Beam me to Planet Gore !
Posted on 10/02/2008 5:26:01 PM PDT by Paladin2
OK, get your green eyeshades. I noted yesterday the “urgent” authorization of a few million to study the impact of the tax code on CO2 emissions. (Well, actually they say “carbon,” not carbon dioxide, which if taken as written means we should get a report on diamonds and pencils. Seriously.) That is, how are the taxpayers subsidizing Al Gore, who writes off his jet-setting, for example, or Laurie David’s preferential tax treatment for a bicoastal lifestyle.
The very brief provision above it is also rather unique. My CPA wife is away at a tax refresher course, as luck would have it, so I am soliciting comment from tax-types on this.
SEC. 116. CERTAIN INCOME AND GAINS RELATING TO INDUSTRIAL SOURCE CARBON DIOXIDE TREATED AS QUALIFYING INCOME FOR PUBLICLY TRADED PARTNERSHIPS.
(a) IN GENERAL.—Subparagraph (E) of section 7704(d)(1) (defining qualifying income) is amended by inserting ‘‘or industrial source carbon dioxide’’ after ‘‘timber)’’.
I know . . . WHA? But one thing you learn quickly in this business is that such pithy legislative language — particularly when it's just a teeny little tweak to the tax code — requires further inquiry.
Income from producing or marketing minerals or natural resources is called “passive-type income” [just as with dividends, rent, interest, and selling income-producing capital assets (rental property)]. Translated, this provision says that partnerships making 90 percent or more of their income from producing, transporting, or selling CO2 have that income classified as a passive gain, and are treated as partnerships as opposed to corporations (a partnership itself is not a taxable entity; rather it passes through to the partners their respective shares of items of income and loss, which are then reported on their tax returns). This tax status, apparently, is a desirable thing — and, I suspect, likely has found favor among certain well-connected types playing on the Chicago Climate Exchange and similar forums.
Now, I say this with a caveat. I could be wrong about the universe of partnerships making nearly all of their money this way, after all CO2 is sold — to bars and restaurants (beverage propellants); hospitals (dry ice); brewers and corn-to-ethanol prodcuers capture and sell it, and it is used to enhance oil recovery. But the fact that it applies to partnerships engaged almost exclusively in the sale of timber, and now CO2, makes it almost surely designed to apply instead to people who sell CO2 reduction certificates, happy face stickers saying what a good boy they were by not emitting X quantity of CO2. But these people don't actually sell CO2, but the absence of CO2, that is, the credits or "offsets" which are nothing but pieces of paper saying "I didn't emit this ton."
Anyway, the provision of the tax code that the language amends, 26 USC Sec. 7704 (“certain publicly traded partnerships treated as corporations”), says that a publicly traded partnership is treated as a corporation unless it meets certain qualifying income requirements.
These requirements include earning 90% of gross income from trading rights in resources including the product of mines, oil and gas wells, other natural deposits, and timber, and now industrial source CO2. The qualifying paragraph reads that “the term ‘mineral or natural resource’ means any product of a character with respect to which a deduction for depletion is allowable under section 611; except that such term shall not include any product described in subparagraph (A) or (B) of section 613(b)(7).” That is, "any product of a character with respect to which a deduction for depletion is allowable," with the exception of soil, sod, dirt, turf, water, or mosses; minerals from sea water, the air, or similar inexhaustible sources; or oil and gas wells (so it seems they're trying to say CO2 is a resource meeting a tax loophole for its traders, but not so much as to also get a depletion allowance; a possible conflict meriting scrutiny and separate discussion).
Here we see that in the emergency financial rescue package Congress has chosen to treat CO2 in the tax code as it treats “mines, oil and gas wells, other natural deposits, and timber, [for which] there shall be allowed as a deduction in computing taxable income a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case.”
Whoa whoa whoa there! Adding CO2 (or, credits/offsets...) to the list of resources, treating its sale for tax purposes at least in part and arguably in whole as they do a natural resource or mineral, NOT as a pollutant (that, in classic Washington fashion, comes next; just like taking away the home-mortgage income deduction in the name of global warming from people who we just spent a trillion dollars bailing out because nothing is more important than keeping these people in their homes. Until after the election.) Hello Massachusetts v. EPA?! This further miliates toward a reading that they misdrafted this, and really mean CO2 credits.
Arguably, by this logic the Congress should also similarly exempt waste haulers and landfill operators, no?
Has Congress just elevated the despised natural resource of plant food, CO2, to a lofty status as a valuable resource. (Well, it's true we wouldn’t necessarily die without timber, many millions of us would die without oil . . . we’d all die without CO2. A statement sure to set the fever swamps ablaze.) It's either that, or they made a drafting error and are trying to create tax loopholes for their buddies selling CO2 offsets, and set things up for the folks pushing for the Lieberman-Warner (-McCain-Kyoto) CO2 rationing scheme.
Of course, as noted, after rewarding only those types who — like Enron, Lehman Brothers and Al Gore — have decided to make their fortune in trading the substance, Congress in the next paragraph then sets CO2 production up for punishment under the same tax code. What a country!
Now, tax-types, tell me where I'm right, and wrong.
10/02 03:30 PM
The whole thing is GARBAGE, with this being as putrid as the rest of the BS
This bailout is stinking worse and worse.
Addition of these socialist items makes it imperative to take it down, period. Even if it plays into the democrats hands politically, it has to be taken down, I’ve got to have faith in the American people to see through it when they are sealed in the voting cubicles on November 4.
BTW, I have a financial interest in seeing it passed, having bought 10k shares of National City on Monday, yet I still can’t see this crap going through.
How well will this whole plan, the MSM & dems do with a brand new republican majority? New speaker. We need to make that happen!
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