Take two persons, one paid $10,000 and one paid $100,000. A $90,000 spread. Even a flat tax now imposed would reduce the dollar spread. Say a 10% tax -- now the spread shrinks to $81,000. A progressive tax would shrink the gap even more. Say a 5% tax rate for the low income, a 10% for the higher. Now the taxes would be $500 and $10,000, so the gap would be $80,500.
That is what shaped my thinking when I made my query.
Michael P. was the first to respond and he equated my description of the case as the elimination of a sales tax on electricity, and hence progressive. I guess that gets to the heart of my query. It is correct that it is like the elimination of a sales tax -- but the DOLLAR reduction is much larger for the high income/high use customers. So, is that progressive? It doesn't shrink but rather enlarges the gap in the amount of money income classes are left with afterwards.
Max next laid out the alternatives -- dollars or shares?
Devine argued -- and later elaborated the idea -- that industrial customers seeing a drop in the cost of electricity will be forced by competition (among themselves) to pass along lower prices to their customers, thus adding a second benefit to the residential customers who's first benefit was a drop in their own electric bills. Wow! There's a lot to take on in his post, but it is off the topic, so I won't. There's the glimmer of something here, but so tiny! The high income residential customers, moreover, buy more of the industrial stuff, so if Devine is correct they'll get more of a benefit of that than will low income customers. Is that progressive or ... -- no, sorry I asked.
Max, replying to a part of Michael's first post which I didn't address above, says
Well, yes, and "noticeable consumer benefits" were a major part of the sales effort behind electric deregulation. But they haven't been "noticeable" and deregulation is now widely understood to provide no benefits to residential and small businesses. It is no longer hard to argue against deregulation.politically I'd say if there are noticeable consumer benefits and unnoticeable environmental bad effects dereg will be hard to argue against. what happens to the rich will be of relatively little interest. Getting richer is part of what it means to be rich.
Nathan Newman says in reference to the argument that caused my query:
That was sort of my reaction as I heard the claim being made. Nathan goes on quite a bit about electric de-regulation, and a lot of what he says I disagree with, but those are other issues.As a tax statement, it's both true and silly.
Joel Blau takes up de-regulation issues also -- and him I more or less agree with. But again, off the subject.
Rod Hay asks about the experience with deregulation -- is it giving the benefits promised? No, it isn't. It isn't even delivering the benefits on the energy piece of the total, and rates for the transmission and distribution are going up, quite sharply, and swamping the downward push on the energy side. Plus, in a few short years the energy side will start up as the players work out "cooperation" as has happened with the airlines.
Max adds:
The combined effect of dereg on distribution depends on other effects as well, as Farmer Perelman notes. A proper analysis would factor them all in and show that the initial judgement of progressivity was either right or wrong.
Well, at least here, when you factor it all in, it is abundently clear
that the effect of de-reg on electricity is profoundly ANTI- progressive.
I was taking the two economists on their own ground.
But as some of you noted, the industrial customers
are getting bigger cuts than the residential customers. But beyond
that, and it is very clear, large residential customes are getting, and
are going to get, bigger cuts in the per unit price of electricity than
will the small residential customers. So the initial premise of the
two economists is rediculous -- but I left that out of the query.
Tom Walker, in "Spinhead math 101" (Pen-L 16067) uses as a hypothetical example what happened in actuality in California. If de-regulation hadn't occured, it is clear, and the utilities have publically said it, the rate cuts would have been larger, much larger, than what happened on the energy piece for small customers.
Max then posts a slur on poets -- I'll pass on that.
The last post I've seen is by Roger Odisio -- mostly about de-reg itself, rather than in response to my query.
THANKS, Pen-L, this was helpful!
Gene Coyle
