Think tanks wrap-up

WASHINGTON, Jan. 9 (UPI) -- The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks. This is the first of several wrap-ups for Jan. 9.

The National Center for Public Policy Research

(NCPPR is a communications and research foundation dedicated to providing free market solutions to today's public policy problems, based on the principles of a free market, individual liberty and personal responsibility. NCPPR was founded to provide the conservative movement with a versatile and energetic organization capable of responding quickly and decisively to late-breaking issues, based on thorough research.)

CHICAGO -- Ten Second Response -- Fast facts on the environment: Sens. McCain, Lieberman push for new anti-global warming legislation

By Amy Ridenour

Background: Sens. John McCain, R-Ariz., and Joseph Lieberman, D-Conn., plan to introduce a new anti-global warming bill this week instituting a so-called "cap and trade" system for greenhouse gas emissions. McCain, incoming chairman of the Senate Commerce Committee, has scheduled a Jan. 8 hearing on the new bill. As described by Environment and Energy Daily, the bill would "gradually force major energy, transportation and manufacturing companies to cut their GHG emissions -- to year 2000 levels by 2010, and 1990 levels by 2016."

Ten Second Response: The theory that humankind is causing significant planetary warming remains dubious at best. What is certain is that laws limiting U.S. energy use will hurt our economy and kill jobs.

Thirty Second Response: The McCain-Lieberman legislation would set up mandatory greenhouse gas reduction targets for every major sector of the U.S. economy. If approved, it stands a chance of pushing a frail economic recovery into a major relapse, yet it is extremely unlikely to have discernible influence on global temperatures. Scientists point out that the Earth has gone through repeated cycles of gradual warming and cooling for millions of years. This isn't likely to change under orders from the U.S. Senate.

Discussion: The McCain-Lieberman legislation is no economic stimulus plan. The bill is, however, likely to garner significant media attention and already is receiving support from the environmental left.

"Environmentalists couldn't be happier to have two high-profile senators challenging the administration's climate policy," reports Environment and Energy Daily. "McCain challenged Bush for the Republican nomination in 2000, and Lieberman, a vice-presidential candidate in 2000, is likely to seek the Democratic nomination in 2004."

The Senators have bypassed what would most likely be a more thorough hearing in the Environment and Public Works Committee, which normally would have jurisdiction over a climate change bill, in favor of hearings in McCain's Commerce Committee.

According to a tentative witness list released by the Committee on Jan.7, expected witnesses included: Lieberman, Rep. Jay Inslee, D-Wash., Rep. Christopher Shays, R-Conn., James Mahoney, assistant secretary of Commerce for Oceans and Atmosphere and director of U.S. Climate Change; Eileen Claussen, president of the Pew Center on Global Change; Jack Cogen, president of Natsource; Fred Krupp, president of the Environmental Defense Fund; and Randy Overbey, president of Alcoa Power Generating.

Inlsee and Shays are members of the House Climate Change Caucus, a left-of-center caucus that promotes the view that mankind may be causing the planet to warm as much as 10.4 degrees over the next 100 years, and which promotes legislation according to this view. The Pew Center and the Environmental Defense Fund are left-of-center environmental organizations. Both ALCOA and Natsource are for-profit entitles with a business interest in a governmental adoption of cap and trade schemes.

Despite making room for profit-making entities, three elected officials on the liberal side of the global warming debate and two representatives of the environmental left, the Committee apparently has scheduled no representatives of organizations skeptical of the scientific reliability of the global warming theory nor any elected officials holding similar views.

The global warming debate has been a high profile one for some time. The Bush administration received significant political and international attention in 2001 when it wisely rejected the Kyoto Treaty, an action consistent with a 1997 95-to-0 Democratic-controlled Senate vote urging the Clinton administration (which ignored the advice) to do essentially the same thing.

It is doubtful that significant man-made global warming is taking place. The computer models used in U.N. studies say the first area to heat under the "greenhouse gas effect" should be the lower atmosphere -- known as the troposphere. Highly accurate, carefully checked satellite data have shown absolutely no such tropospheric warming. There has been surface warming of about half a degree Celsius, but this is far within the customary natural swings in surface temperatures.

The vast majority of American scientists who specialize in climate studies -- including such giants as S. Fred Singer, former head of the U.S. Weather Service's satellite operations; Frederick Seitz, past president of the National Academy of Sciences; and the University of Virginia's Patrick Michaels -- believe global warming fear-mongers that project warming during this century of 8-10 degrees are wrong. The U.N. Panel on Climate Change, often cited by environmentalists, bases its projections on worst-case scenarios from two flawed computer models, each of which significantly contradicts the other.

The way to approach allegations that mankind is causing climate change is through research, such as that beginning at Stanford University's new Global Climate and Energy Project. The project is a 10-year collaboration between academia and the private sector to find the clean energy alternatives that will allow reductions in man-made greenhouse emissions without damaging the economy.

Stanford has been supported by $225 million in grants from ExxonMobil, General Electric and Schlumberger and E.On, the European energy distributor. The selection of Franklin M. Orr, Jr., dean of Stanford's respected School of Earth Sciences, to head the new project apparently has guaranteed its independence to the satisfaction of most mainstream environmental groups.

In the meantime, all eyes are on McCain and Lieberman -- which just might be the way they want it.

(Amy Ridenour is the president of the National Center for Public Policy Research.)

The National Center for Policy Analysis

(The NCPA is a public policy research institute that seeks innovative private sector solutions to public policy problems.)

DALLAS -- Eliminating double taxation of dividends is smart

By Bruce Bartlett

President Bush's proposal to reduce taxes on corporate dividends is being attacked by Democrats as another give-away to the rich. But not too many years ago it was Democrats who were in favor of this policy and Republicans who were against it.

In 1976, Democrat Jimmy Carter made elimination of the double taxation of corporate profits a key campaign theme. "We presently tax corporate income when it's earned and we also tax dividends to shareholders," he said. "I would favor taxing income only once," Carter told Fortune Magazine.

When President Carter took office in 1977, he reiterated his goal of taxing corporate income only once and had the Treasury Department examine the issue. He received support from many voices of liberalism in this effort. For example, Americans for Democratic Action called for abolition of the corporate income tax at its convention in May. On Sept. 11, The New York Times editorialized in favor of this action.

Unfortunately, Carter failed to include any proposal for reducing or eliminating double taxation in his 1978 tax reform plan. The reason, interestingly, appears to have been opposition from the Republican-leaning corporate community. According to an article by Robert Samuelson in the National Journal in September 1977, businesses basically killed the idea.

According to Samuelson, corporate executives suddenly had a lot of problems with the idea of eliminating double taxation once confronted with its possible reality. Some worried about increased pressure to pay out dividends. This especially concerned small businesses that normally don't pay dividends. Executives also feared a loss of control over retained earnings, which they could invest as they chose. And they saw many specific tax breaks as better for them.

Another reason, I have always believed, is that the corporate income tax acts as a kind of shield protecting corporate executives from shareholders. It allows them to pay themselves inflated salaries and waste shareholder's profits on expensive perks and investments of dubious value. Since such things are deductible business expenses, shareholders are fooled into thinking that they are not costing them anything. Without such deductibility, it would be harder for executives to justify their behavior.

Academic research supports this analysis. Writing in the Yale Law Journal, legal scholars Jennifer Arlen and Deborah Weiss argue that the corporate tax forces shareholders to go along with the wishes of corporate managers even if they don't agree with them. Double taxation encourages companies to retain earnings rather than pay dividends. So even if managers make bad investments and shareholders have better investment opportunities, it still pays for shareholders to support retained earnings and low dividends.

Another widely commented upon result of double taxation is encouraging companies to raise capital through debt rather than equity. That is because interest payments are tax deductible, whereas dividends are not. The result is for companies to become heavily leveraged and make capital less available to small businesses and new startups.

The overall impact on the economy is to reduce the rate of return on corporate capital, which slows economic growth. Big established companies have easy access to capital through the bond market and retained earnings, while being protected from potential competitors because the latter cannot raise capital or only at much higher cost.

What cutting taxes on dividends, as President Bush proposes, should do is raise the value of companies paying dividends. That is because the tax is now capitalized into the price of stock. Thus lowering the tax is equivalent to an increase in profits.

Although the tax capitalization thesis is controversial among economists, the latest research strongly supports it. Indeed, Council of Economic Advisers Chairman Glenn Hubbard is the author of much of this research, while a professor at Columbia University.

Economist John Rutledge estimates that the complete elimination of taxes on dividends would raise the Standard and Poor's 900 index by 8.5 percent or $800 billion. Principal beneficiaries would be companies with high dividend payout rates and low debt. However, as managers alter business strategies by reducing debt and raising equity and dividends, other companies will also benefit.

This estimate is consistent with the experience of New Zealand, which completely abolished double taxation of corporate income in 1988. According to a recent article in the Journal of Business Finance and Accounting, the result was that low-debt firms gained significantly while high-debt firms saw their stock prices fall. However, as time went by, debt levels at New Zealand companies fell across the board.

President Bush is right to try and relieve the double taxation and over-taxation of corporate income. Not only will it increase the economy's long-term growth potential, but could provide short-run stimulus by boosting the stock market.

(Bruce Bartlett is a senior fellow with the National Center for Policy Analysis.)