Some Very Rough Numbers on a Green New Deal

A couple of recent developments got me thinking again about the possibility of a green new deal.

The first was the “Marshall Plan for the United States” developed by the Center for American Progress (CAP). Observing that wages are lower and unemployment is higher among Americans without college degrees, they propose a jobs guarantee aimed at putting these Americans back to work at well-paying jobs in education, healthcare, and various forms of care work. For, they note,

There are not nearly enough home care workers to aid the aged and disabled. Many working families with children under the age of 5 need access to affordable child care. Schools need teachers’ aides, and cities need EMTs.

They suggest, too, that in addition to jobs, the government ought to fund infrastructure projects and apprenticeship programs to train people for jobs for which they are not currently qualified.

The other was the Democrats’ “Better Deal” initiative, which also advocates job training and infrastructure investment.

All of this seems great. A jobs guarantee empowers labor by reducing the power of the sack, and because, on the CAP plan, these jobs would be relatively well-paid at $15/hour or $36,000/year after Medicare and Social Security taxes, they would have the welcome effect of putting upward pressure on wages throughout the economy. Moreover, jobs like these that help us to sustain and improve our lives are precisely the sorts of jobs we need more of as we seek to build a low-carbon economy.

The reason all this got me thinking about a green new deal is that, their appeal notwithstanding, these plans leave out a kind of work that is absolutely crucial to building a better world: the construction and maintenance of green infrastructure, including not just grid improvements and solar panel and wind turbine construction but also the infrastructure necessary to expand opportunities for low-carbon leisure. Not only is this work necessary; it is very well-suited for exactly the population the CAP analysis is concerned with: you don’t need a college degree to do construction work or to be a solar panel or wind turbine technician, though the latter do require some training.

Maybe the reason for this omission is that we can only fund so many jobs and so have to choose which types of jobs to fund. But it is hardly obvious that green jobs are less important than the kinds of jobs on which the CAP proposal focuses, and besides, we may not have to choose: care work and educational jobs could be funded from one source, green jobs from another. In particular, green jobs might be funded using the revenue generated by a carbon tax and the $20.5 billion we currently spend every year subsidizing the fossil fuel industry.

Senators Whitehouse and Schatz recently proposed a carbon tax that would generate $2 trillion in revenue over 10 years (details here), and that proposal seems to be gaining some traction. Like many such proposals, theirs is revenue-neutral, meaning that the revenue from this tax supplants revenue that would otherwise have been collected by other means, such as the corporate income tax. But a carbon tax needn’t be revenue-neutral. A carbon tax might be structured in such a way that the revenue it generates does not supplant but supplements other sources of revenue, and we might use that new revenue to fund a WPA-style green jobs and infrastructure program.

A WPA worker receives a paycheck, January 1939. Source: National Archives.

Now, as is well-known, carbon taxes are regressive, so some of the revenue from the tax would need to be used to offset price spikes for lower-income people. Fortunately, this might be accomplished using only a small portion of the revenue generated. Estimates as to how much of the revenue generated would be necessary for this purpose appear to range from 10-25% (details here). Just to be safe, we can be conservative in our estimates here and go with the highest estimates. This would still leave 75% of the annual proceeds for other things.

Now it is worth saying that even this number may be too high. We might also want to reserve some of the revenue collected via a carbon tax to seed a rainy day fund for Americans forced to relocate as a result of climate change and for others adversely affected thereby. But even if we used another 25% of the revenue collected for that purpose, we would still collect about $100 billion per year for 10 years. Using the numbers in the CAP proposal as a guide, that should be enough to fund about 2.8 million jobs at an after-tax wage of $15/hr. Were we to also use the $20.5 billion/year we currently spend in fossil fuel subsidies for this purpose, we could create about 570,000 more such jobs, making for a total of 3.37 million jobs. And remember, that’s using the most conservative figures around to make sure that tax isn’t regressive and using an enormous amount of money to help people adversely affected by climate change.

This is, of course, a highly ambitious proposal, one unlikely to get anywhere in the current political climate. Nevertheless it deserves serious consideration for several reasons. Not only is it exactly the kind of bold vision needed to correct the impression that the Democratic Party doesn’t stand for anything. Not only does it have the same advantages as the CAP proposal with respect to the empowerment of labor and economy-wide upward pressure on wages. In addition to all this, it has a distinct advantage over many other carbon tax proposals. Even if this is not exactly the aim, the likely if not inevitable effect of instituting a carbon tax high enough to ensure that the prices of fossil fuels reflect their true cost to society is to end our reliance on such fuels. It is for that reason a bad idea to use the revenues generated thereby to fund anything we expect to continue to need funds after we are no longer using carbon-intensive fuels: otherwise, we set ourselves up for funding shortfalls in the future. The advantage of using revenues from a carbon tax to fund a WPA-style green jobs program is that many such jobs will become unnecessary around the same time we stop using fossil fuels, and not just coincidentally. For these are precisely the jobs that bring into existence the infrastructure we need in order to wean ourselves off of gas, oil, and coal. As soon as they’re done, there will be nothing left to tax.

Notably, this aspect of the proposal also gives to it something of a poetic character: for the proposal is, in effect, to build the new world on the back of the old.