Open Responce to Draft Carbon Tax Legislation

OpenCongress posted an article about energy policy noting that US House Representative John D. Dingell posted Draft Carbon Tax Legislation on his website. Dingell is making the draft available for public comment before he brings it to the floor.

The following is an open letter I sent in response.

Representative Dingell,

Thank you for making this draft legislation available for public comment. Overall the Carbon Tax Draft Legislation you posted looks like a good first step. I'd like to share four topics that stand out as questions, issues, or possible omissions.

1. Carbon Tax Numbers - Where's the math that explains $50 per ton?

I like the idea of the per ton carbon tax that places a dollar cost on pollution, but I'm curious how the $50 number was chosen. $50 doesn't pass my smell test because it is a neat, rounded, simple denomination sort of number. I'd like to see the formula that determines the value of carbon disposal and then phase in the tax to that value. If we impose a carbon tax that is too low it will fail to have the desired effect. If we choose a carbon tax that is too high it will artificially over-inflate prices and could hurt the economy. There's a balance needed and it we to make a data driven decision on the price point. Please reach out to the scientific and economic communities to develop a formula for determining the optimal carbon tax rate. We should be transparent about why we chose this price so that we can adjust it appropriately as circumstances change.

2. Bio Fuels - Why the carbon tax exemption?

Bio fuels are a complicated issue. While bio-fuels reduce our dependency on foreign oil, they raise the cost of staple foods and still contribute to pollution. I am not clear on weather or not bio-fuels reduce green house gases (I haven't taken the time to research this yet). What I have read is that bio-fuels have a serious negative effect on the land where they are produced and refined, and a serious negative impact on the air quality in areas where they are burned. What is the reasoning behind the exemption of a carbon tax on bio fuels?

3. Earned Income Tax Credit - We need to solve the cash flow problem

Phase out limits - I am fortunate to be ineligible for the Earned Income Tax Credit (EIT), but from what I've read it appears only marginally effective at its original purpose. The phase out levels seem staggering low. As a father of 3 I can not fathom a way to raise a healthy family on $15,000 a year which is the highest number at which you suggest beginning to phase out the EIT. Moreover, 25% of it goes unclaimed each year. This is probably because tax law is to complicated and time consuming for a family that by my estimation is both struggling day to day to eat, and probably already cold at night.

A Problem of Cash Flow - Even if the Earned Income Tax Credit (EIT) reached more people, it doesn't really solve the cash flow problem created by higher energy costs. If a family is living paycheck to paycheck (which is a reasonable assumption even at $30,000) they will need cash on hand to cover the interim increased energy costs created by the carbon tax. Using the EIT to offset increased energy costs means that the family needs to front money for the increased energy costs for more than a year before they get the money back. For example they start paying increased prices in January of 2008 and you get some money back in April of 2009. At best this will lead to more predatory lending against expected tax rebates like we've seen in recent years.

Alternatively we could address the cash flow by reducing the costs for low income families up front. This could be done by creating a simple same day process for families to qualify (similar to the EIT qualifications for a rebate) and require energy companies to provide two payment options on the bill. One with the EIT qualification and the one without it. Bills should also clearly display information on how to get qualified for the lower cost. By showing the different values on the bill you create an obvious incentive to follow the qualifying process to immediately reduce costs to the family.

This moves the logistical and cash flow burden from low income families that don't have the cash flow or the time to navigate complex tax laws into the responsibility of the energy industry and IRS. These two organizations will be motivated by their P&L and law respectively to streamline the process without requiring anything from low income families.

4. Shifting Subsidies from Oil to Renewables - An Omission?

The one thing I see missing is subsidies for renewable energy. Specifically solar, wind, and wave power. Since the time of the new deal, large shifts in our countries infrastructure have always been subsidized by the federal government. We currently spend billions subsidizing the oil industry which is showing record profits while polluting the environment. Why not use the oil subsidies to stimulate the renewable energy market? I'd propose a 5 year plan to phase all oil subsidies over to renewable energy research and consumer cost reduction.

I appreciate the opportunity to comment on this draft legislation and hope you are able to take these comments into consideration.

Paul Russell

Image Credit: Image:Uscapitolindaylight.jpg w:United States Capitol in daylight, taken by Kmccoy w:2004-05-04.