So-Called Cap-And-Trade Is A Trickle Down Tax Increase

Senator Says Plan Would Increase Energy Costs and Drive American Jobs Overseas

March 16, 2009

It has been over two weeks since President Obama unveiled his $3.6 trillion budget blueprint, yet considerable discussion continues throughout the halls of Congress over what impact some of its proposals would have on our economy. 

Of all the proposals contained in this massive budget, none is more controversial than the president’s “cap-and-trade” energy tax plan.  The cap-and-trade proposal would amount to a multi-billion dollar trickle-down tax increase on every single American.  Should it be implemented, this ill-advised scheme would raise energy prices for everyone, hurt America’s economic competitiveness, and fundamentally weaken our economy for decades to come.   

                                              HARD FACTS
The president’s cap-and-trade proposal would require companies that emit carbon dioxide – such as power plants, manufacturers and other companies – to purchase “credits” from the government.  Essentially, these credits would give them permission to emit carbon dioxide – a byproduct of their normal operations.  If a company cannot meet the government’s emissions limit, they would be forced to purchase additional credits from companies that use less energy or have fewer emissions. 

At first blush, this may sound to some like a reasonable plan to promote cleaner air and a greener environment – all laudable goals.  However, the flip-side of this proposal is not nearly as commendable.  Cap-and-trade would increase the cost of energy by placing limits on the fossil fuels we use – the coal, oil, and natural gas that makes up 85 percent of America’s energy. 

The president’s budget director recently admitted as much, saying that this plan would increase the cost of energy.  In fact, President Obama’s budget expects to raise $646 billion from companies that would be forced to adhere to his cap-and-trade program.  Unfortunately, this massive tax increase on businesses would be passed along to American consumers in the form of much higher energy prices. 
                                          THE CARBON TAX
The reality is that cap-and-trade would be most harmful to the 95 percent of taxpayers that President Obama has promised would not have their taxes increased.  A 2007 report by the non-partisan Congressional Budget Office (CBO) found: “Most of the cost of meeting a cap on CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline.  Those price increases would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households.”  The Wall Street Journal agrees, recently editorializing that “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 CBO estimates that a 15 percent cut in carbon emissions would cost the poorest one-fifth of Americans an additional $680 per year in after-tax income.  Additionally, Warren Buffett, the vastly successful businessman and public Obama supporter, is strongly opposed to a cap-and-trade program.

                                          ECONOMIC IMPACT
These estimates are just the tip of the iceberg.  The cumulative effects of cap-and-trade would be disastrous.  In reviewing cap-and-trade legislation that was introduced – and subsequently defeated – in the Senate last year, the Heritage Foundation found that it would raise gasoline prices by $1.10 per gallon, reduce our gross domestic product by $5 trillion over the next 20 years, and cost hundreds of thousands of jobs. 

In evaluating the same bill, the federal Energy Information Administration said it would lead to a nearly 10 percent drop in manufacturing output.  Sherrod Brown, a Democratic senator from Ohio, recently discussed his concerns of a cap-and-trade plan increasing energy costs and driving jobs overseas.  He told The Hill newspaper: “It really does say to manufacturing, ‘Go to China, where they have weaker environmental standards.’ And that’s a very bad message in bad economic times – in any economic times.” 

Sen. Brown is exactly right.  Cap-and-trade is not only the wrong policy when our economy is struggling; it is the wrong policy any time.  Taking action to purposefully drive up the cost of energy production in this country will only increase energy costs for consumers, hurt productivity, and cause job losses across the country.  Cap-and-trade is the wrong policy for America, and I will work to ensure its defeat.