The Cap and Tax Fiction

[GaryC 7]

The Cap and Tax Fiction

Democrats off-loading economics to pass climate change bill.

House Speaker Nancy Pelosi has put cap-and-trade legislation on a forced march through the House, and the bill may get a full vote as early as Friday. It looks as if the Democrats will have to destroy the discipline of economics to get it done.

Despite House Energy and Commerce Chairman Henry Waxman's many payoffs to Members, rural and Blue Dog Democrats remain wary of voting for a bill that will impose crushing costs on their home-district businesses and consumers. The leadership's solution to this problem is to simply claim the bill defies the laws of economics.

Their gambit got a boost this week, when the Congressional Budget Office did an analysis of what has come to be known as the Waxman-Markey bill. According to the CBO, the climate legislation would cost the average household only $175 a year by 2020. Edward Markey, Mr. Waxman's co-author, instantly set to crowing that the cost of upending the entire energy economy would be no more than a postage stamp a day for the average household. Amazing. A closer look at the CBO analysis finds that it contains so many caveats as to render it useless.

For starters, the CBO estimate is a one-year snapshot of taxes that will extend to infinity. Under a cap-and-trade system, government sets a cap on the total amount of carbon that can be emitted nationally; companies then buy or sell permits to emit CO2. The cap gets cranked down over time to reduce total carbon emissions.

To get support for his bill, Mr. Waxman was forced to water down the cap in early years to please rural Democrats, and then severely ratchet it up in later years to please liberal Democrats. The CBO's analysis looks solely at the year 2020, before most of the tough restrictions kick in. As the cap is tightened and companies are stripped of initial opportunities to "offset" their emissions, the price of permits will skyrocket beyond the CBO estimate of $28 per ton of carbon. The corporate costs of buying these expensive permits will be passed to consumers.

The biggest doozy in the CBO analysis was its extraordinary decision to look only at the day-to-day costs of operating a trading program, rather than the wider consequences energy restriction would have on the economy. The CBO acknowledges this in a footnote: "The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap."

The hit to GDP is the real threat in this bill. The whole point of cap and trade is to hike the price of electricity and gas so that Americans will use less. These higher prices will show up not just in electricity bills or at the gas station but in every manufactured good, from food to cars. Consumers will cut back on spending, which in turn will cut back on production, which results in fewer jobs created or higher unemployment. Some companies will instead move their operations overseas, with the same result.

When the Heritage Foundation did its analysis of Waxman-Markey, it broadly compared the economy with and without the carbon tax. Under this more comprehensive scenario, it found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Note also that the CBO analysis is an average for the country as a whole. It doesn't take into account the fact that certain regions and populations will be more severely hit than others -- manufacturing states more than service states; coal producing states more than states that rely on hydro or natural gas. Low-income Americans, who devote more of their disposable income to energy, have more to lose than high-income families.

Even as Democrats have promised that this cap-and-trade legislation won't pinch wallets, behind the scenes they've acknowledged the energy price tsunami that is coming. During the brief few days in which the bill was debated in the House Energy Committee, Republicans offered three amendments: one to suspend the program if gas hit $5 a gallon; one to suspend the program if electricity prices rose 10% over 2009; and one to suspend the program if unemployment rates hit 15%. Democrats defeated all of them.

The reality is that cost estimates for climate legislation are as unreliable as the models predicting climate change. What comes out of the computer is a function of what politicians type in. A better indicator might be what other countries are already experiencing. Britain's Taxpayer Alliance estimates the average family there is paying nearly $1,300 a year in green taxes for carbon-cutting programs in effect only a few years.

Americans should know that those Members who vote for this climate bill are voting for what is likely to be the biggest tax in American history. Even Democrats can't repeal that reality.

http://online.wsj.com/article/SB124588837560750781.html

[Ban Hammer 13,340]

grab your wallets and man the rails, we're about to be boarded.

[Peikko 1,575]

Why do we allow the US to act like a failed state on climate change?

It would be laughable anywhere else. But, so everyone says, the Waxman-Markey bill which is likely to be passed in Congress today or tomorrow, is the best we can expect – from America.

The cuts it proposes are much lower than those being pursued in the UK or in most other developed nations. Like the UK's climate change act (pdf) the US bill calls for an 80% cut by 2050, but in this case the baseline is 2005, not 1990. Between 1990 and 2005, US carbon dioxide emissions from fossil fuels rose from 5.8 to 7bn tonnes.

The cut proposed by 2020 is just 17%, which means that most of the reduction will take place towards the end of the period. What this means is much greater cumulative emissions, which is the only measure that counts. Worse still, it is riddled with so many loopholes and concessions that the bill's measures might not offset the emissions from the paper it's printed on. You can judge the effectiveness of a US bill by its length: the shorter it is, the more potent it will be. This one is some 1,200 pages long, which is what happens when lobbyists have been at work.

There are mind-boggling concessions to the biofuels industry, including a promise not to investigate its wider environmental impacts. There's a provision to allow industry to use 2bn tonnes of carbon offsets a year, which include highly unstable carbon sinks like crop residues left in the soil (another concession won by the powerful farm lobby). These offsets are so generous that if all of them are used, US industry will have to make no carbon cuts at all until 2026.

Like the EU emissions trading scheme (ETS), Waxman-Markey would oblige companies to buy only a small proportion (15%) of their carbon permits. The rest will be given away. This means that a resource belonging to everyone (the right to pollute) is captured by industrial interests without public compensation. The more pollution companies have produced, the greater their free allocation will be – the polluter gets paid. It also means, if the ETS is anything to go by, that the big polluters will be able to make windfall profits by passing on the price of the permits they haven't bought to their consumers.

In one respect the bill actually waters down current legislation, by preventing the Environmental Protection Agency from regulating coal-burning power stations. If the new coal plants planned in the US are built, it's hard to see how even the feeble targets in this bill can be met, let alone any targets proposed by the science.

Even so, I would like to see the bill passed, as it at least provides a framework for future improvements. But why do we expect so little from the US? Why do we treat the world's most powerful and innovative nation as if it were a failed state, rejoicing at even the faintest suggestion of common sense?

You have only to read the comments that follow this article to find out. Thanks to the lobbying work of the coal and oil companies, and the vast army of thinktanks, PR consultants and astroturfers they have sponsored, thanks too to the domination of the airwaves by loony right shock jocks, the debate over issues like this has become so mad that any progress at all is little short of a miracle. The ranking Republican on the House energy and commerce committee is Joe Barton, the man who in 2005 launched a congressional investigation of three US scientists whose work reveals the historical pattern of climate change. Like those of many of his peers, his political career is kept on life support by the fossil fuel and electricity companies. He returns the favour by vociferously denying that manmade climate change exists.

A combination of corporate money and an unregulated corporate media keeps America in the dark ages. This bill is the best we're going to get for now because the corruption of public life in the United States has not been addressed. Whether he is seeking environmental reforms, health reforms or any other improvement in the life of the American people, this is Obama's real challenge.

Link

Edited June 26, 2009 by Madame Cleo

[Hilarious Clinton 452]

grab your wallets and man the rails, we're about to be boarded.

But people who make less than $250,000 won't be effected. So it's all good. Right?

[mawilson 2,133]

I have to say I kinda like Cap & Trade because it's a fair tax. It's going to hit the middle class

as well "the rich".

The government needs a lot of $$$ to pay for their public health care plan and although they won't

admit it, "the rich" don't have enough money to pay for all of it. They're going to have to tax

the middle class and C&T seems like a good way to do it (indirectly).

[Ban Hammer 13,340]

grab your wallets and man the rails, we're about to be boarded.

But people who make less than $250,000 won't be effected. So it's all good. Right?

so they say.......although 100k is being bandied about as the new 250k

[Hilarious Clinton 452]

grab your wallets and man the rails, we're about to be boarded.

But people who make less than $250,000 won't be effected. So it's all good. Right?

so they say.......although 100k is being bandied about as the new 250k

And 50k is awfully close to 100k. They both have a 'k'.