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A Nation of Spoiled, Trust Fund Warhawks?

Wednesday, February 7th, 2007

President Bush’s 2008 budget hit the Hill yesterday to a frosty reception (so much for global warming). The budget is like having an accountant hold a mirror up to American society, and that society is simultaneously warlike and childish.

Almost half of your income taxes will be spent on national defense, and that doesn’t include the interest on debt from previous defense overspending. The Pentagon will spend 6% of its budget repairing and replacing equipment (mostly for Iraq), but it’s still more than the entire foreign affairs budget for 2008. Diplomacy from the barrel of a recently-repaired gun.

The budget also reveals that we are spending money like spoiled trust fund kids - but without the trust fund. Paying for the $261 billion in interest payments on our past indulgences takes up most (83%) of the revenue collected from corporate taxes. Lest you think that we should cut taxes to spur the economy, may I remind you that tax cuts still don’t pay for themselves no matter how many times Bush insists that they do. In fact, between 2008 and 2012, the Bush tax cuts will cost the Treasury Department more than one year of unemployment and welfare benefits combined.

Gift and inheritance taxes collect enough revenue to pay for nearly all of our national science and technology budget. So if you actually are a trust fund kid and think that so-called death taxes are unjust, consider that they might help keep grandma alive for a few more years. Or was that the point of cutting them?
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Selections from President Bush's 2008 Budget

Source: Washington Post

Republican Tax Cuts Don’t Pay

Monday, January 8th, 2007

In the Saturday Op-eds, The Washington Post again called out the Bush administration for falsely claiming that tax cuts pay for themselves. Tax cuts pay for themselves in much the same way that a ten cent coupon pays for a can of soup. Yes, some tax cuts help stimulate the economy, but no study has found that tax cuts are self-funding.

Estimates range, but a sample of three non-partisan studies indicates that income tax cuts do not pay for themselves - not even close. Most studies indicate that tax cuts do increase personal income and consumption, resulting in a very moderate economic stimulus. But this minor boost in economic growth does not replenish government coffers. For every $100 lost to tax cuts, the government only recoups between 10% to 28% due to economic growth. Even former chairman of President Bush’s Council of Economic Advisors, Gregory Mankiw’s most rosy estimates demonstrate that tax cuts lose 50% of their value.

So tax cuts cost the government money. End of story. Unless you’re the president writing an op-ed in the Wall Street Journal:

It is also a fact that our tax cuts have fueled robust economic growth and record revenues. … The bottom line is tax relief and spending restraint are good for the American worker, good for the American taxpayer, and good for the federal budget. Now is not the time to raise taxes on the American people.

Tax relief has benefited the American worker - as long as you’re talking about the American worker in a household making more than $100,000 per year. According to a study by the non-partisan Tax Policy Center, last year’s tax “relief” amounted a whopping $68 to the 125 million households making less than $100,000. Meanwhile the 20 million earning more than $100,000 received an average of $2,861 per household, 42 times more tax relief than those at the bottom of the income scale.

Indeed, now is the time for Democrats to end Bush’s tax cuts for the rich.

And if you have to pour over tax policies in great depth, I would recommend Tim Hecker’s album Harmonies in Ultraviolet (number 14 on Pitchfork’s best of 2006): ambient static and dissonance for blogging in the middle of a rainy night.

What Bush Isn't Telling You

*Mankiw: Income Tax Cut measured with dynamic scoring

Sources: Washington Post, Congressional Budget Office, Wikipedia, Tax Policy Center

Why Cyclists Should Love Shared Cars

Thursday, September 7th, 2006

Car-sharing is gaining popularity in cities across the United States. The idea is simple: car-share companies or cooperatives park hundreds of cars in convenient locations that any member can rent by the hour. Most car-share programs cost about $8 to $12 per hour, including gas, insurance and maintenance.

On the face of it, car-sharing is a economical and eco-friendly way to get around. Zipcar has about 40 members sharing each car in their national fleet. That’s certainly better than 1 car per person, right? Perhaps. If your goal is to reduce the total area dedicated to parking a vehicle, it does indeed free up valuable urban space. If, however, your goal is to reduce traffic congestion, smog, or reliance on fossil fuels, the jury’s still out.

Car Sharing Increases Mobility - and Traffic - Amongst Urbanites

Car-sharing is most appealing to urbanites who choose to live in densely-populated cities in part to avoid car ownership. Zipcar and Flexcar have both built a business model on enhancing the mobility of these groups. The consequence of increased mobility, unfortunately, is that more urbanites are driving alone. According to a study sponsored by the Federal Transit Administration, 26% of users reported driving more as a result of car sharing.

Flexcars branding car crash Zipcar Mini Convertible Flexcar and Zipcar are for-profit companies, and each has recently received $20 million in investments. Those investors expect profit, and that profit will be generated largely by getting more people to drive more of their cars. Most privately-owned cars spend 95% of their time parked. Shared cars have much higher usage rate - most users are unlikely to pay $10 per hour to just to park their car somewhere (which is why commuters who drive to work are unlikely customers for car-sharing). In short, car-share companies generate revenue when people drive those cute little Zipcars around town. (Sorry, but the Flexcars are significantly less attractive. It looks like their marketing department went out for a drive and had a fender-bender with their new logo).

Parking and Traffic Impact of Car Sharing Like public transportation, the economics of car-sharing only make sense with high urban density. In fact, car-sharing is a substitute for other transportation options, many of which are better for the environment. When asked what people would do if a shared car were not available, nearly half of respondents said that they would have taken public transportation or not made the trip at all. It appears that half the time shared cars are used, they have the potential to increase traffic.

This is balanced by another effect of car-sharing: People are more aware of how much they drive. If a user factors in the cost of a Flexcar for a quick trip to the grocery store, the price of a gallon of milk could soar from $3 to more than $10. And that suits the car-sharing business model. Flexcar and Zipcar need high usage rates to remain profitable. But forty members sharing a single car means that each week, a member can only reserve a car for an average of 4 hours. If a member wants a car during premium hours after work or on the weekend, car-share members had better plan ahead: members have an average of about 1 premium hour per week.

Getting Suburbanites Out of Private Vehicles and Into Shared Cars

Although urban car-share members may drive more, suburban users help account for the 46% of drivers who reported that they drove less after they started using car-sharing. Although the FTA report concluded that, “many studies show no statistically significant change (in vehicle miles traveled),” car sharing helps fill a mobility gap created by insufficient public transit in the car-centric suburbs. Suburban two-car households can significantly reduce their expenses by switching to one car plus what Zipcar calls a “fractional second car.” And this may help reduce vehicle miles driven (VMT). Arlington, a northern Virginia suburb of DC, reported that the average car-share member reduced their VMT by 43% between 2005 and 2006.

For now, shared cars are focused on the more densely populated areas with populations that are inherently less reliant on car culture. Flexcar and Zipcar have about 75% of their total fleet in the District of Columbia despite the fact our 515,000 residents make up only 10% of the total DC metro population. Even in close-in suburbs like Arlington, 83% of the 3,500 car share members live in the densely populated Metrorail corridor.

Car Sharing Eases Parking Pressure

Densely populated areas stand to gain the most from car-sharing for a reason that may not be immediately obvious: parking pressure. Despite what urban dwellers may believe, even un-metered street parking is not free. Street parking is public land where private citizens are allowed to store their vehicles. Any taxpayer without a car is effectively subsidizing vehicle owners. All parking spaces have an opportunity cost. That is, there is the opportunity to use that space for something else that is forfeited when we park our cars on the street.

Convenient parking also reinforces America’s car culture. Albuquerque, New Mexico, for example, devotes more land to parking than to all other land uses in the city combined. According to Donald Shoup, the author of The High Cost of Free Parking, 15% of parking spaces must be open at all times or people will be dissuaded from driving. Car share minimizes this problem for neighborhood street parking because its parking spaces are permanently reserved. This means less time, and less traffic, caused by people driving around looking for a spot near home.

How Shared Cars Can Create Bike Lanes

Eliminating the need for free street parking is indeed a worthy goal. Anyone experienced with urban biking has had nightmares about a driver’s door whipping open in front of them. Bike lanes alleviate some risk by granting a wider berth to cars parked curbside, but according to WashCycle, U.S. cities often build bike lanes too close to parked cars. Michael King at University of North Carolina-Chapel Hill advocates at least 14′ from the curb to the edge of the bike lane, but this guideline is ignored by many U.S. cities. This may explain why many cyclists refer to bike lanes as “suicide lanes.”

So what would happen if U.S. cities accepted shared car culture as the norm? Statastic used a Northeast Capitol Hill neighborhood as an informal case study to find out. Assuming that the neighborhood has the same average density as the rest of DC, there are about 4,000 people living in an area about 6 long and 11 blocks wide.

Now for the assumptions. According to census data, about 18% of DC residents drive by themselves to work. We’ll let them keep their cars. Another 28% are car owners who either carpool or don’t drive to work. We’ve decided that one-third of them will be converted to car sharing and will give up their cars. The remaining 32% of DC residents over age 18 don’t have a car, so let’s assume that 100% of them become car share members. The result is that 1,600 of 4,000 residents in this neighborhood are now full-time car share members.

Bike lanes before and after widespread adoption of car sharing Using the Zipcar ratio of 40 members per car, the neighborhood will need an additional 33 shared cars, bringing the total to 40. Zipcar claims that each shared car replaces 15 to 20 private vehicles, and that means more available street parking. Those 40 shared cars in northeast DC could replace 800 private cars, freeing up twelve miles of street parking. Eliminating street parking on one side of a 44′ wide road would also liberate about 16% of the pavement. Wider bike lanes could be added, existing traffic lanes could be widened, and wider lane for street parking would eliminate risk of getting doored while biking by.

The best part is that by increasing the density of shared cars, there would likely be a tipping point where it would become increasingly popular. As people convert to shared cars, the distance between the average resident and a shared car shrinks. Another way to look at it is that with a high conversion rate, the number of cars within three blocks of any resident would increase from 2 to 15. That means more cars to choose from: hybrids for quick city trips, trucks for hauling, or a convertible Mini for a weekend away.

How could we get to this tipping point? Taxing the free parking along city streets would be a start. To give an idea of how valuable the land is that DC residents park their cars on, consider that the going rate for a private parking spot is about $200 in the Dupont area of DC. Taxing street parking could be done in conjunction with proportionally lowered property taxes to avoid political backlash from homeowners. Although cities won’t necessarily generate more income from street parking taxes, residents would understand the real cost of parking and could make a rational economic decision about car ownership.

Shared cars and biking everywhere. Does the car-free life sound like a pain? It’s easy to get used to - Statastico does it every day.

Car Sharing = More Bike Lanes

Addicted to Ethanol Subsidies?

Monday, August 7th, 2006

Today’s announcement that British Petroleum would be taking crude oil production offline to make urgent repairs drove up oil prices to $77 a barrel. So what about those renewable resources we keep hearing about? We want to break the oil addiction!

Ethanol is indeed sparking renewed interest and a flurry of investment in the U.S. Most of the 3.9 billion gallons of ethanol came from corn and was used in the states where it was grown. Impressive until you realize that Brazil produces 4.8 billion gallons of sugarcane-based ethanol, providing about 40% of their annual gasoline needs.

We have been producing ethanol-based fuels in the United States for decades. Most of the Midwestern states (see charts below) that benefit from $4 billion in corn subsidies have an available 10% mix of ethanol in their gasoline. And with low corn commodity prices, high gas prices and a lack of ethanol refining in the Midwest, it has created the perfect investment storm.

Profit from Archer Daniels Midlands’ (ADM) corn bioproducts increased from $259 million to $446 million this year, and they have aggressive expansion plans. According to today’s Barron’s:

“In the past year, the difference between ethanol [prices] and corn prices has soared from less than 50 cents to about $3.10 a gallon…. That’s lifted the annual return on capital for some ethanol plants toward 50% and set off a stampede of new investment in ethanol refining.”

So it will come as no surprise that the ethanol industry has a strong lobby to protect itself. It’s a twisted relationship. The federal government’s price supports and subsidies regularly create overproduction of corn. This drives corn prices lower suppressing world prices (something the developing nation’s rightly bemoan).

Some of this surplus is used for ethanol. Why? Refineries - and consumers - are incentivized by a $.51 per gallon tax credit for 10% ethanol-based gasoline. Ethanol producers also enjoy significant trade protection in the form of a 2.5% ad valorem tariff and import duty of 54¢ per gallon of ethanol.

In August, 2006, Amani Elobeid and Simla Tokgoz from Iowa State University published a paper that analyzed the economic effects of removing these protections:

“The study finds that the removal of trade distortions induces an increase in the world price of ethanol and a decrease in the U.S. domestic ethanol price, which results in a decline in U.S. ethanol production and an increase in consumption. Consequently, U.S. net ethanol imports increase significantly….”

The Iowa State paper shows that if we were to remove trade barriers and the tax credit, we would see a 14.46% price drop in ethanol for consumers. Ethanol currently makes up 10% of our gasoline in a limited number of markets in California and the Midwest. Lifting trade barriers would allow Brazilian ethanol to more easily reach ports on the East Coast.

Yet we continue to protect ethanol refineries. ADM Chief Executive Patricia Woertz told Barron’s that “ethanol demand could triple. ‘It looks like it has room to grow to 14 billion or 15 billion [gallons per year],’ she said, ‘which is a full 10% blend in the gasoline pool in the United States.’”

Barron’s analysis of the ethanol market was about as sheltered as the heavily-protected ethanol refining industry: “Unfortunately, before ethanol refiners can reach that goal [14 billion or 15 billion gallons per year], they might reach the limits of the country’s corn supply. America’s entire corn crop would satisfy just 12% of gasoline consumption, leaving no corn to feed livestock and humans.”

No corn to feed our delicious cows? Once we remove ADM’s trade protections and give the Brazilians a new market for their ethanol, we should have plenty of corn to feed those future Big Macs. It will help our farmers counteract the predicted 1.7% drop in domestic corn prices, and it might help lift some desperate Brazilians out of poverty.

Didn’t most of us learn competitive advantage in econ 101? This may be a good time for Congress to brush up.

Ethanol Production with Current Trade Barriers

Ethanol Production and Consumption without Current Trade Barriers or Tax Credits

Sources: Statastic research; Environmental Working Group - Farm Subsidy Database

Trade model based on scenario 2 in the following paper: “Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets,” Amani Elobeid and Simla Tokgoz, Working Paper 06-WP 427, August 2006, Center for Agricultural and Rural Development, Iowa State University

How Expensive is NASA?

Wednesday, July 5th, 2006

Yesterday marked the first-ever launch of the Space Shuttle on Independence Day. NASA’s manned space program continues to slowly emerge from the shadow of the Columbia disaster. While newspaper headlines focused somewhat warily on the Shuttle launch, the $700 million Mission to Mars program was under attack by cost-cutting democrats in Congress. The measure failed by a wide margin, but it highlights the constantly-embattled NASA budget.

Although NASA’s recent manned space missions lack the scientific rigor of their unmanned deep space research, manned space flight captures the public’s imagination – and political support for NASA. The NASA budget is surprisingly small – only $16.7 billion in 2006 – paltry by Pentagon standards. In real terms, NASA’s budget has been declining since 1991, and that’s likely to continue in the near future.

Less that half of NASA’s 2006 budget (about $7 billion) is applied for space operations such as the Shuttle and the International Space Station. The rest goes toward earth science, deep space exploration, research and development. To give a point of comparison, the annual budget for NASA is about the same as the cost of 2 months of Iraqi occupation, 167 brand new F-22s, 2 more years of failed research for missile defense systems, or about 2 quarts of Tang for every person on earth.

NASA Budget Relative to Other Government Expenditures

¹$100 million per fighter
²Based on Cost of Estate Tax repeal of 2007-2016 is $369 billion
³2001-2006 Missile Defense spending was $43 billion
⁴Based on 2006 Budget of $101.8 billion
⁵ Only $4.19 for enough Tang to make 4 quarts
⁶http://www.washingtonpost.com/wp-dyn/content/article/2006/06/28/AR2006062800247.html
⁷Based on 2006 Peace Corps Budget of $317,440,000
⁸http://en.wikipedia.org/wiki/Corporation_for_Public_Broadcasting
⁹Based on 2006 EPA Budget

The Interstate Turns 50 (continued)

Friday, June 30th, 2006

Back in the 1930s and 1940s, the Chief of the Bureau of Public Roads Thomas Harris MacDonald imagined a nationwide network of toll-free highways. His vision was largely implemented: Today only 1 out of every 16 miles on the Interstate system is toll road. All of these freeways has helped (ahem) fuel urban sprawl resulting in more cars per person, more miles driven, and arguably, increased American tubbiness.

Statasico would love to remedy this by raising the gas tax. Among other things, ncreasing the gas tax would:

1) Capture the negative externalities caused by greenhouse gas emissions and traffic

2) Create a potential pool of money for mass transit projects

3) Really upset the oil companies, and

4) Never happen with gas prices hovering around $3 per gallon.

What about mass transit? Isn’t some of that federal 14.7 cent per gallon gas tax applied toward mass transit? Yes… in spirit. Right now a whopping 1% of the price of every gallon of gas (about 2.7 cents of every gallon) goes toward the Mass Transit Account.

So I’m giving in. Let’s build more highways. And make every one of them a tollway. But don’t stop with just the new highways. We should also convert the remaining miles of the Interstate system to toll roads. I’m not advocating that states continue privatizing toll collection. That’s one role the government should not outsource.

One of the common complaints about toll roads was the inefficiency of sitting in a line of cars sputtering greenhouse gasses while someone ahead of you scrambles for change. But E-ZPass has started to change that. Unfortunately, toll collection is still slow because not all cars use the E-ZPass lanes. So the government should require every to have an electronic toll collection (ETC) technology installed as soon as a car is registered.

The government must stay actively involved because tollways are a regressive tax. Fixed tolls take a higher percentage of wages from low income workers than high income workers. Once again, technology can help remedy this. E-ZPass could be linked to a driver’s tax bracket, enabling the government to impose lower tolls for low income workers. Likewise, hybrid cars or alternative fuel cars could pay lower tolls.

Even better toll collection technology already exists across the Atlantic. Last year, Germany introduced an automatic toll system for trucks traveling along its 7500 miles of autobahn. The Toll-Collect system utilizes GPS technology, so Germany can reap about $3.2 billion annually while never requiring trucks to slow down to collect a single toll.

So what is the gas tax equivalent of tolls? Looking around the country, tolls average about $.04 per mile. With average passenger car and light truck fuel economy was 21.8 miles per gallon in 2004, those tolls are the equivalent to a gas tax of $.83 per gallon. Unlike a gas tax, tolls don’t necessarily lead consumers to buy more fuel efficient cars. But tollways make it easy for drivers to see some of the expenses associated with 46,000 miles of “free”ways. And with added toll revenue, perhaps we can beef up that Mass Transit Account and start to get people out of their cars.

Per Gallon Gas Tax Equivalent of Selected Interstate Tolls

*Uses the 2004 average fuel economy for cars and light trucks in the U.S. of 20.8 miles per gallon.

A Nation of Spoiled, Trust Fund Warhawks?

Wednesday, February 7th, 2007

Republican Tax Cuts Don’t Pay

Monday, January 8th, 2007

Why Cyclists Should Love Shared Cars

Thursday, September 7th, 2006

Addicted to Ethanol Subsidies?

Monday, August 7th, 2006

How Expensive is NASA?

Wednesday, July 5th, 2006

The Interstate Turns 50 (continued)

Friday, June 30th, 2006

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