Scalia’s Parting Gift: Ending Obama’s Pollution Control Plan

No court in U.S. history has ever stepped in front of the legal process to halt a regulatory action prior to its having worked its way through the federal court system and the appeals courts. That the Supreme Court has intervened to subvert the Obama administration’s plan to cut emissions, coming down on the side of the states and other plaintiffs, before a case has even come before them, is an unmistakably political act that accords business interests a huge victory.

More important, it cancels the pledge the United States made in Paris just two months ago to reduce carbon emissions. The Clean Power Plan was this country’s good faith marker to do its part. Every other country on Earth has signed on to the pact to cut emissions, but now the United States has backed out. That mattered not at all to the
five justices at the right end of the bench. Scalia was famously focused on the Constitution, but consequently lacked any global outlook, and the other four saw no further than the parochial interests of the coal industry and state sovereignty.

Had the Court not acted when it did, the vote now would be 4-to-4 and the refusal of the lower court to grant a stay would have prevailed. A week or so and a single vote made all the difference.

Officials in Beijing and Delhi contacted by New York Times reporters have already expressed concern that, if the U.S. commitment unravels, so will the international accord. The article quotes a phone conversation with the deputy director general of a government think tank in Beijing saying, “In China domestically, there is also resistance to low-carbon policies, and they would be able to say: ‘Look, the United States doesn’t keep its word. Why make so many demands on us?’ ”.

unprecedented

That was the word used right and left to describe the Court’s lunge to get its hands on this case before it went any further. The 27 states along with a long list of corporations and industry trade groups suing the government to block the Clean Power Plan, states with Republican governors or coal companies, had requested that the United States Court of Appeals for the District of Columbia Circuit grant a “stay” to relieve them of compliance with the EPA’s requirements while the case is still in the courts. The three-judge panel was unanimous in denying the request, but it did expedite the case, scheduling the hearing of arguments for June 2.

That decision evidently signaled to the conservatives on the high court that the appeals court was unsympathetic to the plaintiffs. A decision against the states et al. would most certainly be appealed, but that would add a year during which compliance would remain in force. That would not do for the five friends of the industry at the Supreme Court, so they took the highly partisan step of overriding the appeals court to halt the EPA program.

“President Obama’s Clean Power Plan is dead and will not be resurrected”, gloats an op-ed at The Wall Street Journal.

rising above principles

The Court normally imposes on itself strict criteria for granting a stay. Among them:

Would a public interest be served? The Court ignores the American public. In a New York Times/CBS News Poll as recent as November, 63% said they would support domestic policies limiting carbon emissions from power plants and 66% said the U.S. should join the international accord.

Is there a clear likelihood that plaintiffs will win and in the interim will be subject to irreparable harm if actions against them are allowed to proceed? But if any intimations are to be divined from the appellate court’s denial of a stay, that says that the plaintiffs may lose and see their compliance validated.

Moreover, this is a stay against a government regulation before its legality has been evaluated by a lower court, which has never happened. By subverting the legal process, the Court is not adjudicating law, it is making policy.

It is a clear indication that the Supreme Court’s five conservatives have already decided to strike down the Clean Power Plan once it reaches them, that they have decided quite on their own it should go no further, and that the legal process leading to that moment has been reduced to a formality.

a history of evasion

The lawsuit aims to perpetuate an industry that has spent four decades fighting every attempt to force installation of pollution controls called for by the Clean Air Act of 1970 — an industry that, in deference to the cost, was actually granted a relaxation of the Act that permitted power plants to retrofit those controls only when significant modifications beyond “routine maintenance” were made, an industry that then gamed the system by breaking up those major modifications disguising them as routine maintenance to evade the law.

With industry-partial Republican presidents Reagan and Bush out of office, the Clinton-era EPA sued 51 power plants for violating the Clean Air Act. But immediately after Bush Jr. took office, Vice President Cheney held meetings with the nation’s energy executives and gave them the opportunity to spell out just what they wanted energy policy to be. First, the 51 suits were dropped, then the rules were relaxed still further. The energy industry would henceforward be free to make major changes — up to 20% of the cost of a plant — without installing control devices. The nation’s 17,000 power plants were allowed not only to ignore controlling pollution, but to pollute the atmosphere even more, in that much construction under that 20% umbrella could be plant expansion rather than replacement.

Freed by one administration after another from making major overhauls, with some of their plants over 50 years old, the power industry has been immensely profitable while polluting the skies for decades.

turnabout

The Clean Air Act gives the federal government broad authority to regulate pollutants and the Supreme Court has made that clear several times over. In 2007 the Court ruled that carbon dioxide (CO2) is one such pollutant subject to EPA control. The Court has upheld the EPA’s authority to curb CO2 three times in the years since. And early in 2015, it ruled 6-2 that 28 Midwestern and Appalachian states are subject to EPA’s cross-state air pollution rule that limits power plant emissions blown into downwind Northeastern states.

There is thus strong justification for the EPA’s Clean Power Plan that the Court has now stayed. Those on the right repeatedly complain that the agency has based its authority “the dubious legal premise” of an “all-but-forgotten 1970s-era provision” of the Act — a still more dubious premise that parts of the statute passed into law by the Congress should never be used.

But now that the EPA is acting, the five justices have discovered to their dismay that the coal industry — on its way to extinction from market forces anyway — is threatened and should, contrary to conservative doctrine, be protected.

lawmakers

This is undeniably an activist court pursuing an agenda. Unsurprisingly, the stay was decided 5-to-4, with the five on the right in their usual alignment.
The move against the EPA is of a piece with its stepping in to halt the ballot re-count in Florida and hand the presidency to George W. Bush in 2000. That was still the Rehnquist court, but Scalia, Thomas and Kennedy were on the bench then, as now, and right-left switch-hitter Sandra Day O’Connor voted with them.

Last year, it was highly unusual and suspect that the Supreme Court reached for King v. Burwell. The justices on the right flank were bothered by the 4th Circuit Court of Appeals in Virginia approving the federal payment of subsidies under the Affordable Care Act. They grabbed the case, aborting the lower court’s proceedings, even though there had been no split rulings at the circuit level to justify the highest court’s takeover.

And most notoriously, the justices reached for a case about no more than a corporate-funded political movie brought by the conservative advocacy organization Citizens United. The rightist justices magnified that case well out of proportion so as to realize a political goal of permitting unlimited campaign spending by corporations and unions that has infamously and perhaps irreparably damaged this democracy.

In the current case, the justices know that, were the EPA program to continue, with utility companies busily submitting plans and spending to meet requirements, it will have become embedded and effectively irreversible by the time the challenge reaches the Supreme Court. The justices also know that, even if a Republican wins the White House, he will find it problematic to reverse the EPA. A news analysis article in The Wall Street Journal makes the point that

Very few final regulations have ever been repealed by an administration—Republican or Democratic. To repeal a regulation, you have to write, and legally justify, a new regulation explaining why you are getting rid of the earlier one, a process that could take years and would be unlikely to withstand legal scrutiny, experts say.

As with King v. Burwell the justices could not risk the appellate court allowing the EPA to go forward or there would be no turning back. Feigning that their action is meant simply as a pause while the legal process runs its course should fool no one. It is unmistakably a calculated attempt to sabotage the president’s plan. This is corruption as deep as a Congress that sells indulgences to industries eager to buy members with campaign contributions.

the plan that was

The Clean Power Plan sets an emissions target for each state and requires them to file with the EPA by this September an initial plan for how they expect to meet their objectives. How much each state must cut back its emissions varies according to what it emitted in the benchmark year of 2005.

The states have been given great leeway, with many options. The rule came after a year of review, hundreds of meetings and 4.3 million public comments delivered to EPA. Each state will be free to develop its own plan employing a mix of solutions from power plant fixes to wind and solar renewables and even state or regional markets for trading pollution permits commonly called “cap-and-trade”. If a state doesn’t produce a plan, the EPA would impose one. A Wall Street Journal op-ed by a couple of lawyers maintains that:

The EPA may have the authority to require power plants to operate more efficiently and to install reasonable emissions-reduction technologies. But nothing authorizes the agency to pick winners (solar, wind) and losers (coal) and order generation to be shifted from one to the other, disrupting billion-dollar industries in the process.

Except that the power plan does not mandate renewables, it only offers incentives.

And beyond flexibility, final plans are not required until 2018 and states are not required to be in compliance until 2022, and even then they can argue for an extension. For the states to claim irreparable harm for what they need to do now for so glacially paced a program says that the stay is unwarranted.

standstill

The action of the Court brings to mind the increasing unworkability of the America system, hide-bound by an ancient constitution that pits the states against the federal government. The 1789 constitution reserved power to the states as an inducement for them to unite. But there were only 13 of them. Now there are a hopelessly unwieldy 50. The term Balkanization has been far outstripped; we should speak of Americanization, with the 50 each wanting to go their own way, supported by Republican dogma that thinks each national program meant uniformly for all citizens should be shattered into 50 pieces and scattered onto 50 local bureaucracies — a recipe for corruption 50 times over.

Against this rigidity, it has become impossible to make national progress. One need only think of all that needs change and repair, yet nothing is done year after year.

Nor can there be global progress with other nations. The world already knows that we refuse to ratify treaties. With this action the justices have told the world that the United States cannot be trusted, that its leaders are impotent. The Paris pact was unenforceable, but it had the virtue of exposing in the future all countries who fail to meet their pledges. Two months later, that’s us. With the evidence of climate change everywhere, ours is the most backward nation.

What’s Going to Happen to Your Social Security?

If nothing is done, Social Security is forecast to go broke. Expenditures began exceeding payroll tax revenues for the first
time in 2010, and payouts are nibbling away at the so-called “trust fund” which, at its peak before the downturn, held four times the amount of annual expenditures. It sounds like a far off problem, except if left to fester, remedies will become intolerably drastic.

Proposed fixes are typically to curtail benefits in one or another way. But pulling in the other direction is a progressive wing that has stirred debate with the argument that there is a “retirement crisis”, that the elderly poor are in trouble, that benefits should be increased. That was the long-held view of Tom Harkin, ex-senator of Iowa, and the baton has passed to Massachusetts Senator Elizabeth Warren, who took up the cause starting with a Senate speech in 2013. Now. both Hillary Clinton and Bernie Sanders have signed on.

The Republican candidates are in the opposite camp. Most propose further postponing the age for full benefit eligibility or trimming the benefits paid to the wealthy. What’s to be done?

first, what’s the problem?

Children born after the troops came home from World War II, the baby boomers, account for the huge bulge of seniors who are now retiring at the rate of 10,000 a day and are the cause of having to draw from the trust fund. Children born today will create their own bulge, expected as they are to live until age 90. It should be clear that we cannot work for 40 to 45 years paying, together with employers, an eighth of our income into the system and then expect to receive a substantial benefit payout for another 25 years.

If current entitlement benefits and payroll tax rates continue unchanged, by 2025 tax revenue will pay for Medicare, Medicaid, Social Security, interest on the debt and nothing else, says Ezekiel Emanuel of the Center for American Progress. There will be no money for defense, transportation, education, and so on, nor for government itself.

As for Social Security, it is slated to go bust in 2033. Earlier, says the Congressional Budget Office; if its two funds — retirement and disability — are considered together, the cupboard goes bare in 2029. Only current payroll taxes would then be available for payout to retirees, meaning benefits in 2030 and thereafter would need to be reduced by 29%, says the CBO.

The Social Security Administration (SSA) says it would take an immediate 4.37% increase above the existing 12.4% payroll tax to keep the fund solvent for the next 75 years, the standard horizon against which the SSA calculates its future. It would be close to impossible to find a politician who would vote to impose what would be a 16.77% tax on wage earners and their employers. Not even Sanders. He ducks a tax increase and instead would raise the limit beyond which payroll is not further taxed from $118,500 to $250,000. That would at least avoid asking the younger to pay still more for the older. Slightly more than half of current workers in a Gallup poll last April doubted they will ever receive Social Security benefits and therefore view the taxes they pay as money thrown away.

Some in the liberal camp think there should be no cap — thinking that would take care of the 75-year shortfall all in one go. But taxing all earnings would erase only 41% of Social Security’s long-term deficit because the added contribution would be reduced by the correspondingly higher benefits the wealthy would earn. Unless the unmentioned intention is to pay them no added benefits. But to ask them simply to contribute with no ultimate payback weakens the liberals’ egalitarian principle that Social Security is a virtuous circle of pay and receive, and would yield to the conservative argument that it would become simply another tax. Also, there’s the philosophical question: should someone earning $1 million have to pay (in addition to income taxes) $124,000 for the benefit of others? Maybe. Maybe not.

Others argue that “means testing” — those of greater means, greater wealth, should get reduced benefits — treats higher income households more equitably than simply raising their taxes. The more one has, the less one needs from the government, so trim the benefits. (For the record, there already is some degree of means testing. First, those with lower incomes get a higher ratio of benefits relative to their incomes; benefits decline as a percentage for those with higher lifelong incomes. Second, those who have other income in their retirement years see their Social Security benefits taxed on a sliding scale — a particularly pernicious deceit considering that the government already taxed the money when it made off with it years ago as a payroll deduction.)

a longer wait

The age for full benefit eligibility, once 65, is now headed for 67, but not until 2027, a leisurely postponement that won’t do much for the annual revenue gap that began five years ago. Should the age be postponed further (and sooner) or are there other ways to go about it?

If the eligibility age were 70, people would be spurred to work longer to produce income to fill the gap, so goes the theory. But that assumes that work is available in a culture where employers discriminate against age, where younger workers are thought to be more productive, more willing to adapt to new ways and new technologies, and are cheaper. Besides, those who worked physical jobs all their lives cannot go on working those jobs in their senior years.

The problem with a single retirement age is that one size doesn’t fit all. The well off live longer than their low-income counterparts. A 2007 Social Security Administration report showed that almost all the rise in life expectancy was enjoyed by the more affluent. Among 65-year-old men born in 1941, the SSA found that the top half of income earners was projected to live an average of 5.3 years longer than the bottom half. Those in the bottom rung, those who need Social Security the most, have since the 1970s not seen their longevity rise much above 65 for one or another reason — their physical jobs did physical damage, they weren’t able to afford proper healthcare, and so forth. With less life to live, having to wait extra years alongside the longer-lived affluent class, and then to only receive foreshortened benefits, would be an injustice. They should qualify sooner.

all of the above

What if age deferment and means testing were combined? The principle would be, the richer one is, the older one must become to qualify for Social Security. Remembering the connection between wealth and longevity, graduated postponement across, say, five years, where those of lower means qualify for benefits right off whereas those with greater means would wait extra years determined by their wealth, would tend to give each means group a roughly equal number of benefit years. This would not be difficult to put in place. The SSA already has all the data about how much each of us has been earning throughout our lives.

Beyond that plan, keep going by adopting the proposal of many to reduce payments to high earners on the grounds that it makes little sense to spend benefits on those who need them least. Again, though, the reminder that even liberals advise against cutting too much else it could create a powerful, monied class of people with no stake in the Social Security program and who might be inclined to work for its destruction. Like an Albanian blood feud, there is the Republican element that, from one generation to the next, has never given up the goal of avenging FDR’s “socialist” scheme. Stephen Moore, the chief economist of the Heritage Foundation, has said that Social Security is “the soft underbelly of the welfare state”; “jab your spear through that” and you can undermine the whole thing.

retirement crisis?

If all-of-the-above steps are needed to secure the future of Social Security, how can expansion even be considered? But the liberal wing says it has to be considered because the apparently permanent structural changes in the economy left in the wake of the 2008 crash have put so many in jeopardy.

Andrew Biggs, the Social Security expert (once an SSA official) at the American Enterprise Institute, says in a Wall Street Journal op-ed that the retirement crisis is “phony”, but the “typical middle-income individual born in the 1960s” he cites as living comfortably with the added income from investments and a 401k is not representative of those lower on the income ladder.

In that stratum, 36% of retirees rely on Social Security for 90% or more of their income; 65% of retirees rely on it for more than half of theirs. Yet the average benefit of around $1,300 a month is insubstantial — it’s the same as the federal minimum wage, amounting to only $15,600 a year. That’s poverty level.

The Government Accountability Office reports that in American households with someone 55 or older, 52% have nothing saved for retirement, and of that 52% only half will get anything from a company pension. For those ages 55 to 64 who do have retirement savings, the median amount is barely in the six figures. Retirement experts say those embarking on retirement need a nest egg more like $250,000 coupled with their Social Security benefits to maintain a reasonable standard of living.

The 2008 financial plunge and the drop in wages that followed squeezed out families who once saved for retirement. The Employee Benefit Research Institute finds that now only 57% actively save anything. Three quarters of Americans nearing retirement in 2010 had less than $30,000 socked away. That shouldn’t imply that most have even close to that amount. “Less than $30,000” comprises the 34% that a Harris poll of a few years ago said had nothing at all saved for retirement — “not even a hundred bucks”.

Women are a special case. Those with children have worked less years than men, to this day are still paid less, and with benefits tied to earnings, will receive less from Social Security. What savings they have need to be stretched further, because women live longer than men by three to four years. Not surprising that the poverty rate in 2013 for single (either never married, divorced or widowed) women age 65 and older was nearly three times that of married women. Data from that same year said women received an average of $12,857 a year from Social Security. Men got $16,590.

conundrum

How, then, can we at the same time solve the Social Security shortfall outlined in the first part of this article, while funding an increase in benefits for the echelon of persons just described who have not been able to save anything from the flatlined wages of the past quarter century.

Clearly, radical changes are needed. People must set aside far more and for that a steep increase in the payroll tax is essential if they are to earn higher Social Security benefits in their elongated retirement years. For that to be possible, they need to earn more. That says that a much higher minimum wage must be mandated at the federal level — such as the $15 an hour being tried in places around the nation — and indexed to inflation. People must have higher incomes out of which to pay the higher payroll taxes.

Yes, this will cause disruption. Jobs will be lost. But far more will benefit from the higher wages than will be harmed. And it will push up wages for those already earning above the $15 minimum. Prices will increase. Businesses that cannot sell at those higher prices will close. Consumer buying power will shrink. But huge changes must be made if we are not to create a destitute underclass. Drifting along on our present course is simply unsustainable.

And we haven’t even touched on Medicare which is in far worse shape than Social Security.

Why Don’t We Stop Stalling and Tax Carbon?

A year ago fall, 74 nations and more than 1,000 investors and businesses — companies such as Shell, Dow Chemical and Coca-Cola — signed a declaration calling for a global price on carbon and requiring countries to tax industries for their emissions of carbon dioxide.

Among the signatories were seven American states — California, Maryland, Massachusetts, Oregon, Rhode Island, Vermont and Washington — of the nine that have already embarked on permit
trading programs to control emissions. Another signer was China, now the world’s biggest polluter (and choked by smog), which has these same “cap-and-trade” operations running in seven provinces.

“The most powerful move that a government can make in the fight against climate change is to put a price on carbon,” said Rachel Kyte, the World Bank’s vice president of sustainability.

Exxon Mobil has even said that it would support a carbon tax if in return for equal tax cuts elsewhere.

When 41 prominent economists were asked what would be the most efficient way to reduce emissions, 90% said a carbon tax. The monetary incentive would spur producers to find lower carbon substitutes for fossil fuels. Consumers would pass up higher carbon products bearing prices swollen by the tax.

So where in the world is the holdup? Where else but in the United States Congress. More on that later.

The principle is plain enough: at long last, industries that pollute should pay for the damage they do. Lacking such a charge, carbon emitters pay nothing for the social costs they leave in their wake — fouling the atmosphere as most would acknowledge, and causing everything from droughts to hurricanes to calving glaciers and rising seas as others would have it.

how would it work?

Any movement toward a worldwide carbon system must guard against obsessive accountancy such as in this article which says Apple “expects iPhone 5s to inject 70 kilograms — about 154 pounds — of carbon dioxide equivalent into the atmosphere over its lifetime”. If perfectionists press for a carbon tax based on figuring the lifetime energy consumption of the world’s tens of thousands of products, the changing climate will outrun its cure.

The key to any sensible scheme is that the tax would not be levied on the polluters themselves. Keeping track of and charging every energy user would make for a bureaucratic hairball. Rather, the tax would be more simply applied by charging it at or close to the point of energy’s extraction. The tax on a coal producer’s shipment would be calibrated by how much carbon dioxide its grade of coal will release into the atmosphere once burned. Oil would best be taxed at the refinery based on the same criterion, with the charge varied for the CO2 output of gasoline, heating oil, etc. Natural gas would not be taxed at the wellhead but by the pipeline company when it delivers into the economy. Solar, wind and hydroelectric producers would pay on the same principle, although far less, of course.

All would pay to the government for redistribution and would recover the tax cost in their invoices to the energy users, with the cost ultimately passed on in the prices of end products bought by the government, businesses and consumers.

on the border

Detractors argue that U.S. producers will see their export business plunge if burdened with yet another cost. Companies will simply ship still more jobs overseas to avoid the high energy charges the tax would impose. Another misgiving is that…

“any unilateral effort by the U.S. to restrain carbon emissions will…simply result in shifting carbon intensive activities to other countries. Given the carbon-intensive nature of transporting goods back to the U.S., … such efforts might actually increase carbon emissions world-wide.

But a “border-correction” charge would be levied on imported goods from countries that have not joined the carbon tax club, neutralizing the difference between the U.S. tax versus no tax elsewhere. Whether a toy, a cell phone or an auto, a tax would be levied according to the estimated energy expended in its making. Countries that also charge its producers a global carbon price would be exempt — as would be U.S. goods exported to them.

Outlier countries will pose something of that bureaucratic tangle avoided earlier. First there’s the guessing at energy consumed in the making of the thousands of products we import in order to arrive at how much to charge that will level the field for our own products. Then will come the dealing with foreign manufacturers bleating that they have been unfairly or excessively charged. But they in turn would likely protest to their own governments to be rid of the border wars and we would see recalcitrant countries gradually fall in line by imposing their own carbon tax.

outcomes

The Energy Information Administration estimates that a carbon tax starting at $25 a ton and rising by 5% a year would result in carbon dioxide emissions from American power plants falling to only one-fifth of today’s by 2040. The Brookings Institution figures that the pullback in fossil fuel use resulting from $16 a ton, rising by 4% a year above inflation, would exceed the emission reductions of President Obama’s Clean Power Plan. But, in the bargain, a tax on each ton of carbon dioxide emissions has the advantage of raising a ton of money.

The damage cost of CO2 as estimated in various studies hovers at around $30 for each ton sent into the atmosphere (the White House arrived at $37). The Tax Policy Center has calculated that a tax of only $20 a ton would bring in 0.6% of the nation’s gross domestic product, about $100 billion a year. A Congressional Research Service study in 2012 estimated that a $20 a ton tax, rising by 5.6% percent annually, could cut the projected 10-year deficit by roughly 50%.

A tax of these amounts would add about 20¢ to a gallon of gasoline. Today’s gas tax has been locked at 18.4¢ a gallon since 1993 and should be 31¢ to adjust for inflation — not much of a difference to complain about. Household energy costs could rise by 5% to 20%, depending on the region and whether it has transitioned from cheap coal. Such costs are often cited by opponents of the tax for falling most heavily on the poor. The Congressional Budget Office calculates that the poorest fifth of Americans spend 21.4% of their income on gas and utilities compared to only 6.8% for the wealthiest fifth.

But the $100 billion cited above comes to over $800 a year for every household in the U.S. and most certainly, part of the money would be directed back on a graduated basis to low-income families and individuals to offset heightened costs.

running interference

Blocking action on carbon reduction are the Republicans in Congress. In his first year, President Obama induced House Democrats, then in the majority, to pass a cap-and-trade bill that would require power utilities to buy “credits” to permit a quanta of emissions, or sell surplus credits to other companies in need, with the overall quantity of credits declining every year so as to force reduced use of fossil fuels. If any proposal could have an appeal to Republicans, this would seem to be it, as it creates a trading market, but the bill died in the Senate in the face of a filibuster organized by coal country’s Mitch McConnell, who branded cap-and-trade a “new national energy tax”.

Once there were Republican majorities first in the House and then in the Senate, Obama had no hope of pursuing his mission of combating climate change through legislation. Instead, he had the Environmental Protection Agency (EPA) develop his Clean Power Plan (covered here), relying on what the right views as an obscure and illegitimate part of the Clean Air Act.

McConnell, who in 2010 declared “The single most important thing we want to achieve” being “…for President Obama to be a one-term president”, is now doing his utmost to bring down the Clean Power Plan. As a senator from coal-producing Kentucky, he professes great concern for the loss of mining jobs.

“We’ve lost thousands of jobs”, says a Kentucky state senator, “and we have nothing to replace them”. More than three-dozen U.S. coal operators have filed for bankruptcy in the past three years, says research firm SNL Energy, a couple of them prominent such as Alpha Natural Resources and Patriot Coal.

But the boom in natural gas has been the major cause, not Obama’s plan, which has not yet begun. Nevertheless, McConnell last year sent letters to all 50 governors asking them to ignore the EPA program and its requirement to submit an emission reduction plan — an abuse of his position as Senate Majority Leader, carrying with it the implicit threat to states that if they don’t march to his commands, there could be payback in what laws do or do not get brought to the floor of the Senate. His party believes market forces should work their will and loathes that the renewable industry receives subsidies, but protecting the coal industry in his home state is somehow not a contradiction for McConnell.

the lure

What is sure not to be brought to the Senate floor with McConnell standing athwart, is a carbon tax bill. How then, in this supposed democracy, do we overcome this one man using the power of his position for a parochial interest that is holding the country back? He obscures from view the many possibilities that might attract his fellow Republicans and those few opposed Democrats from energy-producing states.

Republicans view tax cuts as a universal cure-all which makes them constitutionally averse to raising taxes. Just about all of them in Congress even pledge to Grover Norquist’s organization never to do so — never mind what their constituents back home might want.

But some right-leaning commentators are tempted to write of “a carbon tax, properly constructed” where conservatives could trade their votes to gain several pet concessions. They could agree to the tax in return for a reduction of corporate taxes, for example, even their elimination, fulfilling a passionate desire. That could work, because in later years the rising carbon tax should dwarf what corporations pay now in profits taxes.

Apart from aiding the poor with their utility bills, as mentioned above, the carbon tax revenue could fill in for cuts in the Social Security and Medicare payroll taxes.

Or, the income could go toward balancing future budgets; it is clear from Paul Ryan’s annual budgets that spending cuts alone cannot achieve that goal. More revenue from somewhere is a must and taxing families and individuals is anathema to those on the right.

Conservatives could revel in the cancellation of all subsidies to green energy, if there were a carbon tax. Propping up alternative energy should no longer be needed and would no longer be deserved if taxes on fossil fuels made the price of renewables competitive.

As intimated by that last item, environmentalists will need to shelve their dreams of funding green research and jobs with a windfall of carbon tax proceeds because Republicans will have none of that. To gain their vote, the gift basket will have to be filled to overflowing. In return for the carbon tax, they might even insist on a rollback of the CAFE fuel efficiency standards for autos and trucks, arguing that progressives don’t get to have both. Republicans could also say that progressives don’t get to have both the tax and the objectionable regulations of Obama’s Clean Power Plan.

But what must be curbed is thinking such as that from the conservative magazine, The Weekly Standard, which advocates…

for the EPA to allow states flexibility to pursue their own carbon taxes in lieu of subjecting themselves to new greenhouse gas regulation. Such an approach could prove a hugely attractive political option for Republican office-seekers, who would be able to promise cuts to state income, property, or sales taxes, while giving the boot to EPA busybodies.

Once again the dogma of returning everything to the states intrudes. The states imposing their 50 sets of carbon taxes and rules as swag to help politicians get re-elected (and with no “border-correction”)? That’s a dreadful idea.

back of the pack

A long list of countries already tax carbon by one or another means, and to a degree that should come as a surprise. Europe leads the way, as might be expected, as a means to curtail oil imports. The average tax is $68.4 per metric ton of carbon dioxide for the 34 nations of the Organization for Economic Cooperation and Development (OECD). One up from the bottom among the industrialized nations is the United States, with nothing but its gasoline tax.

Major corporations worldwide believe a carbon tax is inevitable. They factor it into their forward planning. Five big oil companies — Exxon Mobil, ConocoPhillips,Chevron, BP and Shell — do so. This article cites Microsoft, General Electric, Walt Disney, ConAgra Foods, Wells Fargo, DuPont, Duke Energy, Google and Delta Air Lines hedging against the future as well. Anticipation of a global carbon price “drives internal decision-making”, says Tom Carnac of CDP, a non-profit that advises such companies. “It’s climate change as a line item”.

But not Koch Industries. Much like the National Rifle Association, its practice has been to fund Tea Party groups that campaign against Republicans who show any leanings toward a belief that the climate is changing. Koch also funds the American Energy Alliance, a Washington-based advocacy group that targets lawmakers that let slip an interest in a carbon tax. And locking down Congress they have their obstructionist ally Mitch McConnell.

One of a group of economists on the right who do support a carbon tax is Irwin Stelzer, who in this article poses some challenging questions to Republicans opposed to any form of tax:

What is your plan when it becomes clear that we can’t finance an adequate military from current revenues? Worried about Chinese expansion at the expense of America’s allies? A resurgent Russia that has its eyes on the territory of some of our NATO allies? Beefing up our southern borders so that we can proceed with immigration reform without triggering a new wave of illegal entry? Larger deficits? Then you will need money. Would you prefer higher income taxes? Increased wealth taxes?

A carbon tax should tempt. And offers the most straightforward way to encourage the transition to renewable fuels and away from burning hydrocarbons, says a rising consensus. Democratic Governor of Washington, Jay Inslee, says we should break the logjam and get about it: “We are the first generation to feel the impact of climate change and the last generation that can do something about it.”

Obamacare Is Heading for Collapse

Like a house of cards, where every pasteboard is dependent on others, the Affordable Care Act is destined to topple. Too many ill winds are merging into the perfect storm that will blow this house down.

The foundation on which all else would rest was to have been participation by the young and healthy. Their buying into the plan would support the care of the older with their costly
illnesses. But the young are not showing up. Their enrollment showed a sudden spurt in late December, but the uninsured Estimated Enrollment Slashed: February 1: True to prediction, the Congressional Budget Office just cut its estimate of the number expected to be enrolled in the health exchanges by year end from 21 million to 13 million. The NY Times tucked that story into the bottom of page 18.
    

under-35 demographic, numbering over 5 million, would rather pay the penalty for not buying insurance than opt for the costly plans. The result is that overall enrollment is expected to be between 9.4 million and 11.4 million by the end of 2016. That is a stunning half of the 21 million initially projected.

doing the math

The Affordable Care Act (ACA) dictates that insurers must accept the most costly applicants, those with prior-existing medical problems. Covering those costs has forced the industry to raise rates sharply for 2016, offering plans with ever higher deductibles and co-payments that no longer make sense to young people more focused on paying off credit card debt or saving to buy a house someday.

That calculus that speaks to older age groups as well. A reasonably healthy prospect for Obamacare has trouble making sense of a plan that costs, say, $300 a month net of a government subsidy, but comes with a $5,000 deductible. The policy holder will have to pay for all health needs out-of-pocket, getting nothing in return (except for preventive care, which is covered, but is a fact not widely known) for the $300 a month outlay. Our prospect is likely to conclude that it’s decidedly cheaper to pay the penalty — and risk that nothing catastrophic happens.

dropping out

Beyond those who reason that high deductibles or low penalties make it sensible to skip insurance is another echelon of people who make so little money as checkout clerks at the supermarket or waiting tables at luncheonettes that they simply cannot afford another expense. They can barely pay the rent and the electric bill. With the best of intentions, they may have found a policy that, after subsidies, costs as little as $60 a month, but find their tight budget can’t support even that, so they drop out. For a stratum of many millions among us in this low wage economy, there is no money. Yet the government will bludgeon even those in such difficult straits with a $695 penalty.

nudging

In 2014 the penalty for not buying insurance was the greater of $95 per adult or 1% of household income. That rose to $325 per adult or 2% of household income in 2015, and for 2016, it is $695 per adult or 2.5% of household income. The intention is to goad people into realizing that the penalty buys them nothing, but by paying the (declining each year) difference between penalty and policy costs, they could be insured.

But do those choosing not to buy know about the penalty schedule? Or, like the disastrous rollout, is this another lapse of attention by Obamacare management. We have seen no evidence — television advertising for example — that the administration has put the word out about rising penalties despite the ACA’s urgent need to promote sign-ups. Moreover, doesn’t that leave people to find out about impending penalties long after the moment when foreknowledge might have encouraged them to buy insurance?

Here’s what we mean: The buying period for 2016 runs from November 1 to this January 31. Absent widespread advertising, not until 2015 tax returns are filed will the uninformed person discover that failing to buy insurance for last year has cost $325 because the penalty only shows up as a deduction from refunds this year. And for the same reason, that person will not know about the $695 charge for this year– an increase that might have changed minds back in November had it been known — until well into 2017.

red ink

The absence of those customers is causing losses in the insurance industry. Much of the influx of new customers brought about by Obamacare has proved unprofitable. Almost two-thirds of the insurers lost money in 2014 and only 13% made more than $10 million. One report says that companies such as Aetna, Anthem, and Cigna have raised premiums by double digits for 2016 and say they still can’t make the numbers work. United Healthcare, the nation’s largest carrier, expects a $425 million loss for 2015 from insurance sold to individuals under Obamacare. They have pulled all advertising aimed at attracting new 2016 enrollees and are considering dropping out of Obamacare altogether in 2017.

Consequently, rates for 2016 insurance plans have risen by double digits in a patchwork pattern around the country, as insurers compensate for too many on their rolls who need costly care and a shortage of the healthy who cost next to nothing. The sickest will keep their policies no matter the cost, but those with good health will drop out as rates rise, leading to another increase to compensate for the ever greater concentration in the plans of those who suffer from ill health.

This is the dreaded death spiral that was always the worry in the Obamacare formula, and the question is whether rate rises for 2016 and the laggard sign up mark its beginning.

crashing coops

As consolation to Democrats for no “public option” — what was to have been a government-run non-profit insurance agency to compete with private industry and drive down costs — the ACA provided $6 billion in loans for each state to set up its own non-profit cooperative to accomplish the same. That was cut to $2.4 billion in a budget scuffle at the end of 2012, so there was money enough only for the 23 states that had gotten their programs underway.

Compete they did, buying their way into the market by offering plans with discounted premiums, as a way partly to overcome their prohibition against spending on advertising. The result is that they’ve lost money. During 2015, state regulators have shuttered 12 of the 23, including the three biggest, owing to fragile balance sheets. Some $1.24 billion in federal loans have evaporated with them. Of the 11 remaining, 10 have never turned a surplus. The closures have left 700,000 without insurance.

The Obama administration did its part to undermine the coops and the industry. When at the outset insurers were forced to cancel existing insurance plans that did not measure up to the more elaborate Obamacare minima, consumers rebelled. Notoriously inclined to tinker with the ACA statute, the White House relented, notifying 4.2 cancelled policy holders that they could keep their old plans. The Republican-controlled House voted its approval, too. The insurance industry was stunned, deprived of the huge bloc of largely healthy customers expected — and after rates for 2014 had been set based on their coming aboard.

the risk corridor

But insurers needn’t worry. Under the ACA law, any losses through 2016 are to be covered by a sharing arrangement with the federal government. An insurer that spends anything less than 80% of its proceeds on healthcare reimbursements must fork over the unspent excess, and this is to be transferred to companies that have incurred losses.

But this delicate balancing act has not worked as planned. Insurers experienced losses of $2.9 billion during the first year of operation against only $362 million coughed up by insurers with excess profits. Foreseeing that the Obama administration would cover the difference by reimbursing the money-losing insurers using general funds — that is, from taxpayer pockets — Sen. Marco Rubio introduced a bill in late 2013 that would block use of general funds to bail out insurers. He labeled it crony capitalism to put taxpayers “on the hook for Washington’s mistakes”.

His measure was included in the spending bill for 2015 and appears again in the omnibus spending bill just passed for 2016. As recently as July, the White House was telling insurers they would get 100% reimbursement for their losses. With general funds blocked, and only the profits of a few insurers available for redistribution, they’ve now been told they’ll get just 13 cents on the dollar.

The insurance industry is extremely profitable, stemming from their U.S. revenue rising to $743 billion in 2014 from $641 billion the year before. Their profits principally derive from plans sold to corporations that buy insurance for their employees. But they are unwilling to sacrifice those profits to subsidize Obamacare.

The cooperatives are another matter, with nothing to fall back on. So, for example, Health Republic of Oregon closed its doors when it learned it would receive only $995,000 of the $7.9 million it had expected from the government. The Kentucky plan expected $77 million to cover its losses but will get only $9.7 million. States have been defying federal entreaties not to close the cooperatives, but local regulators face added pressure in states where insurers are liable for the toxic balance sheets of other insurers, and that includes the coops.

if it’s broke, don’t fix it

A proposed remedy is to raise the penalties close to the cost of insurance to force everyone on board, but that solution ignores our point that so many do not have the money for either insurance or penalty, despite the subsides. Another fix would strip the ACA mandates of their excessive coverage to arrive at plans that concentrate more on coverage of serious illness. Or tighten plans in other ways that bring down premium costs, such as narrowing the network of doctors and hospitals a client can draw upon, and capping coverage for top-dollar specialists, expensive drugs, and high-cost testing. But if part of cost cutting is to keep deductibles high, much of the unappealing calculus remains the same.

If there are ways to fix the Affordable Car Act, standing in the way is a Congress controlled by an entire political party that refuses to enact fixes because it wants Obamacare to fail. By one count the House voted 61 times to repeal the ACA in its entirety, and in early December the Senate finally did much the same, voting 52-47 for provisions that would cripple the law by forbidding the federal government to run its healthcare exchanges, by doing away with the subsidies that make insurance affordable, and by canceling any penalties on individuals or employers who ignore the mandates to buy health insurance.

President Obama will of course veto the bill, but there it sits waiting for a possible Republican president from among a roster of candidates every one of whom has said he or she would sign a bill to repeal — but the economics show signs that Obamacare will spiral into extinction quite on its own and rob them of the pleasure.