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Homer Simpson’s Bear Tax: DC Edition

November 21, 2013 5 minute Read by Ike Brannon

For those of you who haven’t committed the Simpsons' canon to memory, shame on you. Nevertheless, here’s the gist of the vignette my clever headline references: A bear wandered into the Simpsons' hometown of Springfield and traipsed through the streets. The outraged citizenry demanded that mayor Quimby do something about it. He duly instituted armed bear patrols through town to prevent another occurrence. A few months later, the citizens were presented a bear-patrol tax which led them to become outraged and march on city hall in protest.

This brings us to our current tax crisis in the nation’s capital. About 18 months ago an intense storm (called a derecho) swept through town, taking down numerous trees along with utility lines. A few neighborhoods went without power for over a week as the local utility struggled to respond to a storm that did damage throughout its entire coverage area.

The extended period without power left people angry, which in turn led to the community activists and city councilmen becoming angry as well. To prevent another such occurrence, the activists and local politicians suggested that Pepco, the local power utility, bury any overhead power lines, a costly practice currently limited to the more dense neighborhoods close to downtown or along a metro line. They invoked the scourge of global warming to bolster their case, suggesting that warming will likely result in more intense storms in the future, making the investment even more cost-effective for Pepco.

Last week the broad outlines of a plan to do precisely this were revealed. The price tag comes to roughly $1 billion, to be split between the city and Pepco.

The plan has angered the citizenry and activists anew, as they never intended for Pepco’s customers or D.C. taxpayers to be on the hook for such a cost. They wanted the big faceless corporation to pay for it without burdening customers.

Of course, the people of Washington, D.C., will be the ones who pay for this plan in some way. The owners of the utility — the shareholders — have no pressing interest in seeing that these wires get buried unless it is cost-effective to do so, and it’s a bit soon to assume that climate change will accelerate the frequency and intensity of storms enough to make such an investment cost-effective. Those investors paying attention will press management to resist doing this if it’s coming out of their returns.

The utility’s employees also aren’t about to agree to lower wages to finance such an investment — not that the regulator that oversees the utility would ever acquiesce to such a plan even if the unions did.

If the owners of capital and labor resist paying for the billion-dollar investment, that leaves the customers holding the bag.

At least the city council recognized this fact — sort of — and helped reduce some of the cost to ratepayers, although it’s a distinction without much of a difference, save for the slight distributional difference between ratepayers and taxpayers.

This food fight over a measly billion dollars (I will invoke the Dirksen rule here) here in the nation’s capital illustrates how tough it will be to come up with a comprehensive corporate tax reform.

Reducing the corporate tax rate — even if done in a revenue-neutral way, paid for by the elimination of various tax breaks — will produce winners and losers. The losers will complain loudly, of course. But there will be no shortage of vitriol about whatever companies end up with a lower tax bill from reform.

All we can do is remind people that corporations don’t pay taxes: People pay taxes, and those who bear the brunt of the corporate income tax are the workers, in the form of lower wages. And while we’re reminding them, we could point out that a sensible corporate tax reform would produce more economic growth to boot, benefiting everyone.

But whether anyone hears us is another thing entirely.


Author

Ike Brannon
Ike Brannon

Ike Brannon served as an Economic Growth Fellow of the George W. Bush Institute from 2012 to 2015. He has a Ph.D. in economics from Indiana University and a B.A. in math, Spanish, and economics from Augustana College. View his full bio

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