CLIMATE SECURITY ACT OF 2008--MOTION TO PROCEED--Continued -- (Senate - June 03, 2008)
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Mr. GRASSLEY. Madam President, on April 24 of this year the Senate Finance Committee held a hearing on the tax aspects of what we call the cap-and-trade program, which is an essential part of this bill before the Senate. At that hearing, the Director of the Congressional Budget Office, Peter Orszag, testified about the economic impact of a cap-and-trade system.
Then we also had Robert Greenstein of the Center on Budget and Policy Priorities testifying on the impact of a cap-and-trade system on low-income families.
I would like to share with my colleagues some very relevant information, in the case of my colleagues not having an opportunity to review the testimony that was before the Senate Finance Committee. Mr. Greenstein, who is often pointed to by Members of the other side of the aisle on economic issues, expressed support for policies to address climate change, but pointed out:
Significant increases in the price of energy and energy-related products will necessarily occur as a result of the enactment of effective policies to reduce greenhouse gas emissions.
I think sometimes this issue is presented as though there will be no cost or that big corporate polluters will pay all the costs. On the contrary, we have then the CBO Director Orszag testify:
Under a cap-and-trade program, firms would not ultimately bear most of the cost of the allowances but, instead, would pass them along to their customers in the form of higher prices.
So we are in this situation where everybody wants you to believe that corporations pay taxes or corporations absorb costs. But corporations are tax collectors or, if they have costs, they are passed on to the consumers and individuals end up paying. Mr. Orszag explained that price increases stem from the restrictions on emissions itself, and price increases are, in fact, an integral part of a cap-and-trade system. This is because price increases would be a key mechanism through which businesses and households would be encouraged to change behavior, leading to reductions of CO2.
Regarding the impact of higher energy prices, I would like to refer to Mr. Greenstein again, whom I know many on the other side of the aisle very closely listen to about issues that affect the poor. He observed in his testimony:
Households with limited incomes will be affected the most by these higher prices because they spend a larger fraction of their budgets on energy and energy related products and because they--
Meaning people who are in lower income levels--are less able to afford investments that could reduce their energy consumption, such as a new or more fuel efficient heating system or car.
That is the end of the quote from Mr. Greenstein.
It is important to emphasize we are not just talking about heating bills. Mr. Greenstein further testified:
The impact of climate change policies on low-income consumers goes well beyond the direct effect of higher energy prices on their utility bills. More than half of the increased costs that low-income households would face would be for goods and services other than utilities.
Any item that requires energy to produce will become more expensive--common sense. Items he mentioned that would be more costly for low-income families are quite obvious--gasoline, food, and rent.
We have heard a lot of rhetoric from the majority party expressing concerns about the current high gas prices. Now they have brought before us a bill that would yet further raise gas prices. It seems like making points that are in conflict, very definitely in conflict. You cannot complain about high gas prices and then introduce legislation to raise gas prices yet higher.
The new substitute amendment does contain a token provision for tax relief for consumers, but it only allocates the revenue from 3.5 percent of the allowances in the first year for this relief.
Robert Greenstein, whom I have quoted many times--many of the supporters of this bill usually quote him, maybe on other issues--testified that 14 percent of the allowance revenue would be needed to shield low-income households from further poverty and hardship instead of 3.5 percent. The current bill still falls short even in the year 2030, when 12 percent of allowances will be available to fund tax relief for consumers and emissions will be 45 percent below 2012 levels.
Mr. Greenstein estimates that the average increase in energy-related costs for the poorest fifth of our population would be somewhere between $750 and $950 per year for a modest 15-percent reduction in emissions. Can you imagine the outcry if Congress passed a bill to raise taxes on the poorest fifth of our population by $750 to $950 per year? Some of the very proponents of this legislation would be those crying foul the quickest. But that is exactly what this bill will do. I guess the Democratic leadership is hoping no one will notice.
Be forewarned, just look at a recent election in Britain. The Labor Party recently enacted a new tax policy that was perceived as a tax increase on low-income people, and its approval ratings hit historic lows, leading to sweeping losses in local elections. If Congress is going to impose significant new costs on working families, we must take sufficient action to maintain their standard of living. However, that means more than providing benefits to offset direct costs imposed by the bill before Congress. All Americans rely on healthy economic growth to provide jobs and opportunity.
CBO Director Orszag testified regarding a CO2 cap that ``the higher prices caused by the cap would lower real wages and real returns on capital, which would be equivalent to raising marginal tax rates on those sources of income.'' In other words, a cap-and-trade system has the same economic effect as the most antigrowth type of tax increases one could think about. We are talking about a loss of jobs. We are talking about a loss of economic opportunity for too many Americans.
The Environmental Protection Agency estimates that this bill could reduce U.S. manufacturing output by almost 10 percent in 2030 and could cut gross domestic product by as much as 7 percent--by $2.8 trillion--in the year 2050. So we have people proposing this legislation from whom I have sometimes heard outcries on the floor of the Senate because there is outsourcing of manufacturing jobs, losing manufacturing in the United States. We have a bill before the Senate that is going to make that situation worse, according to the EPA.
To help mitigate the adverse effect of a CO2 cap, Director Orszag suggested that one option would be to use revenue from auctioning allowances to reduce existing taxes that tend to dampen economic activity. Instead, what does the bill do? The bill before us creates a raft of new Government spending programs. In fact, this bill is 491 pages long, and I have had my staff count how many pages of new spending programs. They counted 212 pages. Much of the rest of the bill, then, is devoted to creating new bureaucracy to manage new programs and to bring about new mandates. We are talking about $6.7 trillion in spending over the life of the bill. That is an astounding amount of money, even by Washington standards.
Of course, the authors of the bill will say these new spending programs would invest in new technology. I heard that sort of discussion on the floor of the Senate a week or two before we took our Memorial Day recess. I also heard speeches a couple weeks ago that it would help the environment in some way. One problem with that argument is that almost all of this spending would occur after the caps have taken effect because that is when the revenue from the allowance auctions will start coming in. So common sense tells me that is way too late. It is too late to start investing in alternative energy technology after we already have a cap in place that effectively limits the amount of energy that can be produced from fossil fuels. We need to develop those alternatives right now. If we wait, the pinch we feel from the cap will be much harder. We must have alternatives in place before caps.
I should add that even though this bill showers money on many industries and special interests in an attempt to attract political support, it does little or nothing to promote further use of wind energy. My interest in wind energy is that I happen to be the father of legislation that passed in 1992, and Iowa is one of the leading producers of wind energy of the 50 States. As a promoter of the wind energy tax credit, I can tell you that this is zero-carbon, zero-pollution technology, and it has tremendous potential to help meet any future carbon emissions goals.
Congress should take a very positive, concrete step toward reducing greenhouse gases right now. You don't do that by leaving wind energy out of the legislation. That step we ought to be taking right now would be to send to President Bush a package of extensions of expiring renewable energy production tax incentives. In order to become law, that package would need to be in a form obviously acceptable to the President. The Senate acted on this issue when the Cantwell-Ensign amendment passed the Senate in the housing bill debate. The full Congress needs to follow through and get it to the President. With those production incentives and investments in effect and way ahead of time of what this bill would do, the projects will be built and more green energy will be supplied to American homes, motor vehicles, and businesses.
I look forward to seeing these vital incentives extended, but we need to do more--much more--if we are going to have in place the alternatives to meet any future emissions targets. Instead, what does this bill do? This bill for the most part waits until the cap has already taken effect and we will need to start switching to alternative sources of energy. Only then does it begin spending money to develop the alternatives we will already desperately need by that point.
In addition, this legislation creates a whole new Federal bureaucracy, called the Climate Change Technology Board, to spend money. So we tax the American people. We are going to have an independent agency spend the money, independent of any other Government agency. It will consist of five Directors appointed by the President. This new unelected bureaucracy will have broad discretion to spend funds that are allocated directly to it without going through Congress and with minimal congressional oversight. Congress will only be allowed to block funding after the fact and only if it passes legislation within 30 days. Anyone who is familiar with the legislative process around here, particularly in the Senate, knows this is essentially a carte blanche to spend money.
I am sure we will hear justifications of how each of these new spending programs will do a lot of good. When we hear that, I urge my colleagues to keep one thing in mind: According to the EPA, a typical American household will lose $1,400 in purchase power, and $4,400 in 2050, due to this legislation. What we need to ask is whether these new spending programs justify a tax of $1,400, increasing to $4,400, on a typical American family.
The authors of this bill will say this is not a tax. I have already quoted the CBO Director saying that this bill will have the same economic effect as tax increases. We know this bill will raise trillions of dollars in Federal revenue, and CBO says it will consider auction proceeds to be Federal revenues. Spending in the bill, quite obviously, will be Federal outlays. In the process, American families are going to feel a tight pinch on their pocketbooks.
So you get back to something that is kind of Midwestern common sense about this legislation and about whether it is a tax increase or not a tax increase, whether it is a Federal expenditure or not a Federal expenditure, because where I come from, as the saying goes, if it walks like a duck, talks like a duck, it is a duck. Well, this looks like a tax and it talks like a tax.
The question is, What to do with the revenues? We are faced with a tough decision. With this much new spending, there is something in there for everyone. But does it justify a tax of $1,400--eventually $4,400--on hard-working American families? Rather than spend this money on new Government programs, the right thing to do is to return it to the American people to offset increased costs they will bear, prevent increased poverty, and preserve economic opportunity for all.
I yield the floor.
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