Nice to see Tom Friedman on the energy tax bandwagon. As he wrote in his Dec. 27 New York Times column, “I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal—i.e., a tax—and there are no effective ones.”
Friedman needs to give his cranium a holiday break. Policymakers have been searching for this magic bullet for years, without success. They’ve tried government-mandated (CAFE) auto mileage standards, tax credits for the use of everything from hybrid cars to low-E windows, massive government subsidies for production of alternative fuels and sincere pep-talks from sweater-clad Presidents. Nothing has worked. Take a look at this chart from the Energy Information Agency:

For a little holiday cheer—or maybe not—here are revised lyrics for “My Favorite Things” that I wrote for the Urban Institute holiday party.

I’ve been reading up on the Great Depression (never say those of us at TPC don’t know how to have fun) and am struck by one overriding thought: Even with the benefit of 80 years of hindsight, economists still can’t agree on either what went wrong or how the economy got back on track.
There is an important lesson here. Famously impatient, Americans not only expect government to fix today’s economic crisis, they demand it. Barack Obama, I suspect, will have about a year to turn things around before the public turns on him. Yet, if we still don’t know what happened in 1929, how can we expect policymakers to truly understand—and correctly address—events happening in real time today?

“Poor little Rhode Island, smallest of the 48” goes the old song, whose lyrics give away its age. The Ocean state is suffering from a 9.3 percent unemployment rate, almost as high as its 9.7 percent peak in 1982. That’s second only to Michigan and has much the same causes, according to a Washington Post article.

No.
The New York Times suddenly discovered a study by Fed economist, Hui Shan, which they think reveals a new cause for the housing bubble. Shan's study found that a 1997 tax change allowing capital-gains-tax-free sales of homes (up to $500,000 of gains for couples and $250,000 for singles) increased housing sales. The Times concluded that this change might have contributed to the housing bubble by increasing the demand for owner-occupied housing. They tell the story of an investor who repeatedly bought homes, lived in them for the required two years, and then sold them at a tax-free profit, and inferred from this anecdote that this was a significant part of the bubble.

George Bush just spent $13.4 billion of your money to kick the automaker mess into the Obama Administration. Funny how easily so many billions slip through our fingers these days.
Seemingly unable to decide whether to let Chrysler and GM reorganize in bankruptcy or engineer a full-blown government bailout of the deeply troubled automakers, President Bush tried to split the difference. He is offering a $17.4 billion loan–$13.4 billion upfront and another $4 billion in February. The deal is filled with demands for cosmetic concessions such as limits on executive comp and corporate jets—none of which are financially meaningful in any way. The White House calls this a loan, but don’t count on a dime ever being repaid.

States have reported worsening budgetary situations for months now and governors, faced with annual balanced budget requirements, have ordered repeated rounds of fiscal belt tightening. On Monday, a New York Times story revealed another symptom of states’ financial problems: the depletion of funds to pay unemployment compensation.

There may be no provision in tax law more bizarre than the estate tax. In just a year and a few days, on Jan. 1, 2010, the levy will expire and estates of any size will be passed on tax-free. A year after that, the tax will return with a vengeance. Uncle Sam will take 55 percent of assets of more than $1 million.

TPC’s Len Burman has come up with an interesting stimulus idea:
“Send everyone with a Social Security number a prepaid card, like the ones offered by major credit-card companies. The money could be spent at any retailer that accepted the company’s credit cards. In principle, the card would be the same as cash, and might still allow consumers to save more. In practice, we know from behavioral economics that labeling matters. If people get a card that they can only use if they spend the money, their spending is likely to increase more than if they can bank a rebate check.” Here is his entire post at Economix.

Is it time for the U.S. to consider a Value Added Tax? More and more tax experts think so. But the politics isn’t yet getting easier.
One problem: While more specialists are joining the VAT fan club, they can’t agree on what to do with the money. TPC’s Len Burman has proposed a VAT to supplement the income tax and pay for health care. Michael Graetz, once a top tax aide to the senior George Bush, would use one to get most Americans off the income tax. At the TPC/Tax Analysts tax reform conference on Dec. 5, Pam Olson, who was a top tax aide to the today’s President Bush, endorsed the levy as a way to buy down corporate tax rates. Once the tab comes in for the trillions of dollars Washington is spending to stimulate the economy and bail out the financial markets, I am certain others will propose a VAT simply to help pay the bills.