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Fuzzy Math

According to an MIT study, cap and trade could cost the average household more than $3,900 per year.

12:00 AM, Apr 22, 2009 • By JOHN MCCORMACK
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Minnesota Republican Michele Bachmann faced harsh criticism after citing the $3,100 figure in an April 7 Minneapolis Star-Tribune op-ed. "Bachmann: I, Too, Know More About Climate Change Than MIT Scientist," sneered one headline at the website TPM. "Whether Bachmann is ignorant or dishonest is unclear," wrote The Washington Monthly's Steve Benen.

When the Star-Tribune's opinion page editor Eric Ringham was contacted about Bachmann's use of the figure, he apologized for letting her include it in her column. "It wasn't on my radar. I'm embarrassed to have let it go unchallenged," Ringham told Think Progress. "You can rest assured this study is never going to be represented in the paper again . . . without confirmation it's being accurately portrayed."

But, as the saying goes, a lie can make its way halfway around the world while the truth is putting its shoes on. During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade's cost was inaccurate. The annual cost would be "$800 per household", he wrote. "I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others)."

While $800 is significantly more than Reilly's original estimate of $215 (not to mention more than Obama's middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.

The $800 paid annually per household is merely the "cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases]," Reilly wrote. "So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy."

In other words, Reilly estimates that "the amount of tax collected" through companies would equal $3,128 per household--and "Those costs do get passed to consumers and income earners in one way or another"--but those costs have "nothing to do with the real cost" to the economy. Reilly assumes that the $3,128 will be "returned" to each household. Without that assumption, Reilly wrote, "the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800]."

In Reilly's view, the $3,128 taken through taxes will be "returned" to each household whether or not the government cuts a $3,128 rebate check to each household.

He wrote in an email:

It is not really a matter of returning it or not, no matter what happens this revenue gets recycled into the economy some way. In that regard, whether the money is specifically returned to households with a check that says "your share of GHG auction revenue", used to cut someone's taxes, used to pay for some government services that provide benefit to the public, or simply used to offset the deficit (therefore meaning lower Government debt and lower taxes sometime in the future when that debt comes due) is largely irrelevant in the calculation of the "average" household. Each of those ways of using the revenue has different implications for specific households but the "average" affect is still the same. [...] The only way that money does not get recycled to the "average" household is if it is spent on something that provides no useful service for anyone--that it is true government waste.

He added later: "I am simply saying that once [the tax funds are] collected they are not worthless, they have value. If the Republicans were to focus on that revenue, and their message was to rally the public to make sure all this money was returned in a check to each household rather than spent on other public services then I would have no problem with their use of our number."