A Secret Cap and Trade Tax of $1,761 Per Family?

By MichaelJames

Sep 20, 2009 12:46pm

ABC News' Jake Tapper and Matt Jaffe report:

At the Values Voter Summit Saturday, former Massachusetts Gov. Mitt Romney said of cap and trade legislation that "the Obama team had secretly calculated that his plan would cost the average American family $1,761 a year, the equivalent to a 15 percent income tax hike."


The Congressional Budget Office has concluded that the cap and trade legislation in the House would only cost the average taxpayer $160 dollars a year.

Yet those opposed to the Democrats' cap and trade legislation — including the American Petroleum Institute and Sen. Lamar Alexander, R-Tenn. – are using this new, larger figure.

So where did it come from?

Earlier this week, the libertarian Competitive Enterprise Institute posted excerpts from transition memo from the U.S. Treasury Department that CEI obtained through the Freedom of Information Act. The Treasury document memo said that "given the administration's proposal to auction all emission allowances, a cap and trade program could generate federal receipts on the order of $100 to $200 billion annually."

Declan McCullagh, a libertarian blogger at CBS News, wrote about this memo this way: He assumed that the costs of these fees paid by polluters to the government would be entirely passed on to consumers, and divided the number $200 billion by the number of households in the United States — approximately 113.5 million according to the census.

That came out to $1,761 per family per year.

Or, as he put it, the "Obama administration has privately concluded that a cap and trade law would cost American taxpayers up to $200 billion a year, the equivalent of hiking personal income taxes by about 15 percent."

Politifact looked at the $1,761 figure this week and concluded that it was false "based on a blogger's incorrect assumptions and overly simple math. The estimate does not account for revenue that will be returned to consumers in the form of rebates and other efficiency measures."

A Treasury official told ABC News that the $100 billion-$200 billion figure "was an estimate of auction revenue, not costs to households."

The official said the "statement in question was not a reference to a 'price tag' of climate legislation, but rather an order of magnitude estimate of auction revenue if all allowances were auctioned. That is, we were communicating that auction revenue would not be on the order of millions, $1 billion, or $1 trillion, but rather on the order of $100 [billion] to $200 billion."

The official said that "this order of magnitude estimate was not about a specific legislative proposal, and it was not a result of an actual internal analysis, but rather a summary of what was implied by a variety of publicly available analyses." The document in question was not a "'report' or 'analysis' but simply a memo developed during transition for incoming officials summarizing existing publicly available information."

So what are the differences between the hypothetical cap and trade as seen in the Obama transition memo analysis the House cap and trade bill drafted by Reps. Henry Waxman, D-Calif., and Ed Markey, D-Mass.?

As the Washington Post noted, President "Obama originally envisioned that every polluting permit would be sold, starting when the bill was enacted. But in the spirit of compromise, Waxman and Markey scaled back that plan by giving about 85 percent of the permits for free in the early years of the bill's implementation.

"Also, under the latest version of the Waxman-Markey bill, which passed the House in June, 30 to 40 percent of the revenue would go back to electric utilities to be passed on to consumers to offset higher rates they would have to pay. The money would be passed to consumers through rebates or expanded efficiency programs, and an additional 15 percent of the revenue would go directly to low-income consumers."

The pushback from the Treasury Department has been forceful.

Alan Krueger, Treasury assistant secretary for economic policy, said that the initial "reporting on the Treasury memo is flat out wrong."

Krueger said that "the reporting and blogging on this issue ignore the fact that the revenue raised from emission permits would be returned to consumers under both administration and legislative proposals. It is time for an honest debate about how to solve a long-term challenge and deliver comprehensive energy reform, not for misrepresentations of the facts."


But it's possible to see as false the assertions by Romney and other Republicans that the president has been hiding a $1,761 tax from the American people while also wondering if the Treasury Department is being as forthcoming and transparent as President Obama's campaign promises would suggest.

Chris Horner, the senior fellow at CEI, pointed out that the Treasury Department originally released the memo with the $100 billion-$200 billion figure redacted — for no obvious reason other than it was a "highly embarrassing" figure, in Horner's view. Moreover, the Treasury Department only coughed up five documents and e-mails, when CEI expected 50 documents and e-mails. CEI needs to decide in the next 30 days whether or not to sue for more.

And though the Waxman-Markey legislation is quite different from the cap and trade hypothesis in the memo, the Obama administration's original position was in support of a 100 percent auction. As Congress is really only at the beginning of the legislative process on cap and trade, the White House's view is not irrelevant.

It's also worth asking if the ultimate amount of revenue — even with rebates to consumers — is of so little value. Do Americans really think those costs won't end up impacting them in some way eventually? It may be politically savvy to tell the American people that this will cost them just a postage stamp a day, but is that the true ultimate cost of revenue that the administration argued in theory could possibly be "equal in size to the corporate income tax"?

Peter Orszag is the president's budget director, but back when he was director of CBO, in April 2008, he testified that "if firms that must purchase allowances were unable to pass those costs along, their profits would fall. More likely, some substantial portion of those costs would be passed along to others in the economy, such as consumers, in the form of higher prices, and employees, in the form of lower wages. Lower wages would reduce federal revenues from income and payroll taxes. An increase in the price level would reduce income taxes — because the tax system is indexed to prices — and increase expenditures for indexed benefits, such as Social Security. Those changes would offset some of the revenues from the allowances."

Orszag added that 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."

As as President Obama himself said (in another claim examined by Politifact) in January 2008, "under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket….Because I'm capping greenhouse gases, coal-powered plants, you know, 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."

Obviously, the Waxman-Markey bill makes efforts to mitigate such problems, but no one can honestly argue that the bill the president ultimately signs will absolutely avoid these issues entirely.

"The problem is can you get the American people to say 'This is really important,' and force their representatives to do the right thing?" President Obama said to the editors of the San Francisco Chronicle. "That requires mobilizing a citizenry. That requires their understanding what is at stake."

Cap and trade is a complicated issue that demands facts and transparency. Opponents would do well to keep their arguments in line with reality, refraining from fuzzy math and invented claims. Proponents would do well to be honest and up front about what they think they believe the true impact of this legislation would be, refraining from trying to hide facts and figures from the American people.

And I don't think it's unfair to say that it remains open questions as to whether cap-and-trade proponents have truly explained to the American people "what is at stake" with the legislation, as President Obama opined in January 2008, and whether they have mobilized a citizenry.

- Jake Tapper and Matt Jaffe

*This post has been updated.

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