Carbon Regulation: Options and Challenges for Russia

The paper focuses on main economic instruments for greenhouse gas emissions regulation (carbon tax, cap-and-trade, hybrid instruments) and aims at revealing the possible ways of emissions regulation in Russia. The main objective is to identify criteria of instrument choice and develop the framework of optimal instrument design required for establishing national system of greenhouse gas emissions regulation in Russia. First of all, the main outcome of the paper is that the choice of instrument is secondary to the establishment of the quantitative target of emissions reduction: with the current target, the use of any economic instrument is meaningless. Secondly, under current conditions of uncertain economic and technological pathway, critical dependence on energy prices along with institutional underdevelopment of Russia, the optimal system should contain the elements of price regulation. It should also be simple and transparent. Carbon tax is therefore considered to become the possible option, although, being not just the add-on to the fiscal system, but an integral component of largescale low-carbon development strategy of Russia.

Can removing the tax cap save Social Security?

The maximum amount of earnings in a calendar year that can be taxed by Social Security is currently set at $118,500. In this paper, I examine if removing this cap can solve Social Security’s future budgetary problems. I find that when this cap is removed, benefits need to decline by less than 4% to keep Social Security solvent, compared to by almost 12% when the cap is held fixed at its current level. Households for whom the cap expires respond by working and saving less, which reduces labor supply, capital stock, and output, and also reverses some of the initial expansion in Social Security’s revenues. Elimination of the cap alters the pattern of redistribution implicit in Social Security, and also imposes larger distortions on labor supply and saving, which reduces overall welfare.

A Revenue-Based Approach to Saving Social Security

Social Security is a politically popular, broad-based social program that pays benefits to workers and/or their dependents upon disability, retirement, or death. Currently, Social Security expenditures exceed revenues. Without intervention, Social Security will have to reduce benefits to 77 percent of the scheduled amount in 2033 and by more in later years. This paper proposes a two-pronged revenue-based approach that would rebalance the Social Security trust fund for at least the next 75 years while improving program equity. The first proposed change is to remove the cap on taxable earnings. The second is to introduce a 7.7-percent “retirement security surtax” on investment income that aligns with the Affordable Care Act’s Net Investment Income Tax. While analysts have previously considered the effect of removing the Social Security tax cap, the expansion of the tax base to investment income is a new solution that has not previously appeared in the literature. The combination of these two approaches should produce a stronger, more equitable system that improves retirement security for all covered workers.