03/20/2009
One of the crucial elements of President Obama's legislative agenda is his "cap and trade" initiative that would limit carbon emissions and impose a huge indirect tax on them. In the president's budget outline submitted a few weeks ago, he estimated that some $680 billion in federal revenue would be raised by the proposal over the next eight years. Apparently, his advisors are now admitting that cost estimate is woefully low. In a briefing to U.S. Senate staffers recently, an Obama administration representative put the figure at a whopping $1.9 trillion.
This huge new revenue stream doesn't simply drop from the blue into the treasury. It will come from the pocket of businesses and consumers who use carbon-based energy-and that includes almost everyone.
The Tax Foundation, a Washington, D.C. tax policy think tank, recently completed an analysis of the potential impact of "cap and trade" legislation. Its findings are eye-opening:
"In total, households would face an annual burden of roughly $144.8 billion per year with costs disproportionately borne by low-income households, those under 25 and over 75 years, those in southern states, and single parents with dependent children…. Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a 'tax free' way to reduce green house gas emissions."
Revenue from cap and trade legislation figures prominently into the president's future spending plans. It is the principal source of funding for his "middle class" tax cut proposal and increased spending on renewable energy sources. Some skeptics would argue that the Obama administration knew all along that its estimates on cap and trade revenue were grossly understated and they were relying on a much larger revenue amount from it to pay for additional trillions of dollars in new spending proposals.
What Team Obama may not be factoring in is the impact that a not-so-hidden tax will have in a weak economy. If the cap and trade price tag is closer to the $1.9 trillion estimate, consumers are going to riot when those higher costs are passed on to them at a time when wages are stagnant and job security is ebbing.
From a business standpoint, the results could be devastating. Congress can impose carbon emission taxes, fees, and assessments on U.S. companies, but it can't impose them on their foreign competitors. That means American industries and their workers could be at a competitive disadvantage with similar companies located in China, India, Mexico and other less developed nations. Quite simply, that means that the cost of doing business will be higher here, profitability will be lower, and economic growth will be hindered. If cap and trade legislation results in higher unemployment and lower profitability and stock prices for American businesses, no one's economic best interest will be served.
It is interesting that the justification for imposing such an onerous proposal is the claim by some in the scientific community that climate change, particularly in the form of global warming, is threatening the planet. Interestingly, the planetary temperature increase in the last century has been 0.4 degrees Centigrade and the earth has actually cooled since 2001. Congress should think long and hard before inflicting economic misery on families and businesses under the guise of rectifying a problem that may not exist to any threatening degree.
Saturday, March 21, 2009
Thursday, March 5, 2009
UC and the Stimulus Package
On February 17th, President Obama signed what is commonly referred to as the "stimulus package." It contains three provisions designed to increase unemployment compensation (UC) payments and provide incentives for states to expand the number of individuals eligible for these benefits. There has been a lot of discussion in the media about these provisions, and it is important to understand how they impact Louisiana.
The first provision allows claimants to continue to receive Emergency UC (EUC) benefits in addition to the six months of benefits already provided under our law. The funding comes from federal general revenues. Some 6,000 Louisiana claimants are receiving EUC benefits, which will expire at the end of this year.
A second provision creates a $25 weekly benefit that every Louisiana claimant will get through June 30, 2010. This additional benefit is also appropriated from federal general revenues. Louisiana is among a handful of states that has a minimum weekly benefit amount of $25 or less. The extra $25 per week will result in some low-wage workers receiving more in UC than they earned prior to becoming unemployed, which could discourage some individuals from actively seeking work.
The final provision, and the one that is generating most of the controversy, would transfer pro-rata shares of $7 billion to states from federal UC taxes paid exclusively by employers. States will receive this money in exchange for enacting or maintaining certain UC laws on their books.
To obtain its portion of this $7 billion, Louisiana must enact a more costly "alternative base period" calculation of benefits, which only 18 states-none in the south-have chosen to voluntarily put in their laws. Louisiana must also adopt at least two of the following provisions:
1.
Individuals shall not be denied benefits because they refuse to accept or actively search for full-time work.
2.
Individuals shall not be disqualified from benefits if they quit work for a "compelling family reason" over which the employer has no control.
3.
Individuals will receive an additional six months of benefits if they enroll in state-approved or federal Workforce Investment Act training.
4.
Individuals will receive dependents allowances of at least $15 per dependent.
It is important to note that, as the stimulus package was moving through Congress, an amendment was proposed to give states this money without the strings attached. However, the amendment was rejected because the leadership in Congress insisted that these permanent benefit expansions had to be part of any additional distribution to the states.
The purpose of our federal/state UC system has always been to provide assistance to workers who lose their jobs because of what happens at the workplace and not at home, and who genuinely desire to rejoin the workforce. Adoption of the expensive expansions in the stimulus package would constitute a significant departure from this.
One should also consider the impact of such changes on Louisiana's unemployment trust fund. The business community has fought for decades to protect the fund's solvency in order to provide benefits for deserving claimants. Enactment of the benefit expansions would jeopardize it's future solvency. If the fund declines, lower benefits for all of Louisiana's unemployed and higher state UC taxes for its employers will kick in. So, while a new group of individuals would get benefits, the unemployed already eligible might see their benefits reduced.
This is not free money. It comes at a price. Some say Louisiana should take it anyway. The fact is that the cost is too dear-for employers and the unemployed alike.
The first provision allows claimants to continue to receive Emergency UC (EUC) benefits in addition to the six months of benefits already provided under our law. The funding comes from federal general revenues. Some 6,000 Louisiana claimants are receiving EUC benefits, which will expire at the end of this year.
A second provision creates a $25 weekly benefit that every Louisiana claimant will get through June 30, 2010. This additional benefit is also appropriated from federal general revenues. Louisiana is among a handful of states that has a minimum weekly benefit amount of $25 or less. The extra $25 per week will result in some low-wage workers receiving more in UC than they earned prior to becoming unemployed, which could discourage some individuals from actively seeking work.
The final provision, and the one that is generating most of the controversy, would transfer pro-rata shares of $7 billion to states from federal UC taxes paid exclusively by employers. States will receive this money in exchange for enacting or maintaining certain UC laws on their books.
To obtain its portion of this $7 billion, Louisiana must enact a more costly "alternative base period" calculation of benefits, which only 18 states-none in the south-have chosen to voluntarily put in their laws. Louisiana must also adopt at least two of the following provisions:
1.
Individuals shall not be denied benefits because they refuse to accept or actively search for full-time work.
2.
Individuals shall not be disqualified from benefits if they quit work for a "compelling family reason" over which the employer has no control.
3.
Individuals will receive an additional six months of benefits if they enroll in state-approved or federal Workforce Investment Act training.
4.
Individuals will receive dependents allowances of at least $15 per dependent.
It is important to note that, as the stimulus package was moving through Congress, an amendment was proposed to give states this money without the strings attached. However, the amendment was rejected because the leadership in Congress insisted that these permanent benefit expansions had to be part of any additional distribution to the states.
The purpose of our federal/state UC system has always been to provide assistance to workers who lose their jobs because of what happens at the workplace and not at home, and who genuinely desire to rejoin the workforce. Adoption of the expensive expansions in the stimulus package would constitute a significant departure from this.
One should also consider the impact of such changes on Louisiana's unemployment trust fund. The business community has fought for decades to protect the fund's solvency in order to provide benefits for deserving claimants. Enactment of the benefit expansions would jeopardize it's future solvency. If the fund declines, lower benefits for all of Louisiana's unemployed and higher state UC taxes for its employers will kick in. So, while a new group of individuals would get benefits, the unemployed already eligible might see their benefits reduced.
This is not free money. It comes at a price. Some say Louisiana should take it anyway. The fact is that the cost is too dear-for employers and the unemployed alike.
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