congressional budget office

Stimulus Package Forces States to Raise Taxes, Harms Economy

by Hans Bader on January 2, 2010 · 2 comments

in Deregulate to Stimulate, Economy, Employment, International, Labor, Politics as Usual, Stimulus to Nowhere, Trade

The federal government’s $800 billion stimulus package, which failed to cut unemployment, is now forcing states and local governments to raise taxes. The Wall Street Journal describes how “stimulus dollars came with strings attached that are now causing enormous budget headaches . . . At the behest of the public employee unions, Congress imposed ‘maintenance of effort’ spending requirements on states. These federal laws prohibit state legislatures from cutting spending on 15 programs,” such as ”welfare, if the state took even a dollar of stimulus cash,” even if a state’s tax revenue has since fallen due to the recession.  “So when states should be reducing” their spending ”to match. . . lower revenue collections, federal stimulus rules mean many states will have little choice but to raise taxes.”

Obama claimed the stimulus package was needed to prevent the economy from suffering from “irreversible decline,” but the Congressional Budget Office admitted that the stimulus package actually would shrink the economy “in the long run.”  Unemployment has skyrocketed past European levels, as big-spending countries have fared worse than thrifty ones.

The Washington Examiner says that “75,000 jobs” Obama has claimed credit for are “clearly imaginary” or “highly doubtful.”  That includes thousands of jobs the administration claims credit for creating in nonexistent Congressional districts. As the Examiner notes:

If his stimulus program was approved, Obama promised, unemployment would not go above 8 percent this year. The reality is that it passed 10.3 percent in October. So now the stimulus books are being cooked to mollify an anxious public worried that real-world jobs continue to disappear and angry that Obama has thrown almost $1 trillion down the stimulus rathole.

The stimulus package actually destroyed thousands of real world jobs by triggering trade wars with Canada and Mexico that killed jobs in America’s export sector (the stimulus package barred a measley 97 Mexican truckers from U.S. roads, a minor NAFTA violation that led to massive Mexican retaliation against U.S. exports of 40 farm products and kitchen goods worth $2.4 billion).  It also is wiping out jobs by inflicting costly mandates on state governments (such as repealing welfare reform, and imposing costly “prevailing wage” regulations and expensive racial set-asides).

The stimulus package has since spawned countless examples of government waste and corruption.  Recently, Obama fired an inspector general, Gerald Walpin, who uncovered millions of dollars of waste and fraud in the AmeriCorps program, including by a prominent Obama supporter, endangering the Obama supporter’s ability to administer federal stimulus spending in Sacramento.  Obama’s alleged justification for firing the inspector general turned out to be false.

Reid Health Care Bill Adds New Tax Increases, Costs Twice As Much As Promised

by Hans Bader on November 19, 2009 · 3 comments

in Health and Illness, Healthcare, Insurance, Legal, Personal Liberty, Politics as Usual, Precaution & Risk, Regulation, Sanctimony

The health care “reform” bill drafted by Senate Majority Leader Harry Reid adds new tax increases, and costs twice as much as its promised $849 billion price tag.

The tax increases (in billions) include:

1. 40% excise tax on health coverage in excess of $8,500 (individuals) / $23,000 (families). . .
2. Additional 0.5% Medicare (Hospital Insurance) tax on wages in excess of $200,000 ($250,000 for joint filers) – begins in 2013 – $54 B tax increase
3. Impose annual fee on manufacturers and importers of branded drugs – begins in 2010 – $22 B tax increase
4. Impose annual fee on manufacturers and importers of certain medical devices – begins in 2010 – $19 B tax increase
5. Impose annual fee on manufacturers and importers of certain medical devices – begins in 2010 – $60 B tax increase
6. Cut in half (to $500K) the amount of an executive’s compensation that a health plan can deduct from its corporate income taxes – begins in 2013 . . .
7. Impose 5% excise tax on cosmetic surgery and similar procedures – begins for surgery in 2010 – $6 B tax increase!

The bill will cost far more than projected. The bill uses “accounting tricks” to keep the short-term costs down, by temporarily raising taxes before spending explodes. But in every year thereafter, it will increase the deficit, notes an analysis from the Congressional Budget Office. “In its true first decade (2014 to 2023), CBO projects the bill’s costs to be $1.8 trillion — double the price Reid is advertising.”

The Dean of Harvard Medical School, Jeffrey S. Flier, gave the health care bill a “failing grade” in an analysis published yesterday in The Wall Street Journal, saying that it would drive up costs and stifle medical innovation.

The health care “reform” bills “would reduce senior care,” increase “medical costs,”  and “jeopardize access to care for millions,” reported experts at the federal Centers for Medicare and Medicaid Services.    They will explode state and federal deficits, and contain payoffs for trial lawyers and racial preferences.

ObamaCare spends money on frills like “cultural competency,” while cutting spending on crucial things like anesthesia.

Fact-checkers say Obama is lying about health care.  In a speech, Obama claimed that Medicare is “unsustainable” and “running out of money,” then contradicted himself by claiming that “Medicare is a government program that works really well,” making it a model for national health care.

A CNN commentary noted that Obama’s plan would take away “5 freedoms,” such as the freedom to choose your doctors, keep your existing plan if you like it, and choose what’s in your plan.

Stimulus Package Creates Imaginary Jobs, Destroys Jobs in the Real World

by Hans Bader on November 17, 2009 · 4 comments

in Agriculture, Deregulate to Stimulate, Economy, Employment, International, Labor, Legal, Personal Liberty, Politics as Usual, Precaution & Risk, Sanctimony, Stimulus to Nowhere, Trade

President Obama’s $800 billion stimulus package creates imaginary jobs, while destroying ones in the real world.

Billions from the stimulus are being spent on creating tens of thousands of imaginary jobs in 440 phantom Congressional districts, according to the government’s own web site:

Just how big is the stimulus package? Well for one, it has doubled the size of the House of Representatives, according to recovery.gov, which says that funds were distributed to 440 congressional districts that do not exist. . . . The web site operates on an $84 million budget and is tasked with monitoring the distribution of the $787 billion stimulus package passed by Congress–which, for the record, counts 435 members–in early 2009.

The site’s monitors, however, are not too savvy about America’s political or geographic landscape. More than $2 million was given to the 99th District of North Dakota, a state which has only one congressional district. In order to qualify for 99 districts, North Dakota would have to have a population of about 60 million people, almost 24 million more people than California.

From ABC News:

Here’s a stimulus success story: In Arizona’s 15th Congressional District, 30 jobs have been saved or created with just $761,420 in federal stimulus spending. At least that’s what the website set up by the Obama Administration to track the $787 billion stimulus says.

There’s one problem, though: There is no 15th Congressional District in Arizona; the state has only eight Congressional Districts.

There’s no 86th Congressional District in Arizona either, but the government’s recovery.gov Web site says $34 million in stimulus money has been spent there.

In fact, Recovery.gov lists hundreds of millions spent and hundreds of jobs created in Congressional districts that don’t exist.

The Washington Examiner says that “75,000 jobs” Obama has claimed credit for are “clearly imaginary” or “highly doubtful.” Readers can view its interactive map of “Inflated Jobs by State.”

As the Examiner notes, “If his stimulus program was approved, Obama promised, unemployment would not go above 8 percent this year. The reality is that it passed 10.3 percent in October. So now the stimulus books are being cooked to mollify an anxious public worried that real-world jobs continue to disappear and angry that Obama has thrown almost $1 trillion down the stimulus rathole.”

The stimulus package actually destroyed thousands of real world jobs by triggering trade wars with Canada and Mexico that killed jobs in America’s export sector (the stimulus package barred a measley 97 Mexican truckers from U.S. roads, a minor NAFTA violation that led to massive Mexican retaliation against U.S. exports of 40 farm products and kitchen goods worth $2.4 billion).  It also is wiping out jobs by inflicting costly mandates on state governments (such as repealing welfare reform, and imposing costly “prevailing wage” regulations and expensive racial set-asides).

Obama claimed the stimulus package was needed to prevent the economy from suffering from “irreversible decline,” but the Congressional Budget Office admitted that the stimulus package actually would shrink the economy “in the long run.”  Unemployment has skyrocketed past European levels, as big-spending countries have fared worse than thrifty ones.

The stimulus package has since spawned countless examples of government waste and corruption.  Recently, Obama fired an inspector general, Gerald Walpin, who uncovered millions of dollars of waste and fraud in the AmeriCorps program, including by a prominent Obama supporter, endangering the Obama supporter’s ability to administer federal stimulus spending in Sacramento.  Obama’s alleged justification for firing the inspector general turned out to be false.

Obamacare’s Provisions Have Already Been Tried, and Failed, at the State Level

by Hans Bader on October 7, 2009 · 1 comment

in Features, Healthcare, Legal, Personal Liberty, Politics as Usual, Zeitgeist

When the Senate Finance Committee votes on President Obama’s health care plan, it won’t even have the text of the bill in existence.  It will just be voting on a summary of what the bill will supposedly contain. Senate Democrats voted down Republican proposals that the bill’s text be made available to Senators and the public 72 hours before the vote.

And the bill itself is likely to be changed by Senate leaders at the last minute, right before the Senate as a whole votes on it, “to add the public option provision they have long favored,” but removed from the Committee version of the bill to appease moderates.

The desire of Obamacare’s supporters to avoid any scrutiny or review of their bill is understandable, because its provisions have already been tried, and failed, at the state level.  As Peter Suderman of Reason (and formerly of CEI) notes in today’s Wall Street Journal, “The major provisions of ObamaCare already have been tried.  They’ve led to increased costs and reduced access to care” for people who once had private insurance.  The states that adopted these “reforms” have the most expensive and unaffordable health insurance.

Despite these state-level failures, President Barack Obama and congressional Democrats are pushing forward a slate of similar reforms. Unlike most high-school science fair participants, they seem unaware that the point of doing experiments is to identify what actually works. Instead, they’ve identified what doesn’t—and decided to do it again.

Obama is relying on $2 trillion in imaginary savings to pay for his health care plan.  Even Democratic governors have criticized its huge cost, much of which would be passed on to state taxpayers through higher state-government Medicaid costs. One of Obama’s economic advisers said his health-care plan would lead to “crippling deficits” and “higher taxes.”

It also breaks Obama’s campaign promise not to raise taxes on the middle class.  Americans for Tax Reform summarizes the tax increases in the trimmed-down version of Obamacare revealed by its principal drafter, Senator Max Baucus (D-Mont.). 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 health savings accounts; and increasing tax penalties for HSAs.

This is part of a long line of broken promises, such as Obama’s pledge to enact a “net spending cut,” which he broke with huge budgets that will explode the national debt through $9.3 trillion in massively increased deficit spending.

Fact-checkers, including the Associated Press and Washington Post, say Obama has made many false claims about his health-care plan. For example, Obama claims that nothing in his health-care “plan will require you or your employer to change the coverage or the doctor you have.” But that’s not true of the House and Senate versions the plan. AP noted that, “the Congressional Budget Office analyzed the health care bill written by House Democrats and said that by 2016 some 3 million people who now have employer-based care would lose it because their employers would decide to stop offering it.”

ObamaCare has other dubious provisions, like its racial preferences, which drew criticism from the U.S. Commission on Civil Rights.

LibertyWeek 61: How About FCC Neutrality?

by Richard Morrison on September 21, 2009

in CEI Projects, Environment, Features, Global Warming, Podcast, Zeitgeist

Your host Richard Morrison welcomes returning guest co-host William Yeatman and special guest commenter Ryan Radia to the program for Episode 61 of the LibertyWeek podcast. We start with the FCC’s just-announced proposal for “net neutrality,” Treasury documents that reveal the true cost of cap-and-trade legislation and the plan for getting over California’s great depression. We then move on to the G20 Summit’s potential path to prosperity and the ever-expanding scandal that is ACORN.

An Independent Analysis

by Iain Murray on September 18, 2009

in Economy, Energy, Environment, Global Warming, Regulation, Sanctimony

The Greens keep trying to change the subject when it comes to what the released Treasury documents about cap-and-trade actually show.  They’ve got a bunch of talking points and, by Jove, they’re sticking to them.  One of them is this one, from the Environmental Defense Fund’s spokesman:

In terms of the Waxman-Markey bill, “Every one of the independent analyses out there show small costs,” Kreindler added.

Really?  Every one?

What about this one? (“The annual cost of emissions permits to energy users will be at least $100 billion by 2012 and could exceed $390 billion by 2035″)

Or this one? (“High energy prices, fewer jobs, and loss of industrial output are estimated to reduce U.S. Gross Domestic Product (GDP) by between $419 billion and $571 billion by 2030″)

Ah, but they aren’t independent, are they?  After all, they weren’t, err, produced by, erm, arms of the Federal Government like the Congressional Budget Office, Energy Information Administration or Environmental Protection Agency.

Meanwhile, even using the figures of those “independent” government estimates, the Waxman-Markey Bill is still a terrible deal for Americans.

Policy Peril Segment 6: Cap and Trade (Updated August 25, 2009)

by Marlo Lewis on August 7, 2009 · 2 comments

in Global Warming, Odds & Ends

Today’s excerpt from CEI’s film, Policy Peril: Why Global Warming Policies Are More Dangerous Than Global Warming Itself, is on cap-and-trade.  

What is cap and trade?

Cap-and-trade is Al Gore’s (and the environmental community’s) leading “solution” to the alleged “climate crisis”–the centerpiece, for example, of the Kyoto Protocol climate treaty.

There are many technical  issues in the design and implementation of a cap-and-trade program, but the basic idea is as follows. 

The government establishes a legal limit–a “cap”–on the total quantity of greenhouse gases that regulated (“covered”) entities may emit. Each covered entity must acquire one federally-created or -certified allowance (permit, ration coupon) for every ton of carbon dioxide-equivalent (CO2-e) greenhouse gases it emits. The total number of allowances allocated exactly equals the number of tons permissible under the cap. Thus, as the cap tightens, the supply of coupons shrinks, and emissions from covered entities decline.

An entity with high emission-reduction costs may simply decide to cut its energy use and economic output, but it may also buy surplus coupons from an entity with lower emission-reduction costs. The buying and selling of ration coupons is the “trade” part of cap-and-trade.

“Market-based” is a misnomer

Supposedly, cap-and-trade leads to an economically-”efficient” solution. Participants are motivated to innovate and search for cheap emission-reduction opportunities not only to minimize their own costs but also to generate surplus coupons they can sell in the carbon trading market.

Cap-and-trade is often called “market-based” because each business, spurred by the desire to minimize costs and (if possible) amass surplus coupons it can sell for a profit, determines where and how to cut its emissions. This is in contrast to “command-and-control” regulation in which a central authority prescribes the emission rates (e.g. lbs. of Co2 per Megawatt hour of electricity generated or sold) or energy efficiencies covered entities must achieve, or the fuel types (e.g. wind, solar, geothermal) or technologies (e.g. carbon capture and storage) they must use.

In practice, however, cap-and-trade legislation typically contains buckets of command-and-control provisions. For example, the Waxman-Markey cap-and-trade bill (about which more later) mandates electric generation from renewable sources and imposes tough new efficiency standards for buildings, appliances, transport systems, and industry.

More fundamentally, as my colleague Myron Ebell points out in his testimony on Waxman-Markey, cap-and-trade is not really “market-based.” Cap-and-trade “subordinates markets to central planning. It takes the most important economic decisions [e.g. what kinds of energy technologies will dominate the market and how much consumers will have to pay for energy] out of the hands of private individuals acting in the market and puts them in the hands of government.”

Far from being “based” on the market, cap-and-trade would effect a gigantic expansion of government power and control over markets. The “cap” in cap-and-trade creates a government-run rationing system for the carbon-based fuels that supply 85% of our energy. Our liberties are at risk, as Myron explains in his testimony:

If enacted, Title III [the cap-and-trade portion of Waxman-Markey] would be the single largest government intervention in the economy since the Second World War. That was the last time–and we hope it remains the last time–when people had to present ration coupons in order to buy gasoline (and many other products including cars, tires, sugar, coffee, meat, cheese, butter, and shoes). While the debate has focused on costs, far too little attention has been paid to the extent that political and economic freedoms would be lost or impinged upon under cap-and-trade. I urge the Committee and the House to consider seriously and deeply the threat to our liberties posed by putting government in charge of how much and what type of energy we can consume.

Today’s Policy Peril excerpt

In today’s Policy Peril film excerpt, Dr. David Kreutzer, an economist with the Heritage Foundation, discusses his team’s analysis of the Lieberman-Warner bill (S. 2191), the leading cap-and-trade bill of 2008. You can view today’s film clip here. To watch Policy Peril from start to finish, click here. Previous posts in this series are available immediately below.

  • Policy Peril: Looking for an antidote to An Inconvenient Truth? Your search is over
  • Policy Peril Segment 1: Heat Waves
  • Policy Peril Segment 2: Air Pollution
  • Policy Peril Segment 3: Hurricanes
  • Policy Peril Segment 4: Sea-Level Rise
  • Policy Peril Segment 5: Is the Science Debate “Over”?

    •  Enough preliminaries; here’ s the text of today’s film excerpt:

    Narrator: Okay, so the global warming scare is built on speculation and hype. Now let’s look at the other side of the equation–the policies being promoted to combat global warming. What are they, and what are the associated risks?

    Several bills in Congress call for deep emission cuts by 2050. The most prominent in 2008 was the Lieberman-Warner bill. It would require a 70% emissions cut.

    Dr. David Kreutzer (Heritage Foundation): When we analyzed the impact of the Lieberman-Warner bill, we found three things: Incomes go down, taxes go up, and jobs go away.

    Narrator: Lieberman-Warner would reduce cumulative U.S. GDP by $5 trillion during 2012 to 2030. Let’s put that in perspective. A typical hurricane striking a U.S. coastal community does about $5 billion in damage.

    In the portion of the film just after today’s clip, Dr. Kreutzer compares the economic damage from Lieberman-Warner to that caused by a typical landfalling hurricane:

    Dr. Kreutzer: Well, adjusting for increases in wealth over the next 20 years, that means that the damage done by Lieberman-Warner in economic terms is the equivalent of over 600 hurricanes. Now, normally we have slightly less than two hurricanes per year that make landfall. So this is orders-of-magnitude worse than the damage that would be done by these weather storms, the hurricanes. That’s a big hit to the economy.  

    Commentary

    Cap-and-trade is an energy tax

    The Heritage Foundation study of Lieberman-Warner is available here. The Heritage folks point out what should be obvious. Eighty-five percent of U.S. energy comes from carbon-based (greenhouse gas-emitting) fuels. Capping emissions therefore means capping (restricting) energy use and/or compelling suppliers and consumers to switch from lower-cost fossil fuels to more expensive “alternative” energy sources. 

    Cap-and-trade “works” (reduces emissions) by making carbon-based energy more costly for consumers. Peter Orszag, President Obama’s budget director, unequivocally affirmed this point in his April 24, 2008 Senate Finance Committee testimony (p. 3) when he was Director of the Congressional Budget Office (CBO):

    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 because they would be the most important mechanism through which businesses and households would be encouraged to make investments and behavior changes that reduced CO2 emissions.

    Barack Obama put the point more bluntly in January 2008, when campaigning as a presidential candidate. He said:

    Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket . . . because I’m capping greenhouse gases, coal power plants, natural gas — you name it — whatever the plants were, whatever the industry was, they would have to retrofit their operations. That will cost money; they will pass that money on to consumers.   

    In short, cap-and-trade is an energy tax by another name. As Myron likes to say: “There are three things you need to know about cap-and-trade: It’s a tax, it’s a tax, it’s a tax.” And since energy is the lifeblood of modern economies, energy taxes or their regulatory equivalent unavoidably raise consumer prices, reduce economic output, and reduce employment.

    Energy tax impacts 

    The Heritage study estimated the following impacts from the cap-and-trade component of Lieberman-Warner:

    • Cumulative GDP losses are at least $1.7 trillion and could reach $4.8 trillion by 2030 (in inflation-adjusted 2006 dollars).
    • Single-year GDP losses hit at least $155 billion annually and could exceed $500 billion (in inflation-adjusted 2006 dollars).
    • Annual job losses exceed 500,000 before 2030 and could approach 1,000,000.
    • The average household will pay $467 more each year for its natural gas and eletricity (in inflation-adjusted 2006 dollars).

    A study by the National Association of Manufacturers and the American Council for Capital Formation came to similar conclusions. According to NAM/ACCF, Lieberman-Warner would:  

    • Raise natural gas prices for residential consumers by 26% to 36% in 2020, and 108% to 146% in 2030.
    • Raise electricity prices for residential consumers by 28% to 33% in 2020, and 101% to 129% in 2030.
    • Raise gasoline prices by 29% or $1.10 (based on prices prevailing as of June 2008).
    • Reduce GDP growth by $151 billion to $210 billion in 2020, and $631 to $669 billion in 2030 (in 2007 dollars).
    • Reduce net job creation by 1.2 million to 1.8 million in 2020, and 3 million to 4 million in 2030.

    Charles River Associates also projected heavy economic impacts. In their analysis, Lieberman-Warner would:

    • Reduce real annual household spending by an average of $800 to $1,300 in 2015.
    • Reduce GDP by $160 billion to $250 billion in 2015.
    • Produce net job losses of 1.5 million to 2.3 million in 2015.

    The frothings of right-wing paranoia, you say? Well, then EPA, too, must be part of the vast right-wing conspiracy. In EPA’s analysis , Lieberman-Warner would:

    • Increase gasoline prices by $0.53 a gallon in 2030.
    • Reduce U.S. GDP by $238 billion to $983 billion in 2030.
    • Increase electricity prices by 44% in 2030.

    All pain for no gain 

    All in all, not a pretty picture! Yet Lieberman-Warner would have no measurable impact on global temperatures for many decades, if ever. Assuming for a moment the correctness of the scientific basis for these policies, Lieberman-Warner would prevent 0.013ºC of global warming by 2050, Dr. Patrick Michaels estimates. Even if all industrialized countries adopt Lieberman-Warner, total global warming averted is 0.11ºC by 2050–too little for scientists to detect.

    With this abysmal cost-benefit ratio (trillions in costs for undetectable global warming reductions), it is small wonder that S. 2191 died in the Senate in June 2008. 

    Rube Goldberg Green

    But perhaps the main reason Lieberman-Warner fizzled is that the U.S. Chamber of Commerce exposed the bill as a Rube Goldberg scheme rife with mandates, regulation, and red tape. The Chamber’s Lieberman-Warner flow chart is one of those pictures worth a thousand words. Please take a moment to behold the infernal complexity of it all!

    The sausage factory known as the “legislative process” always mingles and mangles cap-and-trade with prescriptive mandates, special-interest carve outs, and bureaucratic empire building.

    Rent seeking

    Special-interest manipulation and gaming are an unavoidable affliction. Consider Europe’s emissions trading system (ETS), which was a bonanza for special interests during the first three years of its operation (2005 to 2007). In Europe’s Dirty Secret: Why the EU Emissions Trading Scheme isn’t working, the British think tank Open Europe details a host of abuses, including:

    • Governments over-allocated allowances to domestic firms (to reduce costs and create competitive advantage), collapsing credit prices from €33 to €0.20 per ton, “meaning that the system did not reduce emissions at all.”
    • Utilities got free allocations, passed the imaginary costs onto customers in the form of higher electric rates, and then sold the coupons they didn’t need — double dipping at the expense of industrial manufacturers and consumers.
    • Small institutions like hospitals did not get free coupons and ended up subsidzing well-connected energy companies.

    Dr. Kreutzer’s colleague Ben Lieberman (who also appears in Policy Peril) testified recently before the Senate Foreign Relations Committee on Europe’s experience with cap-and-trade. Ben’s take on the hearing is a knee-slapper:

    I was the only one on the panel who thought the problems in Europe were not fixed. The repesentative from Shell said that the original problem was the over-allocation of free allowances, which has since been corrected–and he then argued for more free allocations for refiners. A BASF representative also said the problem with free allocations had been fixed–and went on to say that the chemical industry needs more free allocations.

    The Heritage Foundation analysis of Lieberman-Warner also found that it would transfer immense wealth from consumers to special interests. Later on in Policy Peril, Dr. Kreutzer comments:

    Dr. Kreutzer: The Lieberman-Warner bill also enacts a huge transfer from the consumers of energy to groups that are picked out–special interest groups that Congress would designate. So after America has lost $5 trillion in income, there will be another $5 trillion taken and transferred from energy consumers.

    Regressive

    Because even an idealized cap-and-trade program is the regulatory equivalent of an energy tax, its economic impact is regressive, meaning that it imposes a relatively greater burden on poor households, who spend a larger share of their income on energy and other basic necessities. The Congressional Budget Office (CBO) report, Tradeoffs in Allocating Allowances for CO2 Emissions (April 2007), is crystal clear on the point:

    Regardless of how allowances were distributed, most of the cost of meeting a cap on CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline. Those price increases would be regressive in that poorer households would be a larger burden relative to their income than wealthier households would.

    Mirage of regulatory predictability

    Proponents spout a lot of happy chatter about how cap-and-trade will create a “predictable” regulatory framework for businesses, because Congress will specify in advance how much and how fast emissions must decline. But this claim ignores the enormous potential of cap-and-trade bills to spawn a new era of regulatory litigation, creating uncertainty and delays for business investment. Have a look again at the U.S. Chamber chart of Lieberman-Warner. The bill contains 300 regulations and mandates, each of which most go through the bureaucratic process illustrated in the center of the chart. Many of those rulemakings would likely be litigated. 

    Moreover, the “predictability” most important to business is cost predictability. Uncertainty regarding compliance costs makes it difficult for businesses to plan and attract capital for major projects. Key point: A cap produces cost uncertainty precisely to the extent that it achieves emissions certainty.

    That is, when the quantity of emissions is fixed by law, covered firms have to comply regardless of what it costs, and any number of factors outside the covered entity’s control — unseasonable weather, natural disasters, energy crises, business cycles — can affect cost.

    Proponents of greenhouse gas cap-and-trade schemes tout the Clean Air Act’s Acid Rain sulfur dioxide (SO2) emissions trading system as a model. But as  Ken Green, Stephen Hayward, and Kevin Hasset of the American Enterprise Institute point out:

    SO2 trading prices have varied from a low of $70 in per ton in 1996 to a high of $1500 per ton in late 2005. SO2 allowances have a monthly volatility of 10 percent and an annual volatility of 43 percent over the last decade.  

    The potential for cap-and-trade to generate allowance-price volatility — hence energy-price volatility — is vast. As Green, Hayward, and Hasset also note, in 1994, California’s South Coast Air Quality Management District (SCAQMD) launched RECLAIM (Regional Clean Air Incentives Market), an emissions trading program for SO2 and nitrogen oxides (NOx). SCAQMD estimated that SO2 and NOx would be reduced by 14 and 8 tons per day respectively, by 2003, at half the cost of prescriptive, command-and-control approaches. The authors comment:

    RECLAIM never came close to operating as predicted and was substantially abandoned by 2001. Between 1994 and 1999, NOx emissions fell only 3 percent, compared to a 13 percent reduction in the five years before RECLAIM. There was extreme price volatility aggravated by California’s electricity crisis of 2000. NOx permit prices ranged from $1,000 to $4,000 per ton between 1994 and 1999, but soared to an average price of $45,000 per ton in 2000, with some individual trades over $100,000 per ton. Such high prices were not sustainable, and SCAQMD removed electric utilities from RECLAIM in 2001.

    Waxman-Markey: impacts and offsets

    The big kahuna of cap-and-trade bills this year is the American Clean Energy and Security Act (ACES), H.R. 2454, commonly known as Waxman-Markey for its co-sponsors, House Energy and Commerce Chairman Henry Waxman (D-CA), and Energy & Environment Subcommittee Chairman Ed Markey (D-MA).

    On March 31, 2009, Waxman and Markey circulated a “discussion draft” of ACES. On May 13, 2009, Dr. Kreutzer and the Heritage team published their economic impact assessment of the cap-and-trade provisions. The discussion draft cap-and-trade program aimed to reduce greenhouse gas emissions from covered sources 20% below 2005 levels by 2020, 42% below by 2030, and 83% below by 2050. The Heritage analysis projected that, by 2035, the bill would:

    • Reduce cumulative GDP by $7.5 trillion.
    • Lower average annual employment by 844,000 jobs, reducing employment by 1.9 million jobs in peak years.
    • Raise electricity rates 90% after adjusting for inflation.
    • Raise inflation-adjusted gasoline prices by 74%.
    • Raise an average family of four’s yearly energy bill by $1,500.
    • Increase inflation-adjusted federal debt by 29%, or $33,400 additional debt per person.

    A key uncertainty in estimating the economic impacts of a cap-and-trade program is the extent to which covered entities may meet their obligations by earning or purchasing “offsets.” An offset is a credit for greenhouse gas-reducing investments in economic sectors or geographic regions not subject to the cap. For example, offsets may be awarded for investing in tree plantations in developing countries (trees remove CO2 from the air).

    The Breakthrough Institute contends that the offset provisions in Waxman-Markey are so generous they all but eliminate any real constraint on U.S. domestic CO2 emissions until 2025 or 2030. Indeed, the bill authorizes up to 2 billion tons in offsets for domestic projects and 1.5 billion tons in offsets for international projects. (All of which, incidentally, is tacit admission that the costs of cap-and-trade can be severe and must in some way be mitigated or limited.)

    Other analysts note that offsets are highly susceptible to fraud and creative accounting. For example, a Chinese company might increase its emissions of hydrochloroflourocarbons (HCFCs), which are very potent synthetic greenhouse gases, just so offset-seeking U.S., European, and Japanese businesses can pay the Chinese company to reduce those emissions. Assuring the integrity of an offset is “challenging,” says the Government Accounting Office (GAO), ”because it involves measuring the reductions achieved through an offset project against a projected baseline of what would have occurred in its absence.” The House of Representatives had an offset program to achieve “carbon neutrality,” but abandoned it after finding out the program was paying farmers to do what they would do anyway (use tilling practices that keep the carbon buried in the soil).  Award enough dubious offsets, and the Waxman-Markey cap becomes a leaky sieve.

    On the other hand, the Heritage Foundation’s May 13, 2009 study argues that the bill, perhaps recognizing the potential for fraud, ”includes significant hurdles for those wishing to use offsets.” Heritage assumes in its analysis that offsets will alleviate the stringency of the caps by 15%.

    Charles River Associates (CRA), in a May 2009 study commissioned by the U.S. Black Chamber of Commerce, assumes full use of international offsets, notwithstanding well-known “difficulties in measuring, veryifying, and ensuring the permanence” of the emission reductions claimed for such projects. Under this assumption, total U.S. emissions from 2012 to 2050 to exceed the cap by about 30%–double the 15% assumed in the Heritage analysis.  Accordingly, the CRA study of Waxman-Markey, as introduced on May 15, 2009, projected smaller although still significant economic impacts. 

    Under the Waxman-Markey cap-and-trade program, CRA estimates:

    • Retail natural gas rates would increase by 10% in 2015, 16% in 2030, and 34% in 2050 relative to the baseline in the Energy Information Administration’s (EIA) Annual Energy Outlook 2009 (AEO09).
    • Retail electric rates would increase by 7.3% in 2015, 22% in 2030, and 45% in 2050 relative to the AEO09 baseline.
    • The per-gallon cost of gasoline would increase by 12 cents in 2015, 23 cents in 2030, and 59 cents in 2050 relative to baseline levels.
    • U.S. employment would decline by 2.3 million to 2.7 million jobs in each year of the policy through 2030 relative to baseline levels (even after accounting for “green job” creation).
    • Average wages would decline by $170 in 2015, $390 in 2030, and $960 in 2050 relative to basline levels.
    • Average household purchasing power would decline by $730 in 2015, $830 in 2030, and $940 in 2050 relative to baseline levels.
    • GDP in 2030 would be 1.1% or $350 billion lower than the baseline level.

    Rejected consumer protections

    Waxman and Markey introduced their bill in the House on May 15 and the House Energy and Commerce Committee appoved a marked-up (amended) text on June 5. It is quite revealing what amendments the Committee rejected.

    On largely party-line votes, Committee Democrats voted down:

    • Rep. Fred Upton’s (R-MI) amendment suspending the Act if the EPA Administrator determines that the U.S. unemployment rate has reached 15% as result of the Act.
    • Rep. Lee Terry’s (R-NB) amendment suspending the Act if the price of gasoline exceeds $5 a gallon.
    • Rep. Roy Blunt’s (R-MO) amendment suspending the Act if retail electricity prices increase by more than 10%.

    Waxman-Markey grows and grows

    Heritage Foundation’s analysis of Waxman-Markey as approved by the House Energy and Commerce Committee on June 5 is available here. To obtain enough votes needed for passage, Waxman and Markey and House Speaker Nancy Pelosi (D-CA) kept expanding the bill with more and more goodies for utilities and other affected interests. Between Committee approval on June 5 and placement on the House Calendar on June 19 the bill grew from 742 pages to about 1,200 pages. Then, at 3:00 a.m. the night before the House floor vote on June 26, the bill grew by almost 300 pages, finally weighing in at 1,427 pages. Most House members had no idea what they were voting on. Waxman-Markey as passed is so complicated that CBO needed 156 closely-printed pages just to summarize the bill’s provisions.

    On August 6, 2009, David Kreutzer and his Heritage Foundation colleagues (Karen Campbell, William Beach, Ben Lieberman, and Nicolas Loris) released their analysis of Waxman-Markey as passed. The results are not too different from their initial analysis of the Waxman-Markey discussion draft. Under Waxman-Markey as passed:

    • Impose a defacto energy tax on the U.S. economy costing $5.7 trillion during 2012-2035.
    • Cumulative GDP losses are $9.4 trillion between 2012 and 2035.
    • Single year GDP losses are $400 billion in 2025 and will ultimately exceed $700 billion.
    • Net job losses approach 1.9 million in 2012 and could approach 2.5 million in 2035.
    • A family of four on average will pay $839  more per year on energy-related utility costs.
    • Cumulative manufacturing output is $585 billion lower than the baseline amount by 2035 .
    • Gasoline prices will rise by 58% ($1.38 more per gallon) and residential electricity rates will rise by 90%.

    A report by the American Council for Capital Formation (ACCF) and the National Association of Manufacturers (NAM), using the National Energy Modeling System (NEMS) developed by the Energy Information Administration (EIA), arrives at similar results:

    • In 2030, inflation-adjusted GDP is reduced by 1.8% ($419 billion) under a low-cost scenario and by 2.4% ($571 billion) under a high cost scenario compared to the baseline forecast. For perspective, Social Security payments to retirees in 2008 totaled $612 billion.
    • Cumulative GDP losses during 2012-2030 range from $2.2 trillion under the low-cost case to $3.1 trillion under the high cost case.
    • In 2030, industrial output levels are reduced by between 5.3% and 6.5% under the low- and high-cost scenarios.
    • Even when “green jobs” are factored in, total U.S. employment averages 420,000 to 610,000 fewer jobs each year under the low- and high-cost scenarios than under the baseline forecast. By 2030, there are between 1,790,000 and 2,440,000 fewer jobs overall.
    • Electricity prices are 5% to 8% higher by 2020, and by 2030 electricity prices are between 31% and 50% higher.
    • In 2030, household income declines from $730 in the low-cost case to $1,248 in the high cost case.

    Postage stamp per day?

    You may have heard from supporters that Waxman-Markey would cost the average family only $175 per year in 2020, or about a postage stamp per day, according to analyses by the Congressional Budget Office (CBO) and the EPA. That’s a small price to pay, we’re told, to save the planet!

    The Heritage team’s rebuttal is worth quoting at length. Here’s their take on the EPA analysis:

    First, the EPA employs a technique from the financial world called “discounting” to reduce the value [of the Waxman-Markey economic impacts]. For example, the EPA estimates that the inflation-adjusted cost per household in 2050 will be $1,287. However, after this value is discounted to the present, the cost is $140 per household . . . If a househhold must pay $1,287 in 2050, the $140 represents the amount that household would have to pay into an interest-bearing account today so that hte interest would allow it to grow to $1,287 by 2050. Discounting can be a legitimate tool for cost-benefit and investment analysis where costs are paid and benefits are received at different times. Thus, both are discounted to the same point in time and compared. Without discounted environmental impacts for comparison, using the technique, here, does little except undercount the cost that families will actually pay in 2050.

    Second, the EPA measures consumption, not income. The broadest and best measure of cost if lost income–lost GDP. Consumption only comes after taxes and savings are deducted. Igoring lost savings and lost payments for government services underestimates sthe cost by about 40%.

    Third, the EPA measures cost per household. Households are not necessarily families. One person living alone counts as a household, as do three single people sharing an apartment. The EPA uses an average household size of 2.6 people. Converting from this EPA household size to a family of four adds more than 50% to the cost estimate.

    So, EPA’s $174 cost per household is actually above $2,700 (even after adjusting for inflation) when presented as lost income per family of four. That is not a postage stamp per day.

    Regarding the CBO analysis, the Heritage team writes:

    The CBO study, on the other hand, does not even attempt a comprehensive measure of lost income and it explicitly states so in footnote 3 of its report . . . The CBO’s methodology effectively measures the administrative costs of collecting and distributing the allowances rather than the full economic cost.

    Additional commentary by Dr. Kreutzer the CBO and EPA analyses is available here, here, and here.

    More pain for no gain

    A final observation: Even if you think global warming is a big problem, Waxman-Markey would have no discernible effect on global temperatures or sea level rise even if all industrialized nations adopt it. Paul C. Knappenberger, my colleague at the free-market energy blog, Masterresource.Org has written brilliantly and extensively on these matters (see here, here, here, here, and here).

    Bonus pay bill: CBO predicts huge costs to private sector, broad swaths of employees affected

    by John Berlau on July 31, 2009

    in Bailout Watch, Deregulate to Stimulate, Nanny State, Personal Liberty, Politics as Usual, Precaution & Risk, Regulation, Zeitgeist

    After the nonpartisan Congressional Budget Office (CBO) calculated the enormous costs of an all-encompassing health care scheme with a bloated public option, members of Congress from both parties asked for more due diligence before rubber stamping the plan.

     Yet today, the U.S. House of Representatives may rush through another piece of poorly designed command-and-control legislation that the CBO just yesterday said could have its own tremendous costs.  Though advertised as giving shareholders more “say” over CEO pay, the “Corporate and Financial Institution Compensation Fairness Act of 2009 [H.R. 3269],” would give the government the power to ban performance bonuses for a wide variety of employees – including even office assistants and clerks – at a wide variety of firms.

     

    On Thursday, July 30, the CBO Cost Estimate for the bill, sponsored by House Financial Services Chairman Barney Frank (D-Mass.), found that its mandates would place untold costs on the private sector that could reach upwards of $139 million a year. The CBO report starkly states: “The requirements of H.R. 3269 would impose several private-sector mandates … on publicly traded companies, financial institutions, institutional investment managers, and national securities exchanges and associations.” CBO adds that “because the cost of some of the mandates would depend on federal regulations yet to be established,” the total cost of the mandates may exceed the $139 million a year that under the Unfunded Mandates Reform Act, requires special scrutiny for its effects on the private sector.

     

    As CEI has repeatedly stated, regulatory costs should be seen as a tax. And this tax on publicly traded companies – that would frustrate the incentive pay necessary to foster growth in entrepreneurial firms– may put a damper on the recent gains of the stock market and slow an economic recovery.

     

    Here is a summary, but by no means all-inclusive list, of destructive provisions of the bill

     

    1. Broad powers to ban a broad array of bonuses for a broad set of employees at a broad definition of “financial services” firms.

     

    Section 4 of HR 3269 establishes direct control of bonus pay for all employees of “financial institutions.” Federal regulators could ban what they deem “unreasonable incentives” that lead to “undue risks” for any employee, including a bank teller or a secretary.

     

    This mandate would cover a variety of firms, not necessarily financial. The bill defines “financial institutions” to include banks, credit unions, broker dealers, investment advisers as well as well as any other entity that “federal regulators, jointly, by rule, determine should be treated as a covered financial institution for purposes of this section.”

     

    These provisions would also likely coincide with sections of HR 3126, establishing a Consumer Financial Protection Agency that would regulate the pay of all employees involved in consumer credit, regardless of industry. This could include cashiers who take credit card applications. The two bills constitute and unprecedented government intrusion into private sector payments.

     

    The connection between pay structure and “systemic risk” is tenuous. If financial products pose risk to the system, those products themselves are what should be under more scrutiny. Limiting incentive pay could itself likely lessen financial stability by reducing firms’ ability to reward long-term performance

     

     

     

    1. Why mandate costly say-on-pay mechanisms that shareholders have voted down at many firms?

     

    The bill mandates what is called “say on pay” – the annual nonbonding affirmation of pay for top executives at all public companies. What the bill’s supporters overlook is that shareholders now have the freedom to establish say-on-pay at the firms they own, yet they have mostly rejected these schemes to regulate pay when they were placed the proxy ballot.

     

    Only a few firms’ shareholders have approved say-on-pay resolutions when they have been on the ballot. Say-on-pay has been rejected by shareholders at companies from Disney to Abbot Labs. This means that most investors thought the process was a waste of time and company resources.

     

    Active shareholders have other, more effective ways to align pay with performance, such as through their votes on the structure of compensation plans. So why should Congress impose on them a pay mechanism they don’t want. If Congress has to impose say-on-pay, it should go with a substitute measure by Rep. Scott Garrett, R-N.J., to allow shareholders to opt-out or have pay approval every three years rather than annually.

     

    Bottom line: The bill threatens to curtail incentive pay that is crucial to growth and innovation.

     

    The American public is justifiable upset at executives of bailed out firms taking bonuses. But they understand incentive pay is needed for everyone from mid-level employees to CEOs for firms to be successful. The heightened concern about Apple Inc. CEO Steve Jobs’ health demonstrates that investors know what a crucial skill set it take to run a top company. Just as the American public is not envious of actors and athletes that make high salaries because of their talents, they recognize that talents should be rewarded in the corporate boardroom too. This bill would limit shareholder choices, reduce incentives for a variety of employees, and put a damper on innovation and economic growth.

    Obama Health-Care Plan Would Take Away 5 Important Freedoms, CNN Says; Obama Would Also Raise Taxes, End Affordable Plans, and Break Promises

    by Hans Bader on July 27, 2009

    in Energy, Environment, Ethanol, Global Warming, Healthcare, Politics as Usual, Stimulus to Nowhere, Trade

    CNN notes that there are “5 freedoms you’d lose in health care reform” as promoted by the Obama Administration: the freedom to choose your doctors, the freedom to choose what’s in your plan, the freedom to keep your existing plan, the freedom to be rewarded for healthy living, and the freedom to choose high-deductible coverage.

    Earlier, we described how Obama’s health-care plan would destroy many affordable health-care plans, raise taxes on the middle class, and break Obama’s campaign promises, as well as his recent pledge that “if you like your health care plan, you can keep it.”

    As CNN notes, “the Obama platform would mandate extremely full, expensive, and highly subsidized coverage — including a lot of benefits people would never pay for with their own money — but deliver it through a highly restrictive, HMO-style plan that will determine what care and tests you can and can’t have.” “If you prize choosing your own cardiologist or urologist under your company’s Preferred Provider Organization plan (PPO), if your employer rewards your non-smoking, healthy lifestyle with reduced premiums, if you love the bargain Health Savings Account (HSA) that insures you just for the essentials, or if you simply take comfort in the freedom to spend your own money for a policy that covers the newest drugs and diagnostic tests — you may be shocked to learn that you could lose all of those good things under the rules proposed in the two bills” that Congressional leaders have drafted to implement Obama’s plan.

    House Speaker Nancy Pelosi wants to rush the health-care bill through Congress before most people can even figure out what’s in the bill. That’s how she pushed through Congress the $800 billion stimulus package, which contained hidden provisions that ended welfare reform, and which is now projected to cut the size of the economy “in the long run.” (The stimulus package was supposed to deliver a short-run “jolt” that would quickly lift the economy, but unemployment rose rapidly after its passage, and the package has actually destroyed thousands of jobs in America’s export sector, as well as subsidizing welfare and waste.)

    The bill may be rewritten at the last moment to provide more giveaways to special interests, like the huge cap-and-trade energy tax that Pelosi recently strong-armed through the House. (As Obama once noted, his version of that tax would make people’s electric bills “skyrocket.”) The energy tax was pushed through before the text of the bill even became available. The bill was over 1090 pages long and contained special interest giveaways to a legion of big corporations and their lobbyists. At the last minute, 300 more pages were added to the bill that few in Congress had even read, and had to be manually inserted into the existing 1000 pages after the bill was passed, based on guesses about where those pages would fit in. Thus, the bill did not even really exist at the time it was passed.

    These tax increases are part of a long line of broken promises, such as Obama’s pledge to enact a “net spending cut,” which he flouted with proposed budgets that will explode the national debt through $9.3 trillion in massively increased deficit spending.

    Obamacare would also apparently restrict resources for end-of-life care for the elderly, and mandate wasteful end-of-life counseling for the elderly (such as lecturing them about the right to hasten their own death by refusing nutrition).

    Earlier, the non-partisan Congressional Budget Office gave an honest but “devastating assessment” of the incredibly high cost of the health-care plans backed by Obama, which would cost well over a trillion dollars, to cover just a fraction of the uninsured.

    Obama is angry about that truthful conclusion, as well as the CBO’s finding that his wasteful stimulus package will actually reduce the size of the economy “in the long run.” (Obama had claimed that only his stimulus package could save America from “disaster” and “irreversible decline“).

    So Obama recently invited CBO Director Douglas Elmendorf, a “Democratic appointee,” to the White House to pressure him to reduce his cost estimates.

    It is doubtful that Obamacare would live up to any of Obama’s claims. His other legislation hasn’t. His stimulus package has been a fiasco, as much of the public now realizes: just 25% say it has helped the economy.

    And his cap-and-trade energy tax, if passed by the Senate, would cost the economy trillions, while doing little to cut greenhouse gas emissions, since it contains so many special interest giveaways and environmentally-destructive provisions like protections for ethanol subsidies, which harm the environment, destroy forests, and cause world hunger. Meanwhile, Obama has undermined nuclear energy, which reduces greenhouse gas emissions, by wastefully blocking use of the Yucca Mountain nuclear-waste disposal site after billions of dollars in taxpayer money had already been spent creating it.

    Federal Budget Deficit Skyrockets; $163,000 More in Taxes

    by Hans Bader on April 10, 2009 · 3 comments

    in Bailout Watch, Deregulate to Stimulate, Economy, Politics as Usual, Stimulus to Nowhere

    “The budget deficit increased by $192.3 billion in March, and is near $1 trillion just halfway through the budget year.”

    It’s going to get worse. The Obama Administration’s proposed budgets would produce $9.3 trillion in red ink, more than double the $4.4 trillion in red ink that would have been produced by Bush’s already huge budgets. Economist Michael J. Boskin estimates that Obama’s plans will result in $163,000 in increased taxes in the future for the typical tax-paying family.

    Balanced budgets won’t return even in the long run. Obama claims that a revived economy will eventually cut the deficit. But the Congressional Budget Office says his $800 billion stimulus package will actually cut the size of the economy in the long run, contradicting Obama’s claims that it was needed to avert “irreversible decline.” That was just one in a long line of broken promises and false claims from Obama, like his claims that he would enact a “net spending cut” and not raise taxes on people making less than $250,000 a year.

    Economists and scholars explain some of the government mistakes that created this recession.

    Obama is spending $250 billion to bail out irresponsible mortgage borrowers across the country, some of whom have high incomes and modest mortgage payments. Law professor and financial expert Todd Zywicki argues that Obama is misguided to use taxpayer money in a vain effort to to keep the housing bubble from popping. He notes that the bubble was the product of artificially low short-term interest rates promoted by the federal government, and that the mortgage crisis is concentrated in just 9 states.

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