Common Tragedies

Thoughts on Environmental Economics

Today’s best person in the world: Peter Orszag

Posted by Rich Sweeney on April 24, 2008

Today the Director of the CBO is testifying before the Senate Finance Committee on the implications of a cap and trade program. In addition to the full testimony, you can read Orszag’s summary comments on the CBO blog. As I read them, two points stood out.

First, Orszag says that the CBO believes a tax is generally more efficient than a cap because of its flexibility. We’ve already debated this issue too much. I’m merely pointing this out to chalk Orszag up in the pro-tax column on the proverbial scoreboard.

The real bombshell comes in the final paragraph:

CBO has concluded that the federal budget should record the value of allowances that are given away by the government if the recipients of the allowances could readily convert them into cash. In particular, the budget should record the value of those allowances, when they are distributed, as both revenues and outlays. That procedure, which CBO has already applied in its estimates for S. 2191, underscores that giving away allowances is economically equivalent to auctioning the allowances and then dedicating the proceeds to the recipients.

It’s one thing for economists and eco-bloggers to point out the reality of pass-through. It’s quite another for the CBO to recommend codifying it in the calculation of the federal budget. This is going to be controversial on the Hill, but if anyone can explain it simply and convincingly to Congress its Orszag.

Today’s best person in the world: Peter Orszag.

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