ACE

Category: Economic Policy

  • Trump’s Tariffs: Key Updates and Ongoing Debate

    Trump’s Tariffs: Key Updates and Ongoing Debate

    One of President Trump’s myriad “first-day” promises, the plan to leverage tariffs against Canada, Mexico, and China drew attention on the campaign trail. Two weeks into his second term, the campaign promise came to fruition via three consecutive executive orders, sparking economic debate and what some are calling a trade war with neighboring countries. 

    The Executive Orders

    On February first, the White House released an emergency memo announcing new tariffs as a means to combat “the extraordinary threat posed by illegal aliens and drugs”. The declaration alluded to executive orders from the same day which invoked the International Emergency Economic Powers Act (IEEPA) to impose tariffs on Canada, Mexico, and China. Collectively, these orders levied 25% tariffs on all goods from Canada and Mexico and a 10% tariff on all goods from China. The first order carves out a smaller 10% tariff on energy resources imported from Canada to limit domestic energy shortages.

    Diplomatic Standoff and Temporary Delay

    Just before the tariffs were set to take effect, Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau negotiated a 30-day delay, agreeing to several conditions. The 30-day window sets a tight deadline for implementing the following measures, with the potential for future U.S. tariffs lingering in the case of failed implementation:

    Canada:

    • Appointing a Fentanyl Czar: Canada will designate a high-level official responsible for coordinating efforts to combat fentanyl production and distribution.
    • Designation of Drug Cartels as Terrorist Organizations: This move aims to enhance legal frameworks for tackling organized crime.
    • Intelligence Sharing and Funding: Canada will implement an intelligence directive targeting fentanyl and organized crime, supported by substantial funding.
    • Border Security Enhancements: Canada has pledged to bolster its border security measures to prevent illegal crossings and drug smuggling.

    Mexico:

    • Deployment of National Guard: Mexico will send 10,000 National Guard troops to its northern border to prevent drug trafficking and illegal immigration.
    • Cooperation on Weapons Trafficking: Mexico will work jointly with the U.S. to curb the trafficking of weapons into Mexico.

    China did not negotiate a delay, and instead retaliated immediately with its own tariffs on American energy and agricultural imports. China also filed an official dispute in the World Trade Organization.

    During negotiations for the 30-day-delay, Canada also retaliated with its own tariffs on U.S. goods. On February 4th, Prime Minister Trudeau implemented a CA$155 billion tariff package that will impact myriad products including steel and plastic, household appliances, and coffee. Mexico has not yet proposed retaliatory tariffs. 

    Prospective Impacts

    The Trump administration’s use of tariffs is not new; in his first term, President Trump levied considerable tariffs on steel and aluminum imports, impacting China, India, the European Union, and other trade partners. However, President Trump’s recent executive orders have drawn increased attention for their novel scope. This is the first time in American history that a sitting President has invoked IEEPA to leverage tariffs, bypassing the formal investigation process required under other tariff-related laws like Section 232. Supporters emphasize that the use of IEEPA allows President Trump to act more efficiently in light of the pressing opioid crisis, while critics warn that using IEEPA to implement tariffs risks unchecked executive authority. 

    Economically, some experts warn that this round of tariffs could raise consumer prices significantly more than the tariffs from the last Trump administration due to their expanded scope, targeting of consumer goods, and ongoing inflation. A report from the Tax Foundation estimates that tariffs will function as a hidden tax, potentially costing households hundreds of dollars annually. Senate Minority Leader Chuck Schumer called the tariffs “the beginning of a golden age of higher costs for American families”, warning that they would strain relations with allies and worsen supply chain issues. On the other hand, some argue that Trump’s tariff strategy has already succeeded in forcing Canada and Mexico to the negotiating table, leading to unprecedented commitments to address border security and the drug trade. They emphasize that the proposed tariffs were a strategic move to force cooperation from neighboring countries on pressing issues, despite the short-term economic cost. 

    Will the Tariffs Actually Be Imposed?

    While the 30-day delay provides an opportunity for Canada and Mexico to fulfill their commitments, President Trump has stated that he fully intends to impose tariffs if they fail to act decisively. Moreover, on February 13th, President Trump signed a memo calling for research on retaliatory tariffs, signaling that the White House is preparing to impose additional tariffs on nations like Canada and China that initially retaliated with tariffs of their own.

  • Pros and Cons of the Inflation Reduction Act

    Pros and Cons of the Inflation Reduction Act

    In its commitment to addressing climate change, the United States is focusing on transforming its existing energy systems to minimize carbon emissions and enhance the adoption of green energy. The Inflation Reduction Act (IRA), which was signed into law by President Biden in August 2022, lays out a comprehensive strategy to achieve this transformation. This legislation impacts various sectors including energy, transportation, infrastructure, and construction.

    The IRA’s primary objective is to assist the U.S. in meeting its ambitious emission target, which is to reduce greenhouse gas (GHG) emissions to 50% below the levels of 2005 by the year 2030. This target aligns with the commitments made under the Paris Climate Accord. To realize these goals, the Act introduces a range of measures such as tax incentives and credits for electric vehicles (EVs), alongside other federal incentives designed for both individuals and businesses. These measures are geared towards encouraging the adoption of cleaner energy sources and promoting environmentally sustainable practices across different sectors.

    Arguments in Favor

    Supporters of the Inflation Reduction Act (IRA) emphasize the pressing need to address climate change and the extensive efforts required to meet the U.S.’s emission targets. They argue that the climate provisions in the IRA will significantly reduce emissions, estimating a decrease to around 40% of 2005 levels by 2030. This projection marks a substantial improvement compared to the current forecast of a 26% reduction from 2005 levels and moves closer to the government’s goal of a 50% reduction.

    The bill has garnered support particularly from the industrial and construction sectors, whose businesses stand to benefit from the IRA’s incentives. These sectors are keen to capitalize on the opportunities presented by the IRA, alongside the advantages brought about by the recently passed Infrastructure and Investment in Jobs Act (IIJA). An article focusing on the housing industry highlighted that these two laws could collectively reduce emissions from the buildings sector by 33–100 million metric tons, viewing the IRA’s enactment as a significant opportunity for the industry.

    The IRA also offers benefits for individuals, especially through the creation of electric vehicle (EV) tax credits. The Electrification Coalition has lauded the IRA as the most consequential legislation for boosting transportation electrification in U.S. history, calling it a major victory for both consumers and businesses. These transportation initiatives complement the IIJA, with the IRA facilitating the purchase of electric vehicles and the IIJA enhancing charging convenience by allocating $7.5 billion for charging infrastructure development. This synergy between the two acts aims to integrate green energy more deeply into the automotive industry, which is a major contributor to greenhouse gas emissions in the U.S.

    Arguments in Opposition

    The Inflation Reduction Act (IRA) faced significant opposition, particularly from manufacturing and industrial sectors. The American Petroleum Institute (API) was one of the key opponents, expressing concerns over the increased regulations and taxes included in the bill. The API argued that these measures would hinder their capacity to ensure energy security for American consumers. Their stance was supported by numerous trade groups who shared similar apprehensions.

    The National Association of Manufacturers also opposed the IRA, criticizing the tax measures within the bill as detrimental to the competitiveness of the industry, especially during a period of economic hardship and business turmoil. They advocated for more targeted and specific legislation addressing individual issues, rather than the broad scope of the IRA.

    In Congress, the bill faced significant hurdles and delays in its passage, largely due to opposition from Republican members. Most Republicans objected to the bill, arguing that it failed to effectively tackle inflation and expressing disagreement with its climate-focused proposals. A major point of contention was the IRA’s nearly $750 billion cost, which they deemed inappropriate during a period of economic downturn and high inflation.

    The bill’s journey through Congress was further complicated by dissent within the Democratic Party. Senator Joe Manchin (D-WV) influenced the bill’s final form by securing concessions for the oil industry, particularly regarding methane emissions taxes, reflecting the fossil fuel interests of his state, West Virginia. Senator Kyrsten Sinema (D-AZ) initially objected to a critical tax provision but eventually supported the bill.

    Despite the arguments from its proponents that the IRA would benefit all Americans, the bill’s passage was largely partisan, with no Republican support in either house of Congress. The division over the IRA largely centered on the contentious issue of climate change, highlighting the ongoing debate between traditional fossil fuel interests and emerging green energy initiatives.

  • Understanding the Minimum Wage Debate

    Understanding the Minimum Wage Debate

    Introduction

    A minimum wage is the lowest hourly pay that employers may give their employees. Each U.S. State has the power to set its own minimum wage at or above the federal minimum of $7.25/hr. Minimum wages vary greatly from state to state, ranging from $7.25/hr to $17/hr. Typically, minimum wages will rise over time in an effort to keep up with inflation. Currently, adjusted for inflation, the federal minimum wage is at its lowest value since 1956. While many call for a raise to the federal minimum wage, many states have passed legislation to raise their own wages. Across the country, the question of whether or not to raise the minimum wage remains a spirited debate.

    Arguments for Raising the Minimum Wage

    Many argue that higher minimum wages promote equity in terms of race, gender, and class. In 2022, on average, women earned 82% of what men did. Among full time workers in 2015, black people earned 25% less than white people. Women and black people are also more likely to hold minimum wage positions than men and people of other races. Thus, some argue that raising the minimum wage promotes equity by disproportionately aiding those who are victims of the wage gap. 

    More generally, the minimum wage also exists to reduce poverty and narrow class divide. Studies have suggested that minimum wage raises are correlated with shrinking wage disparities, as those earning the least are given higher incomes. Some studies show that a majority of workers whose families lived below the poverty line would receive a pay increase if the minimum wage were raised. Some also argue that raising minimum wages specifically reduces child poverty. One study found significant increases in employment in conjunction with minimum wage hikes among single mothers with children from ages 0-5, thus reducing child poverty. This is likely due to the increased incentive for participation in the workforce that an increased minimum wage provides.

    Arguments Against Raising the Minimum Wage

    Increases in the federal minimum wages also tend to be associated with increased prices, as employers seek to maintain their profit margin despite being forced to spend more on labor. One study found that a 10% increase to the minimum wage translates to a 0.36% increase in grocery prices. In the same study, they estimated that, due to the increased prices, net income would actually be reduced for households earning less than $10,000/yr. Another study suggested that 75% of the increase in minimum wage is passed onto consumers. Fast food chains largely pay their employees minimum wage, and thus, they are often subject to price increases in correlation with wage hikes as well. Price increases in fast food and grocery stores disproportionately harm low income households, as they are more likely to spend a greater proportion of their income in these industries. 

    Some studies also suggest that minimum wage hikes result in reduced hours for employees. In doing so, minimum wage hikes can result in overall reduced pay for workers. In addition, increases in the minimum wage are associated with increases in worker schedule fluctuation. This is likely because employers’ cost of labor rises, leading them to make changes in the way they organize their labor.  The study found that a $1 increase to the minimum wage resulted in a “33.0% increase in fluctuations in the number of hours worked per week, a 9.5% increase in fluctuations in the number of hours worked per day, and 9.8% increase in fluctuations of shift start times.” The lack of schedule consistency can be difficult for low income workers, and make it substantially harder for them both to balance their personal lives and to achieve longer term financial stability – especially those working multiple jobs.

    On Employment

    Economists have long debated the effects of minimum wage on employment, and continue to do so today. Some studies find no substantial decrease in employment correlated with minimum wage jumps, while some suggest that increases in the minimum wage result in decreased employment. Specifically, these studies point to decreased employment among low skilled workers, who therefore would not be able to benefit from the increased wages that the new minimum provides. However, much of the recent data corroborates the theory that minimum wage increases have minimal impact on employment with some even suggesting an increase. Overall, minimum wage increases remain highly debated throughout the country today. As discussed above, beyond the vexing impact on employment, research suggests ways in which increases can result in both financial aid and financial harm to those earning the lowest incomes.

  • Pros and Cons of a Residential Tax Credit for Clean Energy

    Pros and Cons of a Residential Tax Credit for Clean Energy

    Introduction

    The Inflation Reduction Act, passed in 2022, contained many provisions designed to curb the impact of climate change while also addressing economic issues. The main approach to achieving this involves offering residential tax credits for clean energy. These credits enable Americans to get back up to 30% of their expenditure on clean energy upgrades for their homes as a tax credit. This credit applies specifically to the cost of new clean energy equipment, such as solar panels and solar water heaters. Originally part of the Build Back Better Act, these tax credits were incorporated into the Inflation Reduction Act after the former failed to become law.

    Renewable energy is better for both the environment and human health than the continued use of fossil fuels, which have a destructive impact. According to the United Nations, “more than 13 million deaths around the world each year are due to avoidable environmental causes, including air pollution. In 2018, air pollution from fossil fuels caused $2.9 trillion in health and economic costs, about $8 billion a day.” Transitioning to renewable energy will not only improve air quality by reducing pollution but also yield positive economic benefits by reducing the costs associated with pollution.

    However, the process of switching from fossil fuels to renewable energy sources is expensive and labor-intensive. It is estimated that the cost of moving the US power grid from fossil fuels to renewable energy will be approximately $4.5 trillion. The residential tax credits for clean energy create a strong incentive for consumers and businesses to invest in renewable energy technology like solar panels. However, environmentalists and policymakers disagree about whether a tax credit is the best way to bring about widespread use of renewable energy. 

    Arguments in Favor

    Advocates of the policy highlight the benefits of renewable energy as a rationale for introducing residential tax credits. A cost benefit analysis shows that the benefits of reduced CO2 emissions and air pollution far outweigh the monetary cost of the tax credit. In the time since the Inflation Reduction Act was passed, more businesses and consumers have made use of it than originally anticipated, showing it works as an effective incentive. In other words, this tax credit will bring Americans the numerous benefits of reduced fossil fuel use. 

    The tax credit is also predicted to lead to economic development, in line with the goals of the Inflation Reduction Act. The residential tax credit for clean energy is projected to save American households around $5 billion per year by 2024. This credit not only reduces the initial expense of transitioning to renewable energy but also leads to lower electricity expenses because electricity from renewable sources is lower than that of electricity from fossil fuels. Moreover, the growing demand for renewable energy equipment like solar panels will encourage investments and innovation in the renewable energy sector. This, in turn, will stimulate job creation as workers will be required to construct the necessary infrastructure for expanded renewable energy usage.

    Arguments in Opposition

    Opponents of the tax credit argue that the policy could result in economic challenges rather than benefits. A key concern is that a tax credit would incur government expenses, leading to higher spending and an increased deficit, potentially undermining economic stability during an inflation crisis. Additionally, if the tax credit successfully boosts renewable energy adoption, its cost would likely rise—indeed, the current cost has exceeded initial projections. Some also contend that while proponents claim the tax credit will drive economic growth and innovation in the renewable energy sector, the effects of a market-distorting subsidy like a tax credit are often uncertain. It might even discourage innovation among renewable energy companies, as the tax credit alone could create sufficient demand for their products.

    Another criticism is that tax credits are an inequitable way to achieve the goal of a faster transition to renewable energy. A study from the University of Chicago found that tax credits for clean energy have historically disproportionately aided high-income Americans, as “the bottom three income quintiles have received about 10% of all credits [since 2006], while the top quintile has received about 60%.” This is because a lot of Americans don’t have sufficient tax obligations to fully utilize a tax credit. Consequently, many who oppose the tax credit propose a more equitable alternative: residential direct pay. This approach enables beneficiaries to receive a payment equivalent to the tax credit they would have qualified for.

    Looking Forward

    Both positive and negative future developments are expected to come from the residential tax credit for clean energy. Its efficacy in increasing clean energy usage is likely to spur economic development and reduce the costs of renewable energy as demand goes up, thus also leading to a beneficial environmental impact. However, this increased demand will also likely increase American dependence on foreign manufacturing, as solar cells do not need to be American-made in order to qualify for the tax credit, and the majority of the world’s solar cells are currently made in China. Increased demand for solar panels will lead to US consumers buying more solar cells imported from China. 

    The residential tax credit for clean energy is anticipated to bring about both positive and negative outcomes in the future. Its effectiveness in promoting clean energy adoption is expected to drive economic growth and lower renewable energy costs through increased demand, yielding positive environmental effects. Nevertheless, this heightened demand may also lead to greater reliance on foreign manufacturing, particularly from China, since solar cells are not required to be American-made to qualify for the tax credit. As a result, the surge in solar panel demand could lead to increased purchases of imported solar cells from China by American consumers.

    While most policymakers agree that switching to renewable energy will be beneficial for Americans in the long run, there remains debate about whether subsidizing renewable energy with a tax credit is the best way to bring about this switch as opposed to alternatives like residential direct pay or simply allowing market forces to work uninterrupted.

  • Pros and Cons of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act

    Pros and Cons of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act

    Background

    President Nixon initiated the War on Drugs in the 1970s, which was designed to tighten security over the regulation, consumption, offenses, and accessibility of controlled substances. The War on Drugs and increased prosecution of drug-related offenses have disproportionately impacted minority populations. Schedule 1 drugs—substances that are considered to have the greatest risk of abuse and addiction—are heavily regulated by the government with strict limitations on the accessibility and consumption of the substances. Possession and consumption of Schedule I substances are a federal offense, and cannabis is considered to be a Schedule I substance. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act would decriminalize marijuana nationally and establish the Opportunity Trust Fund (OTF) funded by the increase in cannabis tax from 5 to 8 percent over a five-year period. Half of the fund is used to support communities in their professional development, health education, and for legal aid. The other half of OTF is used to support individuals and businesses through health education programs, literacy programs, and professional development.

    Issue 1: Implications of Cannabis

    While some studies have been conducted to better understand the relationship between cannabis and neurological conditions, physical conditions, and mental health disorders, the strict regulation of cannabis has prevented researchers from extensively investigating its therapeutic effects. The decriminalization of marijuana would allow researchers to conduct the investigations with amounts of marijuana that was not possible before. 

    However, opponents for the decriminalization of cannabis mention the overall greater use of the drug in general. With cannabis being decriminalized, public health experts have shared concerns regarding the implications of using more cannabis with a focus on high addiction rates, unsafe driving practices, and an overall decrease in wellbeing as a result of lower intelligence quotients. In the status quo, nearly 30% of people who use cannabis have a marijuana use disorder and a 10% chance of becoming addicted. In 2019, 4.7% of Americans drove under the influence of cannabis.

    Issue 2: Expenditure of Government Money

    By lifting some restrictions on cannabis use, the state and federal governments would save funding on the police, courts, and prisons currently used to incarcerate cannabis users and enforce cannabis restrictions. The reallocation of resources is expected to save nearly $800 million in the 2022-2023 period. The money could then be reallocated to other necessities for the government, including increasing federal benefit programs for federal prisoners. 

    Critics argue that the MORE Act has hidden costs, because government spending will be required to address the implications of the bill in the long run. The resulting drugged driving and increased marijuana use among the youth would push the government to reimagine other potential laws and restrictions.

    Issue 3: Businesses and Taxes

    The decriminalization of cannabis allows businesses to legally open under state regulations. Critics argue that while that MORE Act may increase jobs and financial security among businesses for cannabis, the increased prices for less potent products among legal businesses would drive cannabis users to turn to the black market for high-potency, less expensive alternatives. The Congressional Budget Office and Joint Committee On Taxation estimate that in the 2022-2031 period, the U.S. revenue would increase by $8.1 billion. This would be accomplished by an occupational tax imposed on cannabis producers. The Small Business Administration would invest $1.4 billion for small businesses and for cannabis-licensing rules. A bill designed to decrease black market activity could possibly instigate a reallocation of financial resources among cannabis-related professions.

  • Introduction to the Child Tax Credit

    Introduction to the Child Tax Credit

    Introduction

    The Child Tax Credit (CTC) is a tax benefit granted by the government to American taxpayers for each qualifying dependent child under the age of 18 at the end of the tax year. The CTC provides money to support American families by making it more affordable to raise children and by helping them save for their children’s future. To qualify for the CTC, the taxpayer’s dependent must also be an immediate relative or their descendant, have lived with the taxpayer for more than half the year, provide no more than half of their own financial support, and possess a Social Security Number that is valid for employment in the United States. In addition to the federal government, twelve states currently offer the CTC to enhance the economic security of families with children, particularly those in the lower to middle income brackets. The value of both federal and state tax credits is determined primarily by income level, marital status, and number of dependent children.

    Passed by Congress, the federal government first established the CTC as part of the 1997 Taxpayer Relief Act. Under this act, the tax credit was $400 for each child under 17 and nonrefundable. When the child tax credit was initially enacted, it was primarily a nonrefundable tax credit for middle-income families with children. Through legislative changes, eligibility for the credit has expanded to both lower and higher-income families, and the amount of the credit has also generally increased for recipients. 

    Refundable vs Nonrefundable Child Tax Credit

    In 2001, the tax credit amount increased and was made refundable to coordinate with the Earned Income Tax Credit (EITC), a refundable earned income-based tax credit available to lower income workers. The refundable portion is called the Additional Child Tax Credit. In 2012, the American Taxpayer Relief Act increased the value of the federal child tax credit to $1,000 and increased the income threshold to correspond with the earned income tax credit. By 2017, the Tax Cuts and Jobs Act doubled the tax credit to $2,000 and made limits to the refundable amount of up to $1,400 per child. The act will expire on December 31, 2025. 

    The CTC is nonrefundable and deducted from the amount of income tax a family owes. Hence, if a family owes $6,000 in taxes and is eligible for a $2,000 CTC, its remaining tax that needs to be paid would be $4,000. However, if a family owes $3,000 and its Child Tax Credit is $4,000, its tax bill would be $0. The taxpayer could receive a $1,000 refund from the remaining CTC through the Additional Child Tax Credit. The Additional CTC is a refundable credit that you may receive if your CTC is greater than the total amount of income taxes you owe. Therefore, if a family is eligible for a $2,000 CTC and its taxes are only $1,000, the remaining $1,000 credit would be refunded.

    The Child Tax Credit on a State Level

    In addition to the federal CTC, twelve states—California, Colorado, Connecticut, Idaho, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oklahoma, and Vermont—have enacted their own CTC. All but three of these states—Idaho, Maine, and Oklahoma—have made the CTC refundable. Eligibility requirements differ among states’ child tax credits. The COVID-19 pandemic worsened economic burdens for many families, and recent legislative trends suggest states are increasingly considering a CTC. Since 2019, Hawaii, Illinois, Iowa, Kansas, Michigan, Missouri, Oregon and West Virginia have introduced legislation to create state-level child tax credits. California and New York have both introduced legislation to expand their current state CTC.

    The Child Tax Credit on a Federal Level

    In 2021, President Joe Biden unveiled a $1.9 trillion legislative package, the American Rescue Plan Act (ARPA), to provide economic relief to working families, communities, and small businesses across the nation due to the COVID-19 pandemic. Under the ARPA, the CTC temporarily increased from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six, and raised the age limit from 16 to 17. Families qualified if their annual income did not exceed $150,000 for those filing a joint return and for qualified widows or widowers, $112,500 for those filing as the head of their household, or $75,000 for a single filer or one who is married and filing a separate return. Parents and guardians with higher incomes were considered eligible to claim a partial credit. 

    The ARPA temporarily made the tax credit fully refundable and paid out half of the total credit in monthly payments for the first six months rather than once per year. The monthly payments ran from July to December 2021, with families receiving in cash up to half the credit’s total value. That included $300 per month for each child under age 6 and $250 per month for each child ages 6 through 17. Families received the remaining credit when they filed their tax returns in 2022. The CTC enacted in the ARPA was valid until 2021. As of 2022, the child tax credit has reverted to $2,000 per child under 17 with no advance monthly checks. According to his Build Back Better Agenda in the ARPA, President Biden states that this new Child Tax Credit should be extended for years to come. However, conservative politicians call for a revised CTC as they find weaknesses in President Biden’s CTC. 

    Arguments for the Child Tax Credit Expansion

    With the expanded CTC from the ARPA being a temporary action, President Joe Biden and Congressional Democrats have proposed extending it through 2025, or even making it a permanent action. The Social Policy Institute’s Child Tax Credit Panel Survey studies the effect of the expanded CTC on families using a probability-based online panel, which surveys a nationally representative group of 1,782 American parents eligible for the credit and a comparison group of 2,015 ineligible households. The survey specifically compares the employment, well-being, and financial security outcomes of families before and after receiving six months of CTC payments. The results showed that families used the CTC refunds to cover routine payments without reducing their employment. The most common reported uses for the CTC were: housing and utilities (70%), clothing or other essential items for children (58%), purchasing more food for the family (56%), saving for emergencies (49%), and paying off debt (42%). Eligible families experienced improved nutrition, decreased reliance on credit cards and other high-risk financial services, and made long term educational investments for both parents and children. 

    The expansion helped families recover from the COVID-19 pandemic in 2021, reducing child poverty by roughly 30%. These monthly payments had this impact on child poverty because the expansion of the ARPA lifted restrictions on the child tax credit. Under the old rules, at least 23 million children didn’t qualify to receive the full benefit because their families didn’t earn enough. The first payment in July kept 3 million children out of poverty, and the monthly child poverty rate fell from 15.8% to 11.9%. By December, the CTC was keeping 3.7 million children out of poverty. After six months the child tax credit payments have, in effect, reduced child poverty in the U.S. by about 30%. Around 70% of CTC recipients who were negatively affected by inflation said the CTC payments helped them to better manage higher prices. After the payments stopped however, the child poverty rate increased by 41% between December 2021 and January 2022.

    Arguments Against the Child Tax Credit Expansion

    Policymakers that oppose the CTC expansion argue that it costs taxpayers too much. According to the Tax Policy Center, the price of reverting to the CTC benefits prior to the ARPA for 2022 would be approximately $125.5 billion of total tax expenditures. In comparison, continuing the expanded CTC would cost about $100 billion more than reverting. Thus, Congressional Republicans including Senator Mitt Romney, Richard Burr, and Steve Daines suggest a CTC proposal of their own. 

    In their Family Security Act 2.0 proposal, families would receive monthly cash benefits amounting to $350 per month for each child under the age of 5 and $250 per month for each child from the ages 6 to 17. The benefit would be limited to up to six children annually. In order to receive the full benefit, families would have to earn $10,000 in the previous year. Those who earn less than $10,000 would have their credits reduced proportionally to their earnings. For high income families, the proposed CTC would start to phase out at $200,000 in income for single filers and $400,000 for joint filers. For every $1,000 earned above those thresholds, the credit would be reduced by $50. The Earned Income Tax Credit  would undergo cuts to both the phase-in rate and the maximum credit available to single parents and married couples with children. In total, those changes represent an annual savings of $92.9 billion.

    The EITC is a tax refund believed to be an incentive for work because it is based on taxpayers’ income. Up until the expanded CTC of the ARPA, the CTC was similar to the EITC in that a taxpayer received credit based upon how much they worked. However, President Biden eliminated that feature and provided a CTC to everyone. Hence, those who oppose the expanded CTC are concerned that it will eliminate an incentive to remain in the workforce. The incentive to work can be explained by the substitution effect in economics. In other words, if wages increase, then work becomes relatively more profitable than leisure. If someone can have enough money without working, fewer people might work. In a recent study based on data that combines information from the Current Population Survey with administrative data on earnings, retirement income, federal benefit programs and taxes, it was initially confirmed that child poverty would drop 34% with Biden’s expanded CTC. However, applying the substitution effect modeled that 1.3 million workers would drop out of the workforce because of the money provided by the CTC. Child poverty would then only decrease by 22%.

  • US Response to the EU Energy Crisis

    US Response to the EU Energy Crisis

    Over the course of the past six months, the United States committed to several EU-U.S. trade agreements to support the European economy in the wake of the Russian invasion of Ukraine. The US aims to reduce the European Union economy’s dependence on Russian gas and oil. The EU and the US have restricted energy imports from Russia, and Russia has responded with energy-related sanctions.

    Background Information

    According to the European Commission, the EU imported 155 billion cubic meters

    of natural gas from Russia, as well as €48 billion worth of Russian crude oil and €23 billion worth of Russian refined oil in 2021. During this same year, crude oil was one of the largest energy imports into the EU, amounting to 62%, followed by natural gas at 25%, the majority of both coming from Russia.

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    Within the EU, Germany is Europe’s largest importer of Russian gas, importing 42.6 billion cubic meters of gas in 2020, followed by Italy who imported 29.2 billion cubic meters of gas in the same year.

    Russian sanctions on EU fuel imports were devastating given the EU’s dependency on natural gas and crude oil. Russia imposed sanctions in May 2022 on European subsidiaries of the state-owned energy giant Gazprom who categorized these sanctions as “a ban on the use of a gas pipeline owned by EuRoPol GAZ to transport gas through Poland [and to the rest of the EU].” Since Russia’s sanctions were implemented, the EU has attempted to find new alternatives to Russian oil and gas, and some—including Germany—are rationing oil consumption to mitigate the sudden loss of fuels. 

    Current Discussion 

    Due to its dependency on Russian fuels, Germany initially opposed EU plans to target the Russian energy sector.

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    However, three months after Russia’s invasion of Ukraine, Germany announced support for an embargo on Russian fuel imports, allowing the EU to pass a more aggressive package of restrictive measures against Russia.

    Adopted in June, the new package has five main elements: 

    • Restricts oil imports including an immediate embargo on all crude oil and refined oil products and a gradual embargo on petroleum products and seaborn crude oil for countries lacking the infrastructure to fully transition to non-Russian energy. 
    • Gradually restrict Russian oil transportation to “third world” countries.
    • Prohibits financial relations with the Russian government and state-owned entities, as well as with three major Russian banks and one Belarusian bank.
    • Suspends three Russian State outlets from broadcasting as well as advertising for Russian products and services.
    • Expands the list of banned items to include any additional chemicals and technologies that could be used to manufacture chemical weapons as well as halts exports to entities in many sectors, including weapons and scientific research.

    As a result of the increased severity of EU restrictions on Russian gas and fuel, the EU turned to the U.S and began importing liquified natural gasses (LNGs) and other fuel sources. The EU imported 60 billion cubic meters of LNGs from the United States since April 2016, and experienced a surge in U.S. LNG imports since 2019. 

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    The United States announced it will supply 15 billion cubic meters of LNGs to the EU to mitigate the developing energy crisis abroad. In March 2022, President Biden and European Commission President Ursula von der Leyen announced a joint task force to reduce the EU’s dependence on Russian fossil fuels. 

    The Task Force has two primary objectives: 

    • Diversifying LNG Supplies in Alignment with Climate Objectives: the United States will work to ensure at least 15 billion cubic meters of LNG exports to the EU in 2022 with the intention of increases in the future and both entities will work to ensure that any and all expansions of LNG import/export infrastructure will prioritize sustainability and efficiency.
    • Reducing Demand for Natural Gas: both the EU and the US commit to decrease dependency on natural gas by accelerating market deployment of clean energy measures through funding advancement of renewable energy technologies.

    Concerns

    This Task Force will cost about $60 billion dollars. Currently, the EU does not have LNG import infrastructure to sustain this ambitious plan. Most of the regasification facilities in the EU are in coastal countries, so central European countries will have difficulty accessing the LNGs after they have been processed. The United States will also need to build more LNG export facilities as current liquefaction plants have reached maximum capacity. The construction of these facilities would cost upwards of $10 billion in investments. 

  • Understanding US-EU Agricultural Trade Policy

    Understanding US-EU Agricultural Trade Policy

    With both, the U.S. and the EU embrace similar ideologies such as their prioritization of democracy and the maintenance of a liberal economy, and often agree on how to respond to various international conflicts, one being the recent invasion of Ukraine. However, when discussing agricultural trade policy, reaching a consensus that meets both economies’ respective needs has proven difficult.

    Background Information

    Since its conception, the European Union has made it a priority to support farmers, with early EU budgets giving agriculture over 70% of allocated funding. In more recent budgetary breakdowns, the EU has lowered this number to 31% but the priority to protect small farmers is still present in its agricultural systems and policy. For example, in 2016 the EU had around 10.8 million farms with an average size of 47 acres, and the US had 2.1 million farms at an average size of 441 acres. This illustrates differing ideological approaches to agriculture, as the European Union prioritized small farmers while the United States focuses on factory farm agriculture.

    The two economies also differ in attitudes towards food quality and production. Set to expire in 2023, the U.S. Agricultural Improvement Act of 2018—also referred to as The Farm Bill of 2018—increased oversight in agricultural production and addressed food security and climate issues related to the factory farm model. The 2018 Farm Bill provided $428 billion in funding for U.S. farmers over its five-year duration to incentivize responsible agricultural practices.

    In 2020, the European Union announced their Farm to Fork Strategy which prioritizes freshness, fairness, and accessibility of food systems. The Farm to Fork Strategy aims to: 

    • Make food systems more sustainable.
    • Combat the loss of biodiversity throughout the region.
    • Help mitigate the effects of climate change.
    • Protect the accessibility of healthy foods by combating price increases.

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    The EU also announced its willingness to support a global transition to similar models, which directly threatens the models in place in the United States. The Farm to Fork Strategy led to more restrictions on geographical indication labels. These labels provide an official indication of where certain products are produced in order to protect the tradition and history of certain regions’ cuisines and cultures. Much like the general aims of the Farm to Fork Strategy, there is no equivalent to the EU’s geographical indications labels in the United States, creating another point of conflict. 

    Recent Conflicts 

    In recent years, tensions rose when the U.S. enacted tariffs on steel and aluminum in 2018. Intended to protect US-based steel and aluminum producers, these tariffs taxed 25% on imports of steel and 10% on imports of aluminum. This import tariff, paired with a threat to tax foreign imports on cheese and champagne, led the French government to announce their intentions to limit trade with countries that did not meet EU agriculture standards, including the United States. 

    The relationship between the United States and the European Union faced another point of conflict with the Appellate Body crisis in 2019. The United States blocked the appointment of new judges to the World Trade Organization (WTO)’s Appellate Body. After two of the three remaining Appellate Body members’ terms expired, the Appellate Body lacked the quorum necessary to hear appeals, which in effect blocked the dispute settlement system, leading many to doubt the WTO’s role in enforcing multilateral trade rules. The U.S. objected to new appointments over concerns the WTO judges acted in a way that infringed on U.S. sovereignty.

    Current Strategies

    President Biden has begun to roll back many restrictions put in place by the previous administration. President Biden lifted the tariffs on steel and aluminum and established the U.S.-EU Trade and Technology Council (TTC). The TTC aims to demonstrate how a democratic and market-oriented approach to trade and technology can improve the prosperity and quality of life of both EU and U.S. citizens. Stated goals for the TTC include:

    • To cooperate in development and production of new technologies to reflect shared democratic values, including the prioritization of human rights.
    • To ensure that trade policies and the deployment of new technologies reflect and are informed by national security and scientific priorities as well as commercial and economic priorities.
    • To encourage competitiveness within the transatlantic economy and ensure joint leadership in setting global norms for new technologies that are based on U.S.-EU shared democratic values.
    • To retain leadership in STEM for the US and allies whilst fighting authoritarian influence in emerging and digital technology spaces.

    Future Developments

    The European Union and the United States have announced priorities for improving agro-food trade policy moving forward. These priorities include: 

    • Protecting geographical indications (GIs) for exported EU products.
    • Ensuring that the EU standards for agriculture are adhered to and respected.
    • Securing enhanced access to the U.S. market for products such as chocolate, diary, and processed meat products.
    • Addressing barriers that limit U.S. firms’ access to the EU market by further liberalizing bilateral trade agreements and investment ties.

    In an attempt to meet these goals, the EU and the U.S. have proposed a Transatlantic Trade and Investment Partnership (T-TIP). The T-TIP is a comprehensive trade and investment agreement meant to provide more transparency for both entities while maintaining high standards in health and safety. Through the T-TIP, both countries would experience a decrease in restrictive tariffs which would theoretically increase access to foreign goods as well as increase employment in both respective regions. However, many economists are concerned over the lack of transparency surrounding the agreement’s negotiations and fear that the minimal agricultural standards in the United States could negatively impact the economic prosperity of small EU farmers. 

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  • What Was the Trans-Pacific Partnership?

    What Was the Trans-Pacific Partnership?

    The Trans-Pacific Partnership(TPP) is a free-trade agreement created as an extension of the Trans-Pacific Strategic Economic Partnership which contained Brunei, Chile, New Zealand, and Singapore. More well-known free-trade agreement examples are NAFTA and USMCA. In a free trade agreement, parties are usually not able to tariff, tax, or discriminate against the other agreeing parties. Parties are usually required to follow specific rules, regulations, and laws involving their economic trade and internal legal system in regard to matters such as copyright and labor protections. Proponents of free trade agreements often argue they cause economic growth and expand a country’s environmental and labor protections to other countries which may have worse or no protections. Opponents often argue that jobs are lost and companies will exploit cheaper labor supply to benefit from the new low trade taxes, contributing to wealth inequality.

    Benefits and Goals of  the Trans-Pacific Partnership

    The Trans-Pacific Partnership was a major part of Barack Obama’s foreign and economic policy. Two main benefits include: 

    1. Growth in middle-class jobs and therefore the United States economy: Most US economic growth has come from international trade in the past decade and Asia’s importance and share of the world economy is predicted to continue growing. In addition, the deal included stronger environmental regulations, protection of American companies from discrimination, and stronger union and labor protections. Obama saw these benefits and protections as a major boost to the United States economy by making trade an equal playing field. This equal playing field was supposed to emerge due to the combination of smaller goals helping to prohibit companies from stealing American intellectual property and out-competing America with cheaper labor.
    2. Competition with China: The Obama administration was concerned that if the United States did not create a deal with these countries they would turn to China. An overarching goal of the Obama administration was to use economic connections and influence from the TPP to contain China. If China created its own free trade agreement, Chinese-style laws and economic regulations would proliferate in the region rather than American-style policies.

    The Drawbacks and Collapse of the Trans-Pacific Partnership

    Opponents argued that the TPP would lead to greater income inequality and an overall loss of jobs. These opponents often argued that the TPP would not help GDP growth, destroy close to half a million jobs, and mainly help large companies. Americans were reminded of current trade deals such as WTO-China and NAFTA where opponents also disputed the economic benefits and claimed they would destroy jobs and raise income inequality. President Trump was a vocal opponent of the agreement, and the US withdrew from the TPP in 2017 when Trump took office. Trump favored a targeted approach with each individual country. The other countries moved forward without the United States, and new members join the agreement each year. However, the US has struggled to negotiate individual agreements with a diverse set of countries.

    Future of the Trans-Pacific Partnership

    With another recent change in administration, the Trans-Pacific Partnership has resurfaced as the Indo-Pacific Economic Framework for Prosperity(IPEF). This partnership has risen at a time when Americans have a record low opinion of the Chinese government on a host of issues. Americans have developed negative opinions toward China due to Covid-19, the Hong Kong crackdowns, and the Uyghur genocide. Americans previously held a neutral perspective on China, and this fall in opinion has transformed tariffs and other economic restrictions placed on China by President Trump from a controversial and partisan issue into a commonly supported idea by members of both parties. 

    Data from a 2019 survey and a separate 2022 survey 

    At the same time, American opinions toward foreign trade and trade agreements have grown greatly and reached all-time highs.

    Data from https://www.pollingreport.com/trade.htm

  • Introduction to Greenhouse Gas Pollution and Regulation

    Introduction to Greenhouse Gas Pollution and Regulation

    Introduction

    Greenhouse gas pollution is a main contributor to climate change. Carbon dioxide and methane are examples of greenhouse gas pollutants, and human activities such as energy production and transportation emit them (see Figures 1 and 2). The Intergovernmental Panel on Climate Change (IPCC) has declared that global greenhouse gas emissions must be reduced by 50% by 2030 to prevent catastrophic and potentially irreversible effects of climate change. However, current emissions reductions by governments are not projected to meet that goal.

    Corporations, governments, and consumers all contribute to greenhouse gas pollution. One study indicates 100 companies are responsible for 70% of greenhouse gas emissions. In addition, the United States is known to be the “the largest historical emitter” and currently has the second highest rate of greenhouse gas emissions in the world. Therefore, reducing the United States’ greenhouse gas emissions could have a significant impact on climate change.

    Figure 1.Total Greenhouse Gas Emissions in 2019Image courtesy of the EPA Figure 2.Image courtesy of the EPA 

    Current State of Policies in the U.S.

    In the United States, national policies regarding greenhouse gas pollution involve federal legislation like the Clean Air Act and international agreements such as the Paris Climate Accords. 

    • Federal Policies: The Clean Air Act of 1970 is a landmark piece of legislation that called for the implementation of air quality standards. The law tasked the Environmental Protection Agency (EPA) with creating and enforcing limits on air emissions from both mobile and industrial sources. The law also gave regulatory power to individual states, giving them the authority to implement their own programs and monitor or report violators. These measures include the creation of National Ambient Air Quality Standards, State Implementation Plans, New Source Performance Standards, and National Emission Standards for Hazardous Air Pollutants. In 2007, the U.S. Supreme Court ruled that the definition of “air pollutants” includes greenhouse gasses, giving the EPA a stronger basis for arguing for the mitigation of climate change through pollutant regulation. The Energy Act of 2020 is another major federal law seeking to combat climate change through energy efficiency and innovation. Its main goals are to increase energy efficiency, modernize the energy grid, and advance research and development in renewable energy, nuclear energy, and carbon capture technologies. Specifically, it directs the Department of Energy to research and develop energy storage, nuclear, geothermal and carbon-capture technologies to advance a gradual shift away from fossil fuels.
    • International Agreements: The Paris Agreement is an international accord that seeks to limit climate change to within 1.5°C. The agreement was adopted in 2015 by 197 countries, including the United States. Nations submitted emission reductions targets, or intended nationally determined contributions (INDCs), and these commitments are expected to strengthen overtime. For transparency and accountability purposes, the Paris Agreement keeps record of progress updates. While the Trump Administration withdrew the United States from the Paris Agreement, the Biden Administration rejoined and committed to reducing emissions “by 26 to 28 percent below 2005 levels by 2025.”
    • State Policies: There are many non-federal policy options and proposals for greenhouse gas regulation. They include carbon pricing frameworks like carbon taxes or cap-and-trade programs, national or state-level renewable energy portfolio standards, energy resource efficiency standards, and tax credits for individual incentivization.

    Arguments for Government Regulation of Greenhouse Gasses

    The majority of US residents view climate change as a major threat and many have called for greater government involvement in tackling it. Although individuals are taking steps to reduce their emissions, a large proportion of emissions comes from corporations and industrial activity. Proponents of greenhouse gas regulations argue government involvement is necessary to reduce emissions because governments have the power to regulate companies in a way that individuals do not. For example, the government has the authority to impose carbon pricing frameworks, enforce emission reduction deadlines, and hold industries accountable for violations of clean air laws. 

    The Build Back Better Act is the most significant proposition addressing climate change in American history. Energy efficiency projects, electric vehicles, and climate change research would all receive funding from the bill. In addition, the act would provide jobs for citizens by guaranteeing clean energy technologies and materials be made here in the United States. Lastly, the Build Back Better Act proposes strategies to reduce the cost of transitioning to clean energy, and make eco-friendly living more accessible to middle class families. The Build Back Better Bill has stalled in the Senate, and it is not currently expected to be passed into law. 

    Economic Concerns

    Most of the American public, including over 75 percent of Republican voters, is concerned about the threat of climate change and supports some sort of greenhouse gas regulation. However, Republican legislators remain firmly opposed to greenhouse gas regulations, citing mainly economic concerns. The resistance stems from a desire for U.S. energy self sufficiency, avoiding rising household consumption costs, and ensuring grid stability. 

    Many supporters of deregulation are impressed by the economic benefits the United States enjoyed from an increase in oil and natural gas production; they point to increased competitiveness in international markets, added domestic jobs, and a more favorable balance of trade. Some argue energy policy should be an ‘economics leads’ approach, meaning the sector should prioritize first and foremost economic potential while demand is high, and if it decreases, oil and gas consumption may phase out on its own. Through this lens, they assert that increased greenhouse gas regulation in the U.S. will not aid in achieving emissions goals; rather, it will increase imports and dependence on energy sources globally. Therefore, the environmental impact of oil/gas production may be higher once transportation emissions and potentially less regulated foreign replacement fuel emissions controls are accounted for. In theory, by following economics and halting regulation, emissions will gradually decline and economic shocks can be avoided.

    Others argue that the costs of increased regulation are too high for common people and families when compared to the predicted benefit of increased bureaucratic regulations. Some conservatives suggest greenhouse gas regulations could raise household energy prices, which would burden households and slow consumption. Opponents of greenhouse gas regulation argue that carbon pricing could cause a twofold problem for average Americans: first, that it would destroy American jobs, leading to outsourcing, and second, that energy producers would pass on the cost of carbon pricing to consumers.

    Finally, critics highlight concerns over the stability of the electricity grid as renewable energy becomes increasingly common. Electricity generation from wind and solar resources are highly variable, which some argue poses risks to the energy grid’s reliability. Skeptics of renewable energy have also blamed renewable energy for large-scale blackouts, like those in Texas in February 2021.  Overall, opponents of greenhouse gas regulations have long pointed to the risks of grid instability and economic harm in arguing against governmental regulation and renewable energy production.

    Future Regulation

    Future regulations are uncertain as the pending Supreme Court Case, West Virginia vs. EPA, has the potential to undermine the current scope of regulatory ability and power of the EPA and the federal executive branch. The case challenges their authority to regulate greenhouse gas emissions under the Clean Air Act, and observers expect the Court to rule against the EPA. The ultimate decision will be indicative of the level of climate action that the Biden Administration can accomplish and the future of greenhouse gas regulation in the United States.

    The international community is already designating specific environmental concerns to the United Nations Climate Change Conference 27th Session Conference of Parties (COP27) agenda. The main action areas for this conference are emissions reduction, with a specific call on the U.S. and other G20 nations to take leadership positions. Governments have also agreed on the need to address climate change impacts, adaptation, and climate finance at large. The UN has highlighted the urgency of these greenhouse gas emissions reduction goals and the combined commitment of governments, civil society, and the private sector in order to meet the 1.5°C ambition.