Simpson on the US Budget

Jeffrey Simpson has a good assessment in today’s Globe:

Mr. Obama’s budget – hugely consequential for the United States and of importance to Canada, too – represents a U-turn from the disastrous policies of the Bush administration and of the Republican political revolution that began decades ago.

Imagine a U.S. budget that simultaneously offends rich farmers, everyone making $250,000 a year, doctors, private medical insurers, bankers, coal polluters and the Wall Street Journal editorial board. If a leader is known by his enemies, then Mr. Obama is one admirable leader.

. . .

It proposes a cap-and-trade system for carbon emissions (wake up, Canada!), a form of carbon pricing/taxing. It reaches for universal health. It doubles foreign aid for a country with a stingy per capita public aid program, and drives up the State Department budget. It tries to reverse the growing inequality of income by raising revenues from the richest Americans – a contrast to the Republicans’ failed trickle-down policies.

It tries to ease gridlock by investing in a new air traffic control system and high-speed rail corridors. It invests heavily in education, in a country whose students are falling behind in international tests. It invests in government regulation: The Environmental Protection Agency gets 35 per cent more, the Securities and Exchange Commission 13 per cent more. It’s a budget, in other words, that believes in government.

Indeed, Obama’s budget proposes to increase total federal-government outlays by 7% of GDP temporarily in 2009 and by 2% of GDP in the longer term. By comparison, Canada’s federal budget increases outlays by less than 2% of GDP temporarily in 2009 and by 0% of GDP in the longer term.

OECD figures indicate that, from 2005 through 2007, total government outlays were 2% higher in Canada than in the US (39% vs. 37% of GDP). Therefore, the latest budget numbers from Washington and Ottawa could eliminate this difference throughout the coming decade. In other words, we may be entering an era in which American government is the same relative size as Canadian government.

Finally, I note another shift in Simpson’s position on carbon pricing. Not long ago, he was commending the Liberals for proposing a carbon tax and condemning the NDP for proposing cap-and-trade, which he characterized as a vastly inferior policy. Today, he defines cap-and-trade as “a form of carbon pricing/taxing” and describes Obama’s plan as “a carbon tax in the form of a cap-and-trade system.”

There is indeed much similarity between a carbon tax and a cap-and-trade system in which permits are auctioned (rather than handed out for free). The specific design of either regime would be more important than any inherent difference between the two. However, Simpson did not let these facts, which he now appears to acknowledge, get in the way of yet more columns bashing the NDP.


  • If I recall correctly, the NDP in the last election were also pretending there was a major difference between cap and trade and carbon tax.

    The NDP’s proposal was quite good. But the rhetorical debate saw parties of both the right and the left getting involved in anti-tax rhetoric instead of debating more relevant issues related to environmental integrity and social justice.

  • That’s a completely fair point. But I think that, as a preeminent professional commentator, Simpson should have been able to rise above that level of rhetoric more easily than political parties engaged in an election campaign.

  • I wonder if the Obama plan will incorporate provisions for compensating lower-income households, or if it will pretend – as the NDP did – that somehow a cap-and-trade policy won’t affect consumer prices.

  • Good point Stephen. Gee we agree on something, must be a first.

    It will be an interesting process and I am hoping the repressive aspects are not thrown in the back seat, that I still hold were quite prevalent in the BC attempts.


  • make that regressive, instead of repressive, although potentially repressive as well.

  • Robert Reich reports that:
    “Revenues from a cap-and-trade auction – the costs of which will presumably will be passed on to all consumers – will finance a continuation of the middle-class and lower-income tax credits now in the stimulus bill at a slightly higher rate ($500 per individual, $1,000 per couple, phasing out above $75,000 per person).”

    We’ll have to look at the details but this is a very interesting start that would be quite progressive.

  • I’d tend to agree that the two are more or less similar. Although I support the NDP politically, I tend to think that cap-and-trade tends to be (even) more open to gaming and loopholes than a carbon tax.
    But ultimately I think it’s a bad area to place emphasis. For a lot of important emission sources, I’ve seen nothing to shift me from the opinion that old fashioned regulation and direct government action will be far more effective than fiddling with prices.
    Replace someone’s furnace with a heat pump and you just cut carbon emissions; it doesn’t matter how much their heating costs or what their incentives are if you just get the job done already.

  • I suspect that ‘old-fashioned regulation and direct government action’ is even more open to gaming and loopholes than market-based proposals.

  • The Economist seems less than pleased with Obama’s budget and Stanford’s Michael Boskin isn’t a fan either.

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