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It’s Time to End the Preference and Tax Capital Gains as Ordinary Income

It’s Time to End the Preference and Tax Capital Gains as Ordinary Income

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The United States entered the COVID-19 crisis with an unusually large budget deficit for an economy at or close to full employment. Even if employment, output, and growth were to recover quickly to where they were at the end of 2019 (something that is far from certain), the deficit, under current law, will remain large.


The good news is that interest rates are likely to remain well below the rate of GDP growth for the foreseeable future, as they have since the beginning of the century. As long as that remains the case, there is no danger of an “exploding debt” scenario in which a large but constant federal deficit causes debt to grow without limit as a share of GDP. At this point, the greatest danger to the recovery is premature austerity. Still, as the recovery proceeds, we are sure to hear it argued on both economic and political grounds that the deficit should be reduced.


At that point, the search will be on for ways to close the budget gap. Although everyone will roll out their favorite spending cuts, much of the heavy lifting is going to have to come on the revenue side of the budget. As former Trump adviser Gary Cohn put it recently, talking to CNN’s Fareed Zakaria,
Our next Congress, the Congress that sits down in 2021, almost has to sit down and look at our spending and our revenue side. … How we spend money? There are a lot of places where we could cut back. In addition to that, I think they have to look at our tax system and think of ways that we raise revenue.
No area of the tax code is more ripe for reform than the preferential treatment given to capital gains. While incomes from wages and salaries face a maximum tax rate of 37 percent, capital gains on assets held for more than a year, in most cases, are taxed at a maximum rate of just 20 percent.

The benefits of the capital gains tax preference flow predominantly to the rich. Some 70 percent of the benefits go to taxpayers with annual incomes of $1 million or more, who enjoy annual benefits of $145,000 each. Benefits for households with incomes of $50,000 or less average about $10. For years, backers have tried to find broader justifications for this tax break, contending that benefits to the few somehow trickle down to the rest, but their efforts are less than convincing.


Here are some of the many issues raised by the capital gains tax preference, and the many reasons why its elimination should be at the top of the list in the search for additional sources of federal revenue.



Are capital gains really income?


One argument for lenient tax treatment is that even if income is to be taxed, capital gains are not income at all, but only a reflection of a transfer of ownership of an existing asset. If we want assets to come under the control of those who can put them to best use, say defenders of the preference, we should not erect barriers to their purchase and sale. Just as we tax labor income when it is paid out to workers, we should tax capital income only when it is paid out as interest, dividends, royalties, or whatever, but not when ownership of an asset is transferred from one party to another.


That might make sense if it were possible to distinguish cleanly between income and capital gains, but it is not. Instead, it is all too easy to transform income from almost any source into something that looks like a capital gain.


Consider a fanciful example: I make a contract with my wife to supply 2,000 hours of labor over the coming year for a payment of $2,000. Under the terms of the contract, she can, if she wants, call on me to use those hours in any way she wants. She could ask me to mow the lawn and make lasagna for dinner, but she could also sell the local university an option that would allow it to buy my services at the same $2,000 she paid for them. The university willingly pays her $95,000 for the option, which is a good deal for them since they would otherwise have had to pay me $100,000 to teach my quota of courses. When we file our joint tax return come April 15, we will be taxed at the capital gains rate on my wife’s $95,000 income from the option sale, while I report ordinary income of $2,000. Our before-tax income is a little lower than it otherwise would be, but our total taxes are a lot lower.


Although this example seems absurd, the real world is full of situations where businesses can do much the same — structure a transaction to make it look like a capital gain instead of ordinary income. In fact, one law firm advertises an options-based strategy exactly like that described above, except that it is used to shelter income from real estate rather than from labor. Choices like organizing a firm as a partnership instead of a corporation, paying executives with stock options instead of a salary, or imaginatively structuring a real estate deal can also convert ordinary income to capital gains. The strategies are endless.


One of the most controversial ploys is the carried interest rule, which allows hedge fund and private-equity managers to structure the income they receive for their services in a form that qualifies for taxation as capital gains. Even some commentators who are otherwise enthusiastic about lenient taxation of capital gains draw the line at carried interest. For example, David Frum, who thinks a lower tax rate for capital gains is good policy, agrees that the rule is “utterly unjustifiable. If you’re investing with other people’s money,” he says, “What you are earning is income — and it should be taxed as such.” The 2017 Tax Cuts and Jobs Act, which slashed the corporate tax rate, was supposed to close the carried interest loophole, but it ended up making only minor modifications. For the most part, say tax analysts, the rule lives on.


Tax avoidance strategies that convert ordinary income to capital gains would be a problem even if they did nothing but generate inequities and reduce federal revenues, but that is not the whole story. Such strategies may require more than just waving an accountant’s wand over something a firm would do anyway. Instead, structuring transactions to take advantage of specific tax rules often requires changing actual business practices, such as the choice of financing methods, the timing of investments, even the choice of one’s whole line of business. Often, the changes would be unprofitable except for their tax advantages. Although proponents of the capital gains preference claim it supercharges growth and efficiency, tax-induced changes in business practices are a significant drag on the real economy.


Do we need a capital gains preference to correct for inflation?


A second argument used by supporters is that we need low tax rates on capital gains to avoid taxing “phantom” gains produced by inflation. The argument is superficially plausible. When there is inflation, asset owners may be taxed on nominal gains even when real asset values do not increase.


For example, suppose you buy some shares of stock at $100 and sell them for $120 a couple years later. Inflation has meanwhile pushed up the cost of living by 10 percent. That leaves you with an inflation-adjusted pretax gain of just $10. If you pay 37 percent tax as ordinary income on the $20 nominal gain, your tax rate on the $10 real gain is 74 percent. Cutting the rate on nominal capital gains to 20 percent reduces the real rate to 40 percent — not quite enough even to fully level the playing field, but a move in the right direction, it would seem.


But there are two flaws in that argument.


First, any arbitrary rule, such as a fixed lower tax rate or an exclusion of a portion of capital gains, can only crudely approximate the necessary adjustment for inflation. The 20 percent rate that is close to right in the example we just gave becomes too low if inflation slows (as it has in recent years). If inflation instead accelerated, it would become too high. Second, the rate that just levels the playing field for a person in one tax bracket could be too high or too low for those in other brackets.


A more nuanced approach would be to index the basis on which capital gains are calculated to reflect actual inflation between purchase and sale. That would avoid the taxation of phantom capital gains, but not a second, equally serious problem: Other forms of investment income, too, are subject to phantom taxation when there is inflation.


Suppose, for example, that in a zero-inflation world, borrowers would offer a 5 percent coupon rate on top-rated corporate bonds. If the rate of inflation rises to 5 percent, borrowers would be willing to offer a 10 percent nominal coupon rate on the bond, since they know they will be able to pay future interest and principle in less valuable dollars. The 10 percent nominal rate leaves your real return and their real interest cost at 5 percent. So far, so good. But suppose now that you are subject to a 20 percent tax on your interest income. In the zero-inflation case, your interest income after tax is 4 percent. In the inflationary case, you have to pay tax on the whole 10 percent nominal rate, leaving you an 8 percent nominal return after taxes. When you subtract 5 percent inflation, that 8 percent nominal return becomes just 3 percent. In short, even if borrowers adjust nominal interest rates to fully reflect inflation, inflation increases the effective tax rate on bondholders.


The situation would be similar for income from the common stock of a firm that has constant real profit, from which it pays a constant fraction in dividends. Faster inflation would increase the real effective rate of taxation on the dividends.


A helpful 1990 paper from the Congressional Budget Office explores the problem in detail. The paper confirms that faster inflation raises the effective tax rate on investment income, but it points out that the effect is inherently smaller for capital gains than for dividend or interest income. Attacking the problem of phantom capital gains in isolation by whatever means — a preferential capital gains rate, an exclusion, or indexation — only widens the gap between the way inflation affects capital gains and the way it affects interest and dividends. Doing so increases the attractiveness of tax avoidance strategies that involve inefficient business practices.


The ideal solution to distortions caused by inflation would be to index the entire tax system. Indexation would have to cover not only all forms of investment income, but also taxation of ordinary income, real estate, inheritance, and everything else. But trying to remove the effect of inflation on capital gains taxes separately is likely to make things worse, not better.


Do we need the preference to avoid double taxation of corporate profits?


“Double taxation” of corporate profits is a third common argument in defense of lenient tax treatment of capital gains. The idea is that corporate profits are taxed once at the business level and then again at the individual level when they are paid out as management bonuses, dividends, or capital gains.


It is true that a preferential rate on capital gains would be one way to attack the distortion — one way, but a bad one. A much better way would be to fix the flaws in corporate taxes that are the source of the problem rather than apply a Band-Aid to capital gains.


Actually, part of the job was done in the 2017 Tax Cuts and Jobs Act, which lowered corporate tax rates across the board. A further step would be to get rid of the numerous loopholes in the corporate tax system that allow a big chunk of corporate profit to escape taxation altogether while those unlucky enough not to qualify pay much more.


But the 2017 corporate tax cut left a key part of the job unfinished. If we want to enjoy the potential efficiency benefits of corporate tax reform, those taxes should not just be reduced; at the same time they should be shifted to the individual incomes of the managers and shareholders who are the ultimate recipients of corporate profits. To do that would require eliminating the capital gains preference. A regime that had no corporate income tax and full taxation of profits, whether earned by shareholders as capital gains, dividends, or in any other form, would eliminate double taxation once and for all without an unfair redistribution of the overall burden of taxation.


The lock-in effect


The “lock-in” effect is a final problem with capital gains taxation. As the tax is currently administered, people do not have to pay capital gains on an asset until it is sold. As a result, the after-tax return on an appreciating asset increases the longer it is held.


Compare a bond that pays a steady interest income every year to a stock that increases in value by the same amount each year. Over time, the effective tax rate on the stock would be lower even if the statutory tax rate were the same on both interest income and capital gains. The reason is that bondholders have to pay their tax year by year, while stockholders can defer payment of the tax until they sell their shares, possibly many years later.


Moreover, if people still have not sold their stock or other assets when they die, their heirs never have to pay taxes on the capital gains at all. Instead, the value of the assets is “stepped up” to the market value at the time of the original purchaser’s death. In the meantime, the original owners can live quite well by borrowing against the value of the assets. When they die, their heirs can sell enough shares to pay off the loans, without paying capital gains taxes either on those shares or the ones they keep.


The lock-in effect, then, creates an artificial incentive for owners to hold on to stocks or real assets longer than they otherwise would. In many cases, that means that assets do not move smoothly from the hands of those who own them to those of new owners who could make better use of them. Furthermore, the lock-in effect greatly reduces the revenue that the government realizes from capital gains taxes.


Unfortunately, removing the tax preference and taxing capital gains at the same rate as ordinary income would, by itself, make the lock-in problem worse. Assets would move from hand to hand even more slowly than they do now. As a result, the increase in revenue from lifting the capital gains preference would be disappointingly small.


Fortunately, there are ways to overcome the lock-in problem. A recent study from Brookings by Grace Enda and William G. Gale discusses several possible reforms.


Two of the simplest reforms attack the so-called “Angel of Death” loophole that allows heirs to fully or partially escape capital gains taxes. One version would eliminate the valuation step-up at death. Suppose John Sr. buys an asset for $1,000 in 1990 and dies in 2010 when the asset is worth $2,000. John Jr., the heir, finally sells the asset in 2020 when it is worth $3,000. Under the current regime, John Jr. pays no capital gains tax until 2020, and then only on the $1,000 gain that has occurred since the time of inheritance. Without the step-up, John Jr. would pay tax in 2020 on the full $2,000 gain that had taken place since the original purchase. An even stronger version of the same reform would require John Jr. to pay tax on the first $1,000 of the gain in 2010, at the time of inheritance, and pay the tax on the remaining $1,000 when the asset is sold in 2020.


A still more far-reaching reform would be to tax capital gains annually on an accrual or mark-to-market basis. Suppose that your tax rate is 30 percent, and in year 0, you buy 100 shares of stock at $50 a share. They rise in price to $100 in Year 1, fall to $75 in Year 2, and rise again to $150 in Year 3, at which point you sell them. Under mark-to-market taxation, in Year 1 you pay tax of $1,500 on a capital gain of $5,000; in Year 2, you have a negative tax liability of $750 on a capital loss of $2,500, which you can carry forward; and in Year 3, you have a capital gain of $7,500 on which you owe tax of $2,250, $750 of which you cover with the carried-forward loss. Your total tax over the 3 years is $3,000, the same as it would be if you were taxed only at the time of sale, but because there is no deferral of taxes, there is no lock-in effect.


Mark-to-market taxation would be easy to implement for assets like stocks and bonds that were actively traded, but not so easy for hard-to-value assets like real estate or private business interests. An approach called retrospective taxation could be used in such cases. Under that system, capital gains would be taxed at the time of sale, but the tax rate would be higher the longer the asset had been hed. The rate of increase in the tax rate would depend on market interest rates. If it were done right, the cost of the rising tax rate would exactly balance out the benefit of deferring taxes until sale. In short, retrospective taxation would eliminate the lock-in effect without encountering the problem of annual evaluation of hard-to-value assets.


Any of these reforms, alone or in combination, would mitigate the lock-in effect. As a result, capital markets would operate more efficiently, since assets would move more freely into the hands of the owners who could put them to the best use. It would also increase the revenue gain from elimination of the capital gains tax preference.


The bottom line


Those who defend the preferential rate on capital gains are right when they argue that all taxes affect business decisions. But it is a non sequitur to say that because they affect business decisions, capital gains taxes should be as low as possible. The proper conclusion, instead, is that we should consider capital gains taxes in the context of the tax system as a whole:


  • Taxing capital gains at lower rates than other forms of investment income does little to encourage investment in general. However, it does a lot to encourage the structuring of investment in ways that avoid taxes, even if they are inherently less efficient.

  • Theoretically, an ideal tax system would be fully indexed for inflation, but singling out capital gains for special treatment while other forms of capital income are not adjusted actually increases the degree to which inflation undermines the equity and efficiency of the tax system.

  • A case can be made against double taxation of corporate profits, but the proper reform would be to tax capital gains and dividends as ordinary income at the same time that profit taxes at the corporate level were reduced or eliminated.

  • The lock-in effect is real, but the appropriate way to mitigate it would be through elimination of the angel-of-death loophole while taxing all capital gains on a mark-to-market or retrospective basis.

In short, as we look ahead to the likely need for additional federal revenues as the U.S. economy fully recovers from the COVID-19 downturn, a thorough reform of our system for taxing capital gains should be a high priority.


Based on a previous post at NiskanenCenter.org. Photo courtesy of Pixabay.com.



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Russia’s energy war: Putin’s unpredictable actions and looming sanctions could further disrupt oil and gas markets

Russian President Vladimir Putin has not hesitated to use energy as a weapon. An expert on global energy markets analyzes what could come next.

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The new Baltic Pipe natural gas pipeline connects Norwegian natural gas fields in the North Sea with Denmark and Poland, offering an alternative to Russian gas. Sean Gallup/Getty Images

Russia’s effort to conscript 300,000 reservists to counter Ukraine’s military advances in Kharkiv has drawn a lot of attention from military and political analysts. But there’s also a potential energy angle. Energy conflicts between Russia and Europe are escalating and likely could worsen as winter approaches.

One might assume that energy workers, who provide fuel and export revenue that Russia desperately needs, are too valuable to the war effort to be conscripted. So far, banking and information technology workers have received an official nod to stay in their jobs.

The situation for oil and gas workers is murkier, including swirling bits of Russian media disinformation about whether the sector will or won’t be targeted for mobilization. Either way, I expect Russia’s oil and gas operations to be destabilized by the next phase of the war.

The explosions in September 2022 that damaged the Nord Stream 1 and 2 gas pipelines from Russia to Europe, and that may have been sabotage, are just the latest developments in this complex and unstable arena. As an analyst of global energy policy, I expect that more energy cutoffs could be in the cards – either directly ordered by the Kremlin to escalate economic pressure on European governments or as a result of new sabotage, or even because shortages of specialized equipment and trained Russian manpower lead to accidents or stoppages.

Dwindling natural gas flows

Russia has significantly reduced natural gas shipments to Europe in an effort to pressure European nations who are siding with Ukraine. In May 2022, the state-owned energy company Gazprom closed a key pipeline that runs through Belarus and Poland.

In June, the company reduced shipments to Germany via the Nord Stream 1 pipeline, which has a capacity of 170 million cubic meters per day, to only 40 million cubic meters per day. A few months later, Gazprom announced that Nord Stream 1 needed repairs and shut it down completely. Now U.S. and European leaders charge that Russia deliberately damaged the pipeline to further disrupt European energy supplies. The timing of the pipeline explosion coincided with the start up of a major new natural gas pipeline from Norway to Poland.

Russia has very limited alternative export infrastructure that can move Siberian natural gas to other customers, like China, so most of the gas it would normally be selling to Europe cannot be shifted to other markets. Natural gas wells in Siberia may need to be taken out of production, or shut in, in energy-speak, which could free up workers for conscription.

European dependence on Russian oil and gas evolved over decades. Now, reducing it is posing hard choices for EU countries.

Restricting Russian oil profits

Russia’s call-up of reservists also includes workers from companies specifically focused on oil. This has led some seasoned analysts to question whether supply disruptions might spread to oil, either by accident or on purpose.

One potential trigger is the Dec. 5, 2022, deadline for the start of phase six of European Union energy sanctions against Russia. Confusion about the package of restrictions and how they will relate to a cap on what buyers will pay for Russian crude oil has muted market volatility so far. But when the measures go into effect, they could initiate a new spike in oil prices.

Under this sanctions package, Europe will completely stop buying seaborne Russian crude oil. This step isn’t as damaging as it sounds, since many buyers in Europe have already shifted to alternative oil sources.

Before Russia invaded Ukraine, it exported roughly 1.4 million barrels per day of crude oil to Europe by sea, divided between Black Sea and Baltic routes. In recent months, European purchases have fallen below 1 million barrels per day. But Russia has actually been able to increase total flows from Black Sea and Baltic ports by redirecting crude oil exports to China, India and Turkey.

Russia has limited access to tankers, insurance and other services associated with moving oil by ship. Until recently, it acquired such services mainly from Europe. The change means that customers like China, India and Turkey have to transfer some of their purchases of Russian oil at sea from Russian-owned or chartered ships to ships sailing under other nations’ flags, whose services might not be covered by the European bans. This process is common and not always illegal, but often is used to evade sanctions by obscuring where shipments from Russia are ending up.

To compensate for this costly process, Russia is discounting its exports by US$40 per barrel. Observers generally assume that whatever Russian crude oil European buyers relinquish this winter will gradually find alternative outlets.

Where is Russian oil going?

The U.S. and its European allies aim to discourage this increased outflow of Russian crude by further limiting Moscow’s access to maritime services, such as tanker chartering, insurance and pilots licensed and trained to handle oil tankers, for any crude oil exports to third parties outside of the G-7 who pay rates above the U.S.-EU price cap. In my view, it will be relatively easy to game this policy and obscure how much Russia’s customers are paying.

On Sept. 9, 2022, the U.S. Treasury Department’s Office of Foreign Assets Control issued new guidance for the Dec. 5 sanctions regime. The policy aims to limit the revenue Russia can earn from its oil while keeping it flowing. It requires that unless buyers of Russian oil can certify that oil cargoes were bought for reduced prices, they will be barred from obtaining European maritime services.

However, this new strategy seems to be failing even before it begins. Denmark is still making Danish pilots available to move tankers through its precarious straits, which are a vital conduit for shipments of Russian crude and refined products. Russia has also found oil tankers that aren’t subject to European oversight to move over a third of the volume that it needs transported, and it will likely obtain more.

Traders have been getting around these sorts of oil sanctions for decades. Tricks of the trade include blending banned oil into other kinds of oil, turning off ship transponders to avoid detection of ship-to-ship transfers, falsifying documentation and delivering oil into and then later out of major storage hubs in remote parts of the globe. This explains why markets have been sanguine about the looming European sanctions deadline.

One fuel at a time

But Russian President Vladimir Putin may have other ideas. Putin has already threatened a larger oil cutoff if the G-7 tries to impose its price cap, warning that Europe will be “as frozen as a wolf’s tail,” referencing a Russian fairy tale.

U.S. officials are counting on the idea that Russia won’t want to damage its oil fields by turning off the taps, which in some cases might create long-term field pressurization problems. In my view, this is poor logic for multiple reasons, including Putin’s proclivity to sacrifice Russia’s economic future for geopolitical goals.

A woman walks past a billboard reading: Stop buying fossil fuels. End the war.
Stand With Ukraine campaign coordinator Svitlana Romanko demonstrates in front of the European Parliament on Sept. 27, 2022. Thierry Monasse/Getty Images

Russia managed to easily throttle back oil production when the COVID-19 pandemic destroyed world oil demand temporarily in 2020, and cutoffs of Russian natural gas exports to Europe have already greatly compromised Gazprom’s commercial future. Such actions show that commercial considerations are not a high priority in the Kremlin’s calculus.

How much oil would come off the market if Putin escalates his energy war? It’s an open question. Global oil demand has fallen sharply in recent months amid high prices and recessionary pressures. The potential loss of 1 million barrels per day of Russian crude oil shipments to Europe is unlikely to jack the price of oil back up the way it did initially in February 2022, when demand was still robust.

Speculators are betting that Putin will want to keep oil flowing to everyone else. China’s Russian crude imports surged as high as 2 million barrels per day following the Ukraine invasion, and India and Turkey are buying significant quantities.

Refined products like diesel fuel are due for further EU sanctions in February 2023. Russia supplies close to 40% of Europe’s diesel fuel at present, so that remains a significant economic lever.

The EU appears to know it must kick dependence on Russian energy completely, but its protected, one-product-at-a-time approach keeps Putin potentially in the driver’s seat. In the U.S., local diesel fuel prices are highly influenced by competition for seaborne cargoes from European buyers. So U.S. East Coast importers could also be in for a bumpy winter.

This article has been updated to reflect conflicting reports about the draft status of Russian oil and gas workers.

Amy Myers Jaffe does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Three reasons a weak pound is bad news for the environment

Financial turmoil will make it harder to invest in climate action on a massive scale.

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Dragon Claws / shutterstock

The day before new UK chancellor Kwasi Kwarteng’s mini-budget plan for economic growth, a pound would buy you about $1.13. After financial markets rejected the plan, the pound suddenly sunk to around $1.07. Though it has since rallied thanks to major intervention from the Bank of England, the currency remains volatile and far below its value earlier this year.

A lot has been written about how this will affect people’s incomes, the housing market or overall political and economic conditions. But we want to look at why the weak pound is bad news for the UK’s natural environment and its ability to hit climate targets.

1. The low-carbon economy just became a lot more expensive

The fall in sterling’s value partly signals a loss in confidence in the value of UK assets following the unfunded tax commitments contained in the mini-budget. The government’s aim to achieve net zero by 2050 requires substantial public and private investment in energy technologies such as solar and wind as well as carbon storage, insulation and electric cars.

But the loss in investor confidence threatens to derail these investments, because firms may be unwilling to commit the substantial budgets required in an uncertain economic environment. The cost of these investments may also rise as a result of the falling pound because many of the materials and inputs needed for these technologies, such as batteries, are imported and a falling pound increases their prices.

Aerial view of wind farm with forest and fields in background
UK wind power relies on lots of imported parts. Richard Whitcombe / shutterstock

2. High interest rates may rule out large investment

To support the pound and to control inflation, interest rates are expected to rise further. The UK is already experiencing record levels of inflation, fuelled by pandemic-related spending and Russia’s war on Ukraine. Rising consumer prices developed into a full-blown cost of living crisis, with fuel and food poverty, financial hardship and the collapse of businesses looming large on this winter’s horizon.

While the anticipated increase in interest rates might ease the cost of living crisis, it also increases the cost of government borrowing at a time when we rapidly need to increase low-carbon investment for net zero by 2050. The government’s official climate change advisory committee estimates that an additional £4 billion to £6 billion of annual public spending will be needed by 2030.

Some of this money should be raised through carbon taxes. But in reality, at least for as long as the cost of living crisis is ongoing, if the government is serious about green investment it will have to borrow.

Rising interest rates will push up the cost of borrowing relentlessly and present a tough political choice that seemingly pits the environment against economic recovery. As any future incoming government will inherit these same rates, a falling pound threatens to make it much harder to take large-scale, rapid environmental action.

3. Imports will become pricier

In addition to increased supply prices for firms and rising borrowing costs, it will lead to a significant rise in import prices for consumers. Given the UK’s reliance on imports, this is likely to affect prices for food, clothing and manufactured goods.

At the consumer level, this will immediately impact marginal spending as necessary expenditures (housing, energy, basic food and so on) lower the budget available for products such as eco-friendly cleaning products, organic foods or ethically made clothes. Buying “greener” products typically cost a family of four around £2,000 a year.

Instead, people may have to rely on cheaper goods that also come with larger greenhouse gas footprints and wider impacts on the environment through pollution and increased waste. See this calculator for direct comparisons.

Of course, some spending changes will be positive for the environment, for example if people use their cars less or take fewer holidays abroad. However, high-income individuals who will benefit the most from the mini-budget tax cuts will be less affected by the falling pound and they tend to fly more, buy more things, and have multiple cars and bigger homes to heat.

This raises profound questions about inequality and injustice in UK society. Alongside increased fuel poverty and foodbank use, we will see an uptick in the purchasing power of the wealthiest.

What’s next

Interest rate rises increase the cost of servicing government debt as well as the cost of new borrowing. One estimate says that the combined cost to government of the new tax cuts and higher cost of borrowing is around £250 billion. This substantial loss in government income reduces the budget available for climate change mitigation and improvements to infrastructure.

The government’s growth plan also seems to be based on an increased use of fossil fuels through technologies such as fracking. Given the scant evidence for absolutely decoupling economic growth from resource use, the opposition’s “green growth” proposal is also unlikely to decarbonise at the rate required to get to net zero by 2050 and avert catastrophic climate change.

Therefore, rather than increasing the energy and materials going into the economy for the sake of GDP growth, we would argue the UK needs an economic reorientation that questions the need of growth for its own sake and orients it instead towards social equality and ecological sustainability.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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Covid-19 roundup: Swiss biotech halts in-patient PhII study; Houston-based vaccine and Chinese mRNA shot nab EUAs in Indonesia

Another Covid-19 study is hitting the breaks as a Swiss biotech is pausing its Phase II trial in patients hospitalized with Covid-19.
Kinarus Therapeutics…

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Another Covid-19 study is hitting the breaks as a Swiss biotech is pausing its Phase II trial in patients hospitalized with Covid-19.

Kinarus Therapeutics announced on Friday that the Data and Safety Monitoring Board (DSMB) has reviewed the company’s Phase II study for its candidate KIN001 and has recommended that the study be stopped.

According to Kinarus, the DSMB stated that there was a low probability to show statistically significant results as the number of Covid-19 patients that are in the hospital is lower than at other points in the pandemic.

Thierry Fumeaux

“As many of our peers have learned since the beginning of the pandemic, it has become challenging to show the impact of therapeutic intervention at the current pandemic stage, given the disease characteristics in Covid-19 patients with severe disease. Moreover, there are also now relatively smaller numbers of patients that meet enrollment criteria, since fewer patients require hospitalization, in contrast to the situation earlier in the pandemic,” said Thierry Fumeaux, Kinarus CMO, in a statement.

Fumeaux continued to state that the drug will still be investigated in ambulatory Covid-19 patients who are not hospitalized, with the goal of reducing recovery time and the severity of the virus.

The KIN001 candidate is a combination of the small molecule inhibitor pamapimod and pioglitazone, which is currently used to treat type 2 diabetes.

The news has put a dampener on the company’s stock price $KNRS.SW, which is down 22% since opening on Friday.

Houston-developed vaccine and Chinese mRNA shot win EUAs in Indonesia

While Moderna and Pfizer/BioNTech’s mRNA shots to counter Covid-19 have dominated supplies worldwide, a Chinese-based mRNA developer and IndoVac, a recombinant protein-based vaccine, was created and engineered in Houston, Texas by the Texas Children’s Hospital Center for Vaccine Development  vaccine is finally ready to head to another nation.

Walvax and Suzhou Abogen’s mRNA vaccine, dubbed AWcorna, has been approved for emergency use for adults 18 and over by the Indonesian Food and Drug Authority.

Li Yunchun

“This is the first step, and we are hoping to see more families across the country and the rest of the globe protected, which is a shared goal for us all,” said Walvax Chairman Li Yunchun, in a statement.

According to Walvax, the vaccine is 83% effective against the “wild-type” of SARS-CoV-2 infection with the strength against the Omicron variants standing at around 71%. The shots are also not required to be stored in deep freeze conditions and can be put in storage at 2 to 8 degrees Celsius.

Walvax and Abogen have been making progress on their mRNA vaccine for a while. Last year, Abogen received a massive amount of funding as it was moving the candidate forward.

However, while the candidate is moving forward overseas, it’s still finding itself stuck in regulatory approval in China. According to a report from BNN Bloomberg, China has not approved any mRNA vaccines for domestic usage.

Meanwhile, PT Bio Farma, the holding company for state-owned pharma companies in Indonesia, is prepping to make 20 million doses of the IndoVac COVID-19 vaccine this year and 100 million doses by 2024.

IndoVac’s primary series vaccines include nearly 80% of locally sourced content. Indonesia is seeking Halal Certification for the vaccine since no animal cells or products were used in the production of the vaccine. IndoVac successfully completed an audit from the Indonesian Ulema Council Food and Drug Analysis Agency, and the Halal Certification Agency of the Religious Affairs Ministry is expected to grant their approval soon.

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