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Treasury Docs: Enviro Taxes Could Reach $400 Billion A Year

Bowing to pressure from congressional Republicans, the U.S. Treasury Department late Friday disclosed previously-unreleased calculations that show domestic policies related to climate change could levy a $400 billion a year tax on the American economy.

Most of that revenue would come from companies required to purchase the right to generate greenhouse gases, a concept called cap and trade. If those and other climate change taxes were passed along to consumers, not counting any credits or other tax law changes, the documents indicate the average American household would pay up to $3,522 a year more in higher gasoline, heating oil, electricity, and other energy costs.

One Treasury document (PDF) says climate change-related policies could yield additional "revenues up to several percentage points of annual GDP (i.e. equal in size to the corporate income tax)." According to IRS figures, corporate income tax revenues totaled $395.5 billion in 2007.

The Friday afternoon disclosure comes after a tempestuous few days in Washington, which started when the free-market Competitive Enterprise Institute obtained redacted versions of the documents through the Freedom of Information Act and published them on Tuesday. Some Republicans, including Sen. Lamar Alexander and Rep. Fred Upton, dubbed the edited documents "censored" and called on the Obama administration to publish the full versions with all the cost calculations included.

One reason why cap and trade has been controversial is its cost, and the wildly varying estimates of its net cost for American families after any benefits (such as lowered personal income taxes or credits for low income households) are taken into account. Adding to the complexity is that the bill narrowly approved by the House of Representatives this summer auctions a different percentage of emission credits than the administration's proposal contemplates.

But whatever the case, Friday's disclosure appears to put a higher price tag on the annual cost of emissions permits than even some opponents have anticipated. The conservative Heritage Foundation, for instance, put the annual cost at between $100 billion and $390 billion.

A dissenting view comes from NYU Law School's Institute for Policy Integrity, which says in an "informal analysis" that the benefits of the House bill "could likely exceed the costs by as much as nine-to-one or more" -- although the authors admit that any benefits would be global while the would be borne by Americans. One EPA estimate found a "$98 to $140 average annual cost per household" (here's a critical response).

The Congressional Budget Office estimates that "the price increases resulting from a 15 percent cut in CO2 emissions could cost the average household roughly $1,600," but that because households tend not to be average, annual costs would generally range between $700 and $2,200. The CBO says higher prices are "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 economically motivated changes in investment and consumption that reduced CO2 emissions."

Some of the possible benefits can be found in the president's original budget proposal announced in February. It said, referring to the tax revenue received from cap and trade but without giving details: "This program will fund vital investments in a clean energy future totaling $150 billion over 10 years, starting in FY 2012. The balance of the auction revenues will be returned to the people, especially vulnerable families, communities, and businesses to help the transition to a clean energy economy."

The Treasury Department's internal estimates -- one of which was prepared by an Obama administration hire, not a Bush-era official -- could prove problematic for the administration because they conflict with its public statements. As recently as August 25, the White House claimed on page 33 of its revised budget estimate that "climate revenues" would amount to only one-half of one percent of GDP by 2012, or about $70 billion, a much lower sum.

For its part, the Treasury Department is attempting to downplay its earlier internal calculations, in part by saying they apply to its own cap and trade proposals, and not the House bill.

"Certain portions of the attached un-redacted documents contained information that is privileged, deliberative, and pre-decisional, including financial estimates available in the public domain that were collected and summarized by Treasury staff, along with preliminary assessments and recommendations," the department said in e-mail on Friday to It added: "The numbers referenced in the attached documents are not new and do not represent an independent Treasury analysis. Instead, they reflect a range of estimates from publicly available studies of policies that had been proposed prior to the drafting of the documents."

On the other hand, the Treasury Department typically claims special expertise in judging the impact of legislation on federal tax revenues, and the no-longer-redacted documents boast that the agency is "uniquely positioned to provide the executive branch with informed and credible policy options to address these issues, to implement chosen options in its areas of operational responsibility, and to communicate those choices."

"These are not just statements that are thrown out like Mardi Gras beads by the Treasury Department's economic team," says Christopher Horner, a senior fellow at the Competitive Enterprise Institute who filed the Freedom of Information Act request. CEI is a non-partisan think tank in Washington, D.C. that has been critical of cap and trade.

If Treasury is counting on up to $400 billion a year in new revenue from environment taxes (with perhaps $300 billion coming from cap and trade taxes), that money has to come from somewhere, and the two obvious possibilities are corporations and individuals. If businesses paid the taxes, it would practically eliminate all corporate dividends -- MIT economics professor Lester Thurow calculates that U.S. corporations generated $444 billion in dividends in 2004. Another possibility is that profit margins are reduced but not eliminated, and the cost of the tax is shared between businesses and individuals.

President Obama's budget director, Peter Orszag, concluded last year that the cost of the cap and trade taxes would be largely borne by American families. "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," Orszag, who was head of the Congressional Budget Office at the time, told the Senate. Those price increases, he added, "would occur regardless of whether the government sold emission allowances or gave them away."

Here are some excerpts from the no-longer redacted Treasury documents, with the Xs showing what had been blacked out before:

Before: "One advantage of auctioning allowances is the potential for generating large revenues XXXXXXXXXXXXXXX"
After: "One advantage of auctioning allowances is the potential for generating large revenues (perhaps $300 billion annually)"

Before: "Will involve significant costs and potential revenues, XXXXXXXXXXXXXXXXXXX"
After: "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)."

Before: "it will raise energy prices and impose annual costs on the order of XXXXXXXXXXX dollars."
After: "it will raise energy prices and impose annual costs on the order of tens (and potentially hundreds) of billions of dollars."

After: "Substantial thought will also be required to address concerns about cost uncertainty and international competitiveness"

One thing to keep in mind is that instead of releasing the full documents, Treasury has only released a page or a few pages from each. This is an unusual practice for federal agencies -- even the CIA during the Bush administration released more pages, albeit heavily redacted ones, when the ACLU sought documents through FOIA relating to waterboarding.

On Wednesday, I asked Treasury for "the full documents rather than the brief excerpts" but haven't received a response to my request. CEI says it will pursue the matter before a federal judge if necessary; until then, we'll see if the administration lives up to the president's promises.

Declan McCullagh is a correspondent for He can be reached at You can bookmark the Taking Liberties site here, or subscribe to the RSS feed.
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