Why energy subsidies encourage price shocks

Plus: Tax reform and inflation; more efforts to fix the Obamacare “family glitch;” and a new interview about higher ed ROI

The unintended consequences of production tax credits: Energy prices are soaring, even as consumer concerns about reliability grow. Unfortunately, as FREOPP Visiting Fellow Grant Dever writes, government subsidies for wind and solar farms are an important but under-appreciated cause of price shocks and grid fragility. 

Subsidies favor intermittent sources of power like wind and solar farms over consistent low-carbon producers like nuclear. That means that when renewables can’t produce enough power, grid operators are forced to turn to inefficient and high-emission alternatives like fuel oil so that families can keep the lights on. Making public policy more amenable to nuclear power is a crucial way to lower costs and improve grid reliability.

How the 2017 Tax Cuts and Jobs Act mitigated inflation: Though most conversations about inflation focus on its effects on households, the impact of inflation on businesses can be just as damaging to the economy—and the pocketbooks of low-income Americans. Because of the interaction between tax law and inflation, FREOPP Visiting Fellow Jackson Mejia writes, if we hadn’t reformed the tax treatment of depreciation and interest, inflation would be even higher today. With these provisions set to expire in a year, however, revisiting tax laws that can mitigate inflation’s damage should be an important priority for lawmakers.

Want a deeper dive on inflation? Check out Jackson and Research Fellow Jon Hartley’s examination of inflation’s compounding impact on the poor.

Fixing Obamacare’s “family glitch” is best left to Congress: Last month, the IRS issued a proposed rule to address the “family glitch” in the Affordable Care Act (ACA) that prevents family members of employees from obtaining affordable coverage. Those seeking to expand coverage under the ACA welcomed the rule but, as FREOPP Resident Fellow Gregg Girvan writes, the proposed rule comes with many potential problems. A legislative fix that allows more Americans to gain access to affordable health insurance coverage as complete household units would be a far better solution. 

The best solution? The Fair Care Act, based on FREOPP’s free-market plan for universal coverage, would address the family glitch while reducing the deficit by more than $150 billion over 10 years. The Act maximizes patient choice through market-based policies that increase insurance coverage while also reducing health care costs.

FREOPP scholar discussion of the real financial value of higher education: As a guest on the Career Education Report podcast, Senior Fellow Preston Cooper discusses his research on the return on investment of more than 60,000 higher education programs and describes how the federal government can create better incentives for institutions to improve low-performing programs.

Thanks for keeping up with FREOPP, and have a great weekend!

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