Some Light Evening Reading

| Fri Oct. 16, 2009 12:59 AM EDT

David Roberts emails with a challenge:

Kevin, I've been casting around trying to think of someone who's wonky enough that they might actually read or care about this post. You're my only hope!

You're on, pal.  How bad can this be, after all?  It's not like we're talking about quantum mechanics, are we?

No.  It's much worse.  David is writing about how the CBO does budget scoring for greenhouse gas legislation.  Holy cow.  But we're troupers around here.  The question is: why does increased efficiency, which is (ahem) by far the most efficient way of reducing energy use, get scored so poorly by the CBO?  The answer has to do with the fact that if you tax some part of the economy, that means less spending, which in turn means less taxable income and therefore less tax revenue.  So you don't really get the full benefit of the taxation.  But how much do you lose?

Rather than try to calculate that percentage for every piece of legislation and every set of taxed entities, the CBO [...] has settled on a standard number, which it applies across the board: 25%. So for every buck that’s raised via an indirect tax, a quarter is lost in direct taxes and only $0.75 can be slated for new spending....This revenue offset is colloquially known, by the tiny number of people who have reason to know such a thing colloquially, as the “25% CBO haircut.”

But that's just the start.  It turns out that if you spend the money on certain things you can avoid taking the haircut.  You get to use all 100% of the tax revenue.  Hooray!  Unfortunately it also turns out that tax cuts and tax breaks avoid the haircut but spending on things like state energy efficiency block grants gets the full hit.  And since members of Congress prefer to spend as much money as possible in their bills, they're biased against things that get the haircut.  Things like energy efficiency programs.

Which is a drag, since energy efficiency programs are just about the best use of federal dollars you can imagine.  To learn more — a lot more — click the link and read the whole post.  It counts for three points toward your budget geek certificate.

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