September 2009

The Treasury Department just released to my CEI colleague Chris Horner the unredacted FOIA documents on their internal discussions of cap and trade policy that he had requested. The information previously covered up? “One advantage of auctioning allowances is the potential for raising large revenues (perhaps $300 billion annually)…” That’s over 2% of GDP! Another of the previously blacked out text: “Domestic policies…will involve significant costs and potential revenues, possibly up to several percentage points of annual GDP (i.e. equal in size to the corporate income tax).”

No wonder they had previously blacked out that information. And some people have claimed that these global warming policies would only cost Americans a postage stamp a day. The background behind this story is from the Director of Freedom Action, also Director of Energy and Global Warming Policy at CEI. From the Cooler Heads Digest, 18 September 2009:

The big news this week is furnished by my colleague at CEI, Chris Horner, who released some interesting documents he obtained through a Freedom of Information Act request from the Treasury Department. Chris’s initial blog post was picked up first by Amanda Carpenter in the Washington Times and then by Declan McCullough at CBSNews.com. There has been a flurry of stories since then, most of them trying to explain why it isn’t really a news story. (I wish more reporters spent more time explaining why what they are writing can be safely skipped. It would save a lot of time.)

It turns out that a busy team of economists hired by Bush Treasury Secretary Henry Paulson to devise a better cap-and-trade program were fully aware that it would be very costly for consumers. Treasury’s upper end estimate works out to $1761 for the average household per year.

That’s in line with what President Obama said when he was running for President (“Under my plan of a cap and trade system, electricity rates would necessarily skyrocket.”), but a lot less than what EPA and the White House have been saying about the Waxman-Markey bill.

Global warming alarmists have been quick to point out that Treasury’s $1761 estimate couldn’t possibly apply to the Waxman-Markey bill that passed the House in June on a 219-212 vote because, first, Waxman-Markey didn’t exist when Treasury was making its estimate and, second, Treasury assumed that all the ration coupons would be auctioned whereas Waxman-Markey gives most of the coupons away to big business special interests in the early years of the program.

That argument is specious. As Peter Orszag, now director of the White House Office of Management and Budget, explained in congressional testimony last year when he was head of the Congressional Budget Office: “Under a cap-and-trade program, firms would not ultimately bear most of the costs of the allowances, but instead would pass them along to their customers in the form of higher prices. Such price increases would stem from the restriction on emissions and would occur regardless of whether the government sold emission allowances or gave them away. Indeed, the price increases would be essential to the success of a cap-and-trade program….”

The most interesting thing about the documents Chris obtained from Treasury are the bits that are redacted (see above). For example, a paragraph headed Overview says: “[I]t will raise energy prices and impose annual costs on the order of [rest of sentence is blacked out].” Perhaps the folks in the FOIA Compliance Office at Treasury didn’t get the January 21st memo from President Obama on increasing transparency in his administration. The memo says in part: “The Freedom of Information Act should be administered with a clear presumption: In the face of doubt, openness prevails. The Government should not keep information confidential merely because public officials might be embarrassed by disclosure, because errors and failures might be revealed, or because of speculative or abstract fears. Nondisclosure should never be based on an effort to protect the personal interests of Government officials at the expense of those they are supposed to serve.”

My former CEI colleague and now academic Jonathan Adler has an unfortunate post over on The Volokh Conspiracy manifesting a fundamental misunderstanding of how cap-and-trade is expected to work, how it has worked in Europe, and what the documents, received under FOIA from the Department of Treasury and causing his fellow academics so much angst, represent.

You can read Jonathan’s frustration for yourself (and the slightly better informed commenters’ thoughts, as well) here.

I have already addressed the 100% auctioning is irrelevant can’t we move on that’s old news line of, for lack of a better word, argumentation. The same revenue projections from 100% auctioning made by the administration in February were in the administration’s mid-session review published about three weeks ago: that is, it remains 100% the administration’s policy to 100% auction. Ok, the House passed a bill. That wasn’t the subject of the Treasury memos setting forth the administration’s expectations. Nice try.

Well, not that great, actually. That bill, Waxman-Markey may not arrange to sell 100% of the ration coupons — when it kicks in, it is three-fourths, not the 15% you are being distracted with — but it does require 100% of them be bought. That’s a distinction without a difference to the people who have to buy them, and to the consumer/ratepayer/taxpayer. The distinction is that the state gives away a quarter of the ration coupons to folks who are not covered by the law and have no use for them but to sell them to poor saps who are covered by the law. To the people that matter, trust me, that makes no difference. It is a phony argument at worst and a distraction at best.

Nor does it make any difference even if 100% were given away. At least, if you take Obama’s budget director at his word. You can read current OMB director and former CBO director Peter Orszag saying just that — on numerous occasions in several slightly different ways here among numerous other places:

Under a cap-and-trade program, firms would not ultimately bear most of the costs of the allowances but instead would pass them along to their customers in the form of higher prices. Such price increases would stem from the restriction on emissions and would occur regardless of whether the government sold emission allowances or gave them away

Also, in Europe, we see that the ration coupons were given away for free, just as Waxman-Markey — again, not the focus of the Treasury documents– largely does as well for the scheme’s first few years. In Europe, prices of electricity and that which has electricity or energy embedded in it (everything) went up. Period. To claim, as Waxman-Markey proponents do, that they’ll just avoid Europe’s experience by telling local distribution companies to make sure the cost is not passed on to the ratepayer though emissions (energy use) must go down, flies in the face of practice and economic theory. This later case is made in a forthcoming paper, which to be thorough and fair I will note here, referencing this post.

Jonathan has waded in on matters on the side of the greens before and I have always enjoyed how the repartee ends up, so I welcome this foray, too. The more opportunity we have to correct silly distractions, misstatements and misunderstandings, the better.

Tennessee Governor Phil Bredesen (D) is criticizing Obama’s health-care plan as “the mother of all unfunded mandates,” saying it will force states to spend so much that they will have to either massively raise taxes or run large budget deficits that violate state constitutions. Earlier, Martin Feldstein, one of Obama’s economic advisors said his health-care plan would explode the federal budget deficit and lead to “crippling deficits,” as well as “higher taxes, debt payments, and interest rates” that would cut America’s standard of living.

The middle class is facing big tax increases thanks to Obama and Congressional Democrats. Even the trimmed-down version of Obama’s health-care plan recently announced by a ranking Senate Democrat contains lots of tax increases for the middle class (see below). And the costly cap-and-trade energy legislation passed by the House and supported by Obama would lead to big tax increases, Administration officials privately have conceded, even though they publicly claim otherwise. “Officials at the Treasury Department think cap-and-trade legislation would cost taxpayers hundreds of billion in taxes, according to internal documents circulated within the agency and provided to The Washington Times” by CEI. It could raise household taxes by $1761 per year, equivalent to a 15 percent tax increase. It would also result in “loss of steel, paper, aluminum, chemical, and cement manufacturing jobs,” as jobs migrate overseas to countries which have fewer environmental protections than the U.S. does.

Obama earlier admitted that “under my plan of a cap and trade system, electricity rates would necessarily skyrocket.” As Obama admitted, that cost would be directly passed “on to consumers” — just the way Herbert Hoover’s excise tax increases were in 1932, aggravating the Great Depression. Although the tax’s supporters claim it will cut greenhouse gas emissions, it may perversely increase them and also result in dirtier air, as well as harming forests and water supplies.

Americans for Tax Reform summarizes the tax increases in the trimmed-down version of ObamaCare revealed by its principal drafter, Senator Max Baucus (D-Montana). Here are just a few of those tax increases: an individual mandate tax of $900 per individual or $3800 per family (if you don’t have health insurance); an employer mandate tax of $400 per employee if health coverage is not offered; an “excise tax on high-cost health plans”; a “medicine cabinet tax”; capping Flexible-Spending Accounts (FSA’s); abolishing most HSAs; and increasing tax penalties for HSAs.

Financing expanded health-care coverage requires a growing economy. But the President is undermining the economy through trade policies that destroy jobs and drive up costs for consumers in order to satisfy the demands of left-wing unions — while sharply contradicting his own “free trade” rhetoric. That includes what the Washington Post calls a “regressive tax” on tires, a “tax on tires” demanded by union leaders.

Obama’s welfare-filled stimulus package, which the Congressional Budget Office says will shrink the economy “in the long run,” destroyed tens of thousands of jobs in America’s export sector. It contained poorly-written “buy American” provisions that were too weak to cut imports much, but explicit enough to trigger broad retaliation from countries that buy much of our exports, like Canada and Mexico, cutting our exports and increasing our trade deficit.