benefits from emissions reductions. For a review on how the economic costs of halting greenhouse gas emissions pale in comparison to the economic risks of unabated climate change, see this article from my colleague Jerry Taylor, on the conservative case for a carbon tax. A big part of the conservative case for a carbon tax is that the effectiveness of the tax in reducing emissions gives ample justification to halt EPA regulations, creating business certainty and real regulatory reform, as in the Market Choice Act.

It is also very likely the politically smart thing to do. Two of the co-sponsors represent Southern Florida, where the sea level rise that will come from unmitigated climate change is an existential threat. The other co-sponsor is from a Congressional district where 68 percent of people believe fossil fuel companies should pay a carbon tax—a level of support untied to the revenue replacing the gas tax or supporting transportation funding. Staking out a clear, authoritative position early helps position the bill’s supporters as central figures in future policy discussions and, in their case, offers a credible response to climate risks that will reduce regulatory burdens and accomplish more near-term political goals than what has been offered by Democrats. Mr. Forbes should follow their lead.

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from nicholemhearn digest https://niskanencenter.org/blog/why-republicans-should-lead-on-carbon-pricing-a-response-to-steve-forbes/

Codifying “Soft Law” Governance in Statute

Today, Sen. Brian Schatz (D-HI) and Sen. Cory Gardner (R-CO) introduced their “AI in Government Act of 2018” (AIGA). The bill would authorize the creation of an Emerging Technology Policy Lab (ETPL) under the authority of the General Services Administration, with the twin goals of (1) advising on, and promoting, the use of emerging technologies within the federal government and (2) improving the government’s “cohesion and competency” in the use of, and rulemaking aimed at governing, emerging technologies. In an age of hyper-partisan political brinkmanship, this bill is a refreshing breath of fresh bipartisan air.  

Bills that attempt to tackle the many complex and difficult issues issues related to emerging technologies – such as autonomous vehicles and artificial intelligence (AI) – very often take on an amorphous character, providing little in the way of discernible, concrete steps towards action. While some may claim the AIGA fits that nature, it is actually a far more monumental and noteworthy proposal than many will give it credit for. The reason? This legislation would, in many important respects, codify some of the most crucial elements of “soft law” governance in emerging technologies – an important issue that the Niskanen Center has repeatedly emphasized as the defining system of how emerging technologies are currently, and should continue to be, governed in the Digital Age.

The AIGA codifies the essential features of a soft law governance doctrine – prioritizing multistakeholder engagement, housing those deliberative assemblies under the auspices of a non-rulemaking agency (which incentivizes industry to participate with government and civil society without the fear of threats or preemptive regulatory action), and offering pathways for providing recommendations that could, if necessity requires, materialize as best practices and other “soft criteria.” This multistakeholder approach is further strengthened by the inclusion of a provision that calls for explicit coordination with the Office of Management and Budget and Office of Science and Technology Policy. By prioritizing multistakeholder engagement among a wide and diverse assortment of actors, this legislation provides a market-friendly governance platform for discussion and collaboration without championing an overly-restrictive or precautionary approach to addressing the challenges facing the emerging technology ecosystem.

As described in the legislation, the ETPL will act as the emerging technology-focused multistakeholder-organizing body – of individuals from industry, government, the academy, nonprofits, and civil society – that has been so sorely lacking in the regulatory ecosystem. In this role, ETPL is also specifically tasked to work “with industry to improve the leadership of industry in emerging technology,” and ensure the American technology sector is able “to compete successfully in international markets.” Thus, the AIGA embraces not only the underlying tenets of soft law governance practices, but the basic principles of the 1997 Framework for Global Electronic Commerce, which – as the Niskanen Center has been emphasizing for many years – helped lay the policy foundation upon which the Internet was able to flourish.

In short, the AIGA is precisely the type of soft law platform America needs for the Digital Age.

By strengthening the government’s role as one of collaboration and coordination, the AIGA provides an effective platform for multistakeholder engagement on the broad scope of emerging technologies that promise untold benefits for the American economy and society. Because these benefits will be realized, first and foremost, by innovators and startups in the technology industry, it is appropriate that the ETPL provides the opportunity for government and civil society to work with industry to ensure America remains the world leader in innovation and technological progress.

The Niskanen Center applauds Sens. Schatz and Gardner for this forward-looking, bipartisan legislation.

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from nicholemhearn digest https://niskanencenter.org/blog/codifying-soft-law-governance-in-statute/