Tuesday, June 23, 2009

Even worse than it looks

Conor Clarke provides some nice graphs of the distributional impact of Waxman-Markey, according to the most recent CBO analysis.

One of the unfortunate limitations of the analysis is that it groups taxpayers into quintiles. This gives us a rough sense of where the benefits and burdens fall, but it misses some very important variation within each quintile. Consider the estimated net cost per household:

Lowest quintile: -$40
Second quintile: $40
Middle quintile: $235
Fourth quintile: $340
Highest quintile: $245

As I noted earlier, the bizarre cost curve—which rises rapidly, and then falls for the richest quintile—is entirely due to profits from free carbon allocations, which go mostly to wealthy shareholders. This is where talking about the "highest quintile" becomes misleading. I suspect that the majority of households in the top quintile experience a higher net cost than the average fourth quintile household. When we average the net cost over the entire group, however, windfall gains from assets that are most often held by the extreme rich—the top 1%—are attributed to the "highest quintile" in general. This hides the likely reality that the "winners" from a policy of allowance givaways are an even narrower, wealthier subset of the population.

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