In “Don’t Fear the Deficit,” Roosevelt Fellow JW Mason and Senior Associate and Research Assistant Kristina Karlsson argue that every candidate’s plan to combat the climate crisis—as of October 2019—is affordable and can be paid for without imposing broad-based taxes on working and middle-class Americans. In fact, due to persistently low interest rates, all of these plans could be entirely financed through debt. They could also be financed through taxes on the very rich, with the added benefit of redistributing wealth and power in our society away from the 1 percent. Or, of course, they could be financed through some combination of the two. In addition, ongoing slack and weak demand in our economy following the Great Recession mean that there is plenty of untapped potential to be put toward a public investment program as part of a Green New Deal (GND). Thus, the notion that climate investment will pull limited resources away from other important activities is unfounded. Indeed, in an economy operating persistently below capacity, increased government spending programs can help stimulate demand, which may actually raise private spending, catalyzing lasting growth and moderating future recessions.
To be clear, no candidate has proposed financing their climate plan entirely with debt or entirely through new taxes on very high incomes and wealth; each proposes a variety of financing solutions, including ending fossil fuel subsidies, and, in some cases, a carbon tax. The purpose of this brief is to explore the economic feasibility of these plans by showing that, in principle, any of them could be funded in today’s economic environment without any broad-based taxes on working and middle-class Americans or cuts to other spending programs.
Key findings include:
- New (federal) spending plans for a GND from Biden, Harris, Booker, Warren, Inslee, O’Rourke, and Sanders fall well within the threshold established in Decarbonizing the US Economy, which argues we can add at least 5 percent GDP in new debt-financed spending for 10-15 years without putting the federal debt on an unsustainable path.
- It is also possible to fund the proposed plans with taxes that are narrowly targeted at the top 1 percent.
- Finally, Mason and Karlsson present evidence that, due to weak demand and continued slack in our economy, the real resources for a GND are available—and without having to cut investments in other areas or reduce household consumption. In fact, increasing public spending to this degree is likely to create jobs, raise wages, and increase growth.
Ultimately, we can afford to pay for climate policy mobilization at the scale that candidates are proposing to move us toward a GND; and it can be paid for through debt, through taxes, and through economic growth. In short, we should not be debating the cost of candidates’ various plans, but we should explore which proposals will most effectively achieve the urgent goals of reducing carbon emissions and promoting equity and economic security.