Category: Energy and Climate

Charles Schwab’s Wall Street Journal oped today highlights the negative impact that uncertainty has on investment.  The ACCF has been making this very case for years. The business community continues to face uncertainty on an unusually large number of fronts. For example, the implementation of health care, financial reform legislation and the unknown cost of complying with various EPA regulations all add complexity to business plans for hiring and investment. In fact, gross private domestic investment was down by $345 billion in the second quarter of 2011, relative to the fourth quarter of 2007. Recent historical data show that each $1 billion dollar decrease in investment is associated with a loss of 15,500 jobs in the U.S and vice versa. Weakness in European markets and uncertainty about how the EU will handle the countries unable to meet their debt obligations is a further source of uncertainty; one quarter of U.S. exports currently go to Europe. See my February 2011 testimony for the House Committee on Energy and Commerce on the impact of the uncertainty stemming from EPA’s  greenhouse gas regulations on U.S. investment and job growth.

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The cost to administer EPA’s Greenhouse Gas regulations will be staggering if the Tailoring Rule is not upheld according to the agency’s own estimates. The cost of administrative paperwork alone will be nearly $23 billion per year and the agency will require the hiring of 230,000 new government employees to produce 1.4 billion work hours for paper work and permit reviews.  However, even if the Tailoring  Rule is upheld, there are substantial negative impact  on  U.S. jobs and GDP growth as I highlighted in my February  2011 testimony before the House Subcommittee on Energy and Power.

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The slow market for plug-in electric vehicles has reached global proportions…literally.  An article in today’s Financial Times highlights the struggles that electric vehicles are seeing in China: Whatever the outcome of the debate, industry analysts say Beijing has been disappointed by slow progress toward developing a domestic electric vehicle industry. China’s highest profile electric vehicle maker, BYD – which is backed by Warren Buffett – has repeatedly delayed plans to commercialise and export its electric vehicles. Government subsidies of up to Rmb60,000 ($9,370) for pure electric vehicles and Rmb50,000 for plug-in hybrids are already available in five Chinese cities on a trial basis, but very few buyers have taken them up. There’s little surprise here when you consider the many deficiencies of the heavily subsidized plug-in electric vehicle market in the U.S.  You can read my recent Wall Street Journal op-ed on it here.

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Warren Buffet is wrong on economic impact of higher capital gains rates. According to research by respected economist Dr. Allen Sinai, lower tax rates on capital gains had an important role in the post-2001 U.S. economic expansion. Sinai also notes the harsh economic consequences that the U.S. could face if rates are increased : Raising the top individual capital gains tax rate from the current 15% to 20%, 28% or 50%, reduces growth in real GDP, lowers employment and productivity and, ex-post, or after feedback, negatively affects the federal budget deficit. For example, at a 20% capital gains rate compared with the current 15%, real economic growth falls by an average of 0.05 percentage points per annum and jobs decline by an average of 231,000 a year.  At a 28% rate, economic growth declines by 0.10 percentage points and the economy loses an average of 602,000 jobs yearly.  When the capital gains tax rate is increased to 50%, real GDP growth declines by an average of 0.3 percentage points per year and there are an average 1,628,000 fewer jobs per annum. Buffet is also wrong when he says that higher capital gains rates won’t have a bearing on investment.  In the…

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