Friday, June 26, 2009

The Cap and Tax Fiction

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.


Ron said...

Well, the fact that some of the people running the show, the financial industry' likes this(it gives them a new market with speculation and trade) makes me rather suspicious. I haven't read or seen enough to be firm either way. I see possible pluses and possible minuses.
I do find it interesting however that you became totally focused on the money factor. Your single minded focus is part of the points missed and lack of communication between right and left.

Your post said little to nothing about the merits or demerits of the program by its intent. It listed no alternative ideas to address the problem. Word salad.

The Game said...

what are the benefits, Ron?
1. Loss of millions of jobs?
2. A bill costing families over $1,000 a year and the number keeps going up?
3. Crippling companies forcing them to move production to countries where there are literally no enviornmental protection?

Once again, liberal policies hurt our country, weaking us, take away jobs and do not even do what they are intended to do...
News flash Ron, this is being sold as a fix for global warming, the same global warming that someone who thinks they are as with it as you are must realize does not exists.
And you answer will be that you understand global warming is a sham, but we need to clean the planet...this will not clean will make it worse when companies move to areas where they can pollute much more than they do here...

Jim said...

Nice regurgitation of Republican talking points which have no basis in fact, Game.

According to the Washington Post, "Climate-change legislation would cost the average household $175 a year by 2020, according to the Congressional Budget Office (a non-partisan arm of Congress), far below the figure commonly used by GOP critics of the House bill."

Loss of a million jobs? Really? Based on what? The administration says many new jobs will be created in new forms of energy production and conservation.

Crippling companies? Based on what? Republican talking points.

Keep it up.

The Game said...

Jim said:
The administration says many new jobs will be created in new forms of energy production and conservation. are you a sheep.
Really? Really? Are you kidding me?

Can you TRY, please TRY to actually make a did with the crazy estimate the govt gave...they are usually right on with their estimates, right Jim?

Obama says lots of things, don't think even ONE of them has come is that stimulus working so far? We needed that past in seconds or we would all die...

Jim said...

Make a point? Sure. My point is:

your loss of millions of jobs comes out of somebody's ass. You've cited no source to support it.

Your over $1,000 a year per family ALSO came out of somebody's ass and has been refuted by many sources including the CBO.

Your crippling companies is somebody's conjecture and supported by no facts.

So again, my point is that you are regurgitating talking points coming from the asses of the "stop Obama anyway you can" bunch.

The Game said...

Of course we have to wait for it to happen and then you make an excuse why it wasn't cap and tax...
But here is something that is happening right now.

In WI, many companies are closing factories and moving them down south.
Why is that Jim?
Maybe that a company wants to be where it has less regulation and lower taxes?
Just maybe...
You have got to be kidding me that an adult, someone over 15 can't grasp that concept.
It's happening all over the mid-west, especially in high tax liberal states like WI.
So the cap and tax legislation will be the exact same thing, but this time jobs will just move out of the country.
so once again, liberals don't see the consequences of their actions.
They raise taxes to have more social programs for poor people, but their high taxes just create more poor people...