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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.
Politicians 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.
Coal provides more than half of U.S. electricity, and 25 states get more
than 50% of their electricity from conventional coal-fired generation. In
Ohio, it totals 86%, according to the Energy Information Administration.
Ratepayers in Indiana (94%), Missouri (85%), New Mexico (80%), Pennsylvania
(56%), West Virginia (98%) and Wyoming (95%) are going to get soaked.
Another way to think about it is in terms of per capita greenhouse-gas
emissions. California is the No. 2 carbon emitter in the country but also
has a large economy and population. So the average Californian only had a
carbon footprint of about 12 tons of CO2-equivalent in 2005, according to
the World Resource Institute's Climate Analysis Indicators, which integrates
all government data. The situation is very different in Wyoming and North
Dakota -- paging Senators Mike Enzi and Kent Conrad -- where every person
was responsible for 154 and 95 tons, respectively. See the nearby chart for
cap and trade's biggest state winners and losers.
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 low balling 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.
Those "stakeholders" are going to need some very large bribes, starting with
the regions that stand to lose the most. Led by Michigan's Debbie Stabenow,
15 Senate Democrats have already formed a "gang" demanding that "consumers
and workers in all regions of the U.S. are protected from undue hardship."
In practice, this would mean corporate welfare for carbon-heavy businesses.
And of course Congress is its own "stakeholder." An economy-wide tax under
the cover of saving the environment is the best political moneymaker since
the income tax. Obama officials are already telling the press, sotto voce,
that climate revenues might fund universal health care and other new social
spending. No doubt they would, and when they did Mr. Obama's cap-and-trade
rebates would become even smaller.
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.
Wall Street Journal News
http://online.wsj.com/article/SB123655590609066021.html
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