Who Pays for Cap and Trade?
Hint: They were promised a tax cut during the Obama campaign.Article
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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.

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 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.

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.



Please add your comments to the Opinion Journal forum.

sexiest_hero wrote:Looks like the tide is simply turning, The big factories and unions that used to pull soo much clout are now the innocent middle class, ripe for Obama's picking. I happen to live in the Miami valley in Ohio. And if all of this leads to the sky not being a sick shade of green in the moring and at sunset I'm all for it.

Frazzled wrote:

sexiest_hero wrote:Looks like the tide is simply turning, The big factories and unions that used to pull soo much clout are now the innocent middle class, ripe for Obama's picking. I happen to live in the Miami valley in Ohio. And if all of this leads to the sky not being a sick shade of green in the moring and at sunset I'm all for it.

Are you going to wave goodby when those plants close and move out of country? How about massively higher prices for everything?

Kilkrazy wrote:The reason that manufacturing is outsourcing to China is because it's cheaper to manufacture there.

Why would that lead to higher prices?

The key thing is to get US workers out of sunset industries which are dying and into growth industries with high skills and wages.

sexiest_hero wrote:It's a cruel joke of life. Whaling died andleft a lot of salty sea dogs in the cold. Cars ended the horse trade and all it's side products. Things move on, People complain about keeping Zombie banks alive, they should also complain about keeping these Fossil industries alive as well.

reds8n wrote:..like it did the slave trade ! Bastards.

And the Asbestos industry ? Never recovered from the unfair restrictions forced upon them. Next thing the govt. will be trying to stop people smoking ! It's the NWO gone mad!

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

ShumaGorath wrote:



I also love how economists are always the last ones to care about the environment.

Frazzled wrote:

ShumaGorath wrote:



I also love how economists are always the last ones to care about the environment.

Because economists are concerned with people having money to eat. I love how environmentalists so rarely look at the costs of what they are proposing.

ShumaGorath wrote:
Economists don't care about people having money to eat sir. They don't care about food either, they care about the welfare of the overall capitalist system from their limited perception of it. Economists are notoriously de humanizing, and tend to marginalize the bottom percents as an acceptable loss. Talk to one about health care to see what I mean. They rail against anti monopolization legislation as much as they do environmental or health care. Two of those things are good for the economy overall, and the third is good over time. Economists only care about feeding themselves and their own immediate families, and they insure their children by saving up a lot of money and making sure they are wealthy enough to sit comfortably above the shi!tstorm thats coming (ask any economist in any time period, the future always looks darker then the present).

Wow, if I were an economist, I'd probably be ranting at you right now with all other factors held constant...

As for environmentalists, I'm not really an environmentalist. I believe the environments screwed specifically because business interests and the politicians that support them hold more power then the tree huggers and scientists. As for the costs, I think they've looked at the cost. And I believe that your rather poor editorial opinion piece has done little to weigh cost benefits of the proposal and has done little to actually survey the field of manufacture. Especially globally. It's a bad piece in general, cap and trade is meant to modernize american industry in the least impactful way possible while not killing two third of the planet in three to four generations (mass starvation as a direct result of climate change isn't a fairy tale, its the most obvious result). The piece is a rant that was poorly researched and full of party line rhetoric (a good economist talks about policies and numbers, not socialism). It blames current policies for the US loss of manufacture jobs, as if we hadn't already lost the vast majority of them and never once talks about the aim of the policies it tears down.

Goo thing you have no biased viepoint yourself..er..ok.

How do you know what cap and trade is meant to do besides raise tax income? Its a failure in Europe and the big polluters (Asia) laugh at the concept, except to get more business.

Again people don't care about global warming if they are worried about having enough to eat.

Again people don't care about global warming if they are worried about having enough to eat.

Wow, if I were an economist, I'd probably be ranting at you right now with all other factors held constant...

Goo thing you have no biased viepoint yourself..er..ok.

How do you know what cap and trade is meant to do besides raise tax income?

ShumaGorath wrote:
Again people don't care about global warming if they are worried about having enough to eat.

And if you were I would say that sentence makes no sense..?

The difference being I'm not writing page thirty editorial trash then getting reposted on a website.

Because it's been on the table for a decade as a manageable and easy way to regulate carbon emissions. It's not exactly new. As for failing in europe, well thats because of awful implementation in an incredibly fractured economic alliance of many countries. Hillary couldn't get healthcare to work, that doesn't mean it's bound to fail everywhere. Trying something once then whining that the system is broken because of bad implementation is also something a good economist wouldn't do. As for "asia" laughing at it lets be real here.

You mean China. And they haven't laughed at it, they have laughed at the idea of adopting something that the U.S., its only major competition in the field of pollution both came up with and refused to implement (in the bush years). China wants a "level" playing field with international law in which to do business. They will adopt the policies if europe, japan, and america sign on to it as well. They would have too given the likelihood of trade restriction if they didn't.

Also I find it funny that china has lost over 30 million manufacturing jobs since this whole economic storm started. Yet you make them seem like the big winners in all this.

Thats utter nonsense. They want competitive advantage, thats why their currency is held at artificially low levels. Every country wants advantage. Thats why they weren't a part of Kyoto.

Thats utter nonsense. They want competitive advantage, thats why their currency is held at artificially low levels. Every country wants advantage. Thats why they weren't a part of Kyoto.

They will be. The recession is temporary. Exterminating entire US industries won't be.

I would say it means you'ven ever taken an economics course, or you'd catch the joke.

Take that directly from Al Gore or did they have to fax it to ya?

ShumaGorath wrote:
Of all the insane neocons fraz, you're the best. *hug*

ShumaGorath wrote:Economists don't care about people having money to eat sir. They don't care about food either, they care about the welfare of the overall capitalist system from their limited perception of it. Economists are notoriously de humanizing, and tend to marginalize the bottom percents as an acceptable loss. Talk to one about health care to see what I mean. They rail against anti monopolization legislation as much as they do environmental or health care. Two of those things are good for the economy overall, and the third is good over time. Economists only care about feeding themselves and their own immediate families, and they insure their children by saving up a lot of money and making sure they are wealthy enough to sit comfortably above the shi!tstorm thats coming (ask any economist in any time period, the future always looks darker then the present).

sebster wrote:I don’t really like cap and trade, undertaken by a single country. Seems then the incentive isn’t towards developing cleaner tech, but just moving manufacturing to countries with lower emissions control. I think the better solution is to focus on subsidising clean technology research and application.

And yet, the article posted by the OP still sucked. Complaining about the regressive impact of the tax, while it’s being brought in alongside progressive tax cuts is deliberately disingenuous. Citing the varying levels of carbon emission per person as proof that the impact is unequal, while ignoring the obvious argument that lifestyle can be maintained with 1/10th the carbon emissions is pretzel logic of the highest order. It also ignores the obvious point that money taxed from industry is then spent by government.

Ridiculously written, and all the more frustrating because I agree with the underlying argument.

Frazzled wrote:Sebbie,

1. Whats the factual basis for the figure that 1/10 the carbon emissions can be achieved with no lifestyle detriment?

2. To your second point-tax goving to government: thats part of what the screaming is about. The taxes will go to government for their programs, whilst being passed through and directly impacting on a regressive basis. It has a similar efect to gasoline taxes, in impacting the poor or those with fixed incomes (read-my mom) more intensely than those like myself.

Frazzled wrote:
2. How is a 55 year old factory worker going to do that again? retraining is a joke for these guys. Their lives are crushed. I've seen it. I've lived it.

Frazzled wrote:I am not ignoring that sebbie. I'm positing that a government impact from progressive spending will be more than counterbalanced via inflationary costs.

sebster wrote:

Frazzled wrote:I am not ignoring that sebbie. I'm positing that a government impact from progressive spending will be more than counterbalanced via inflationary costs.

I don't know you or your Mum, but I'm guessing she's not getting the $250 that all retirees can claim? Or benefit from the tax cut? I can't argue based on a person I don't know, so I'll just take your word for it that your Mum is perfectly placed to miss all possible benefits, and instead will be impacted only by the smal increase in power costs.

Except there is also billions going into developing economic infrastructure, which is predicted to lower costs of energy supply.