The hearing focused on potential approaches for offsetting the effect of climate change legislation on lower- and moderate-income taxpayers; the need for a “Manhattan Project” approach to make the necessary advances in technology to reduce and capture emissions; the role tax incentives should play in new climate change legislation; and the experience of UK with its cap-and-trade program. Highlights of the hearing:



· CBO Director Orzag said the Lieberman/Warner bill would raise roughly $145 billion in 2012 from the sale of emission allowances by the Federal government.

· The firms affected by a cap-and-trade program would not bear most of the costs of the allowances, but instead would pass them along to their customers in the form of higher prices.

· CBO Director Orzag outlined several possible uses for the revenues raised by the sale of the allowances; these include providing a tax rebate to all households and a decrease in corporate taxes. There were differences of opinion among the witnesses as to the use of emission allowance revenues; whether they should be used to provide corporate tax relief or should mitigate the impact on lower- and middle-income taxpayers.

· Witnesses agreed that any new climate change legislation might decrease the need for existing tax incentives, particularly those that encourage alternative and renewable energy.



Attached is a summary, prepared by Capitol Tax Partners, of the hearing held yesterday. Witness’ testimony and statements submitted by Senators Baucus and Grassley are available on the Finance website at:

http://finance.senate.gov/sitepages/hearing042408.htm.





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