Who pays for the Cap and Trade?
REVIEW & OUTLOOK MARCH 9, 2009 Who Pays for Cap and Trade?
Hint: They were promised a tax cut during the Obama campaign.
Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions. With President Obama depending on vast new carbon revenues in his budget and Congress promising a bill by May, perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.
APPoliticians love cap and trade because they can claim to be taxing "polluters," not workers. Hardly. Once the government creates a scarce new commodity -- in this case the right to emit carbon -- and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag -- now Mr. Obama's budget director -- told Congress last year that "Those price increases are essential to the success of a cap-and-trade program."
Hit hardest would be the "95% of working families" Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat "unless you use energy." Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.
The Congressional Budget Office -- Mr. Orszag's former roost -- estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That's about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all five of them).
But the greatest inequities are geographic and would be imposed on the parts of the U.S. that rely most on manufacturing or fossil fuels -- particularly coal, which generates most power in the Midwest, Southern and Plains states. It's no coincidence that the liberals most invested in cap and trade -- Barbara Boxer, Henry Waxman, Ed Markey -- come from California or the Northeast.
Democrats say they'll allow some of this ocean of new cap-and-trade revenue to trickle back down to the public. In his budget, Mr. Obama wants to recycle $525 billion through the "making work pay" tax credit that goes to many people who don't pay income taxes. But $400 for individuals and $800 for families still doesn't offset carbon's income raid, especially in states with higher carbon use.
All the more so because the Administration is lowballing its cap-and-trade tax estimates. Its stated goal is to reduce emissions 14% below 2005 levels by 2020, which assuming that four-fifths of emissions are covered (excluding agriculture, for instance), works out to about $13 or $14 per ton of CO2. When CBO scored a similar bill last year, it expected prices to start at $23 and rise to $44 by 2018. CBO also projected the total value of the allowances at $902 billion over the first decade, which is some $256 billion more than the Administration's estimate.
We asked the White House budget office for the assumptions behind its revenue estimates, but a spokesman said the Administration doesn't have a formal proposal and will work with Congress and "stakeholders" to shape one. We were also pointed to recent comments by Mr. Orszag that he was "sure there will be enough there to finance the things that we have identified" and maybe "additional money" too. In other words, Mr. Obama expects a much larger tax increase than even he is willing to admit.
Cap and trade, in other words, is a scheme to redistribute income and wealth -- but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street "green tech" investors who know how to leverage the political class.
For the complete Wall Street Journal article, go to:
http://online.wsj.com/article/SB123655590609066021.html?mod=rss_opi...
Hint: They were promised a tax cut during the Obama campaign.
Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions. With President Obama depending on vast new carbon revenues in his budget and Congress promising a bill by May, perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.
APPoliticians love cap and trade because they can claim to be taxing "polluters," not workers. Hardly. Once the government creates a scarce new commodity -- in this case the right to emit carbon -- and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag -- now Mr. Obama's budget director -- told Congress last year that "Those price increases are essential to the success of a cap-and-trade program."
Hit hardest would be the "95% of working families" Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat "unless you use energy." Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.
The Congressional Budget Office -- Mr. Orszag's former roost -- estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That's about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all five of them).
But the greatest inequities are geographic and would be imposed on the parts of the U.S. that rely most on manufacturing or fossil fuels -- particularly coal, which generates most power in the Midwest, Southern and Plains states. It's no coincidence that the liberals most invested in cap and trade -- Barbara Boxer, Henry Waxman, Ed Markey -- come from California or the Northeast.
Democrats say they'll allow some of this ocean of new cap-and-trade revenue to trickle back down to the public. In his budget, Mr. Obama wants to recycle $525 billion through the "making work pay" tax credit that goes to many people who don't pay income taxes. But $400 for individuals and $800 for families still doesn't offset carbon's income raid, especially in states with higher carbon use.
All the more so because the Administration is lowballing its cap-and-trade tax estimates. Its stated goal is to reduce emissions 14% below 2005 levels by 2020, which assuming that four-fifths of emissions are covered (excluding agriculture, for instance), works out to about $13 or $14 per ton of CO2. When CBO scored a similar bill last year, it expected prices to start at $23 and rise to $44 by 2018. CBO also projected the total value of the allowances at $902 billion over the first decade, which is some $256 billion more than the Administration's estimate.
We asked the White House budget office for the assumptions behind its revenue estimates, but a spokesman said the Administration doesn't have a formal proposal and will work with Congress and "stakeholders" to shape one. We were also pointed to recent comments by Mr. Orszag that he was "sure there will be enough there to finance the things that we have identified" and maybe "additional money" too. In other words, Mr. Obama expects a much larger tax increase than even he is willing to admit.
Cap and trade, in other words, is a scheme to redistribute income and wealth -- but in a very curious way. It takes from the working class and gives to the affluent; takes from Miami, Ohio, and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street "green tech" investors who know how to leverage the political class.
For the complete Wall Street Journal article, go to:
http://online.wsj.com/article/SB123655590609066021.html?mod=rss_opi...
Views: 14
Replies to This Discussion
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Permalink Reply by Pipeliner on
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Responded on March 9, 2009 8:34 AM
Jim Rogers, President & CEO, Duke Energy
The President’s plan for auctioning 100 percent of carbon allowances is nothing more than an unfair carbon tax, the bulk of which will be borne by electric customers in the 25 states that depend on coal for most of their electricity. It will redistribute wealth from these states in our industrial heartland to states less dependent on coal on the West Coast and Northeast. This will punish coal states for decisions approved by state utility commission’s decades ago when building coal plants was a key part of our national energy policy. The 1974 Arab Oil Embargo discouraged the use of oil in power plants. The Fuel Use Act in 1978 prohibited the use of natural gas in power plants until 1985. Three Mile Island stopped new nuclear power development in 1979. Each of these milestones was pivotal to energy policy that encouraged the expanded use of affordable and available domestic coal to drive our economy. Auctioning all carbon allowances at $20 per ton as the Office of Management and Budget uses in the President’s budget plan, would see our electric rates increase approx...
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The President’s plan for auctioning 100 percent of carbon allowances is nothing more than an unfair carbon tax, the bulk of which will be borne by electric customers in the 25 states that depend on coal for most of their electricity.
It will redistribute wealth from these states in our industrial heartland to states less dependent on coal on the West Coast and Northeast. This will punish coal states for decisions approved by state utility commission’s decades ago when building coal plants was a key part of our national energy policy. The 1974 Arab Oil Embargo discouraged the use of oil in power plants. The Fuel Use Act in 1978 prohibited the use of natural gas in power plants until 1985. Three Mile Island stopped new nuclear power development in 1979. Each of these milestones was pivotal to energy policy that encouraged the expanded use of affordable and available domestic coal to drive our economy.
Auctioning all carbon allowances at $20 per ton as the Office of Management and Budget uses in the President’s budget plan, would see our electric rates increase approximately 40 percent in Indiana, 30 percent in Kentucky, 20-25 percent in Ohio, and 15 percent in the Carolinas.
If these unfair price increases weren’t bad enough, the main focus of the Administration’s climate plan isn’t even on the environment. Some 85 percent of the $650 billion raised from auctioning allowances over 10 years would go to programs that have nothing to do with climate change. Only about 15 percent would go to clean energy research and development.
Rather than this huge transfer of wealth that pits region against region, there is a better way: We can allocate allowances initially at no cost as we did with the 1990 Clean Air Act Amendments—a highly successful approach that is cutting our nation’s sulfur dioxide from coal-fired power plants by more than half.
The Clean Air Act worked because consumers were protected from big price jumps through the use of allowances. We can provide consumers the same protection as we did under that program by allocating allowances to our nation’s Local Distribution Companies, as called for in the United States Climate Action Partnership’s blueprint for legislative action to Congress.
Electric rates still increase under this approach, but far more reasonably and gradually to protect consumers and the economy. And carbon emissions still decrease at the same pace as a 100 percent auction system. As a long time supporter of cap-and-trade, this is the approach we need—especially in a deepening recession
Complete article:
http://energy.nationaljournal.com/2009/03/should-industry-pay-to-po...
All you Shalers should hope and pray that the Democrats do not reintroduce the "The Fuel Use Act of 1978" that prohibted the use of Natural Gas in power plants until 1985.
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Permalink Reply by Checkmateking on -
I can tell you exactly who will pay for it, American industry, right through the nose.
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Permalink Reply by Jay Murrell on
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Hi Check:
Nope. Corporations don't pay taxes. They pass those costs along to their customers, and the utilities, who whill get whacked the hardest, why, their rate payers will pay, BIGTIME
This IS GOING TO BE A HUGE TAX INCREASE on middle america, and of course the poorest amoung us.
Welcome to Obama Reality...:-)
Tell you what Barack,
Let me keep my money, and you can kett the "CHANGE"
JM
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