Friday, March 20, 2009

Why I oppose the AIG bonus tax bill

We are all aware of the tremendous amount of tax payer dollars being used to prop up AIG. Its in the news everyday. Everyone I know, me included is outraged at the bonuses being paid to some of the executives. Having been in many positions before where my total compensation has been a mix of base salary and a target bonus, I know that every bonus dollar I ever earned was tied to achieving some performance metric or sale of products. So in that sense I do not understand these bonuses that are going to pad the wallets of the executives in the particular division that caused this financial collapse of AIG.

Having cleared that up, I want to now bring your attention to the issue of Congress trying to pass an AIG bonus tax bill with the expressed intent to reclaim those tax-payer dollars. I am against this hasty tax bill because it draws parallels for me on another hasty tax bill that was passed many years ago and now haunts more people than it was ever intended to target.

The Alternative Minimum Tax (AMT) was introduced by the Tax Reform Act of 1969. It was intended to target just 155 high-income U.S. households that used the many existing tax loopholes to literally avoid paying income tax. President Lyndon Johnson's Treasury secretary Joseph Barr and the Asst Sec of the Treasury, Stanley S. Surrey created the initial proposals to tighten the tax loopholes that eventually led to the creation of the AMT. In April 1969 President Nixon's Administration presented its proposal for tax reform to Congress and It eventually became law. The bill, I believe was created in such haste that the AMT proposal did not include the language to adjust for inflation. Congress for years has just sat on this and done nothing about it. 40 years later, it affects more Americans than it ever was intended to apply to. There are even horror stories of this tax affecting people who bought stocks which later dropped in value during the dot-com boom, but they still owed tremendous amounts of AMT dollars to the IRS.

It is thought that by 2010, over 30 million taxpayers will be affected by AMT. Over 94 percent of married filers who have children and make $75,000 to $100,000 will pay higher taxes due to the AMT. This tax that was designed as a parallel tax system in 1969 to ensure that that a few people in higher tax bracket didn't evade paying any taxes through loopholes has now become a comman man's tax burden. Even with all this staggering data, Congress does not do anything about the AMT year after year, because its now become a significant source of tax revenues.

This is single reason why I oppose the AIG-bonus tax bill. I am of the opinion that unless the AIG-Bonus tax bill is very narrowly defined and very very temporary, it will eventually affect a much larger set of people who were never the original target of such hastily passed tax laws. I don't want my government to be reactionary and put in laws that will hurt more people in the future. I want my government to be smart about this and find other ways to recover this outrageous bonus money, not through a hastily drafted document. Let us not repeat the mistake that was AMT (IRS 6251) with another called AIG-tax.

Sunday, March 8, 2009

The friction against alternative energy and grid infrastructure

An estimated 50 million people across the US and Canada were affected by the great big blackout of 2003. I remember this because I was scheduled to travel to Canada that day and the blackout caused so many disruptions that eventually I just canceled the trip. I am reminded of this as I read about two events this past week.

The first one I read about was the strong opposition to the planned new high-voltage power line by PSE&G. Eight towns in Morris and Sussex counties of NJ, have formed a coalition to fight this proposal by PSE&G to build the 45-mile, $750 million power line project that cuts through North Jersey.

Construction of this has not even begun and it is estimated to take about 2-1/2 years. PSE&G estimates that the new line needs to be in service by the summer of 2012 to avoid overloaded lines and possible blackouts and brownouts in New Jersey. The power-line project would include installation of towers with heights ranging from 180 to 190 feet, almost twice the height of what exists along the route now. PSE&G says that the new line is imperative and would provide a better and more reliable power system. However the towns are opposing it because of an array of issues regarding health, safety and economic concerns. It seems to me most home owners near the property view the towers as an ugly eyesore.

The second article I read with great interest was that NJ Gov. Jon Corzine's policy push to use alternative, clean energy sources has run into headwinds. Critics of the offshore wind generation project say that it will harm the ocean ecology. Gov. Corzine wants wind farms to supply 1,000 megawatts of electricity. This energy would be enough to power about 375,000 homes. There is a proposal to increase the capacity over time to supply over a million homes with clean wind energy.

The cost barriers for implementing alternative energy sources are already so high. Alternative energy needs extremely high investment infrastructure. Reliable power is paramount as we cannot have blackouts like 2003, which could lead to national security issues. The public who are quick to complain when grid failures occur are however quicker to stall projects that solve the problems. As we modernize our grid, some people will have to live with taller towers in their backyards or unsightly wind-towers. In some cases these offshore wind towers may harm the ocean ecology temporarily. We as a nation are facing challenging times. Opposition to alternative energy sources like off shore wind farms and grid upgrade and reconstruction will only increase the overall cost of these projects.

Local townships and municipalities should understand the immense importance of educating their citizens to support such projects. Instead we see local governments opposing them in fear that some of these projects will lead to destruction of property values and hence tax revenues. To counter this, public utilities should offer greater incentives to the people or townships who are in the path of the power lines. Maybe a 50% reduction on electricity bills for the next 20 years based on current usage would get the public and the townships to reconsider the opposition to the development of a super grid. This incentive limited to those homes within 150 feet of the towers themselves. Also make these incentives transferable to enable an easy sale of the home. I believe that the utilities could easily absorb this cost over 20 years as opposed to years of legal costs of fighting local governments and public.

In the same way, we cannot be delay the installation of offshore wind turbines. In the long run the ecological cost of building these alternative power sources will be far lesser than the threat of global warming that we face.