History Repeats Itself: President Obama’s Cap-and-tax Plan—16 Times More Costly Than President Clinton’s 1993 Btu Tax

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SUMMARY

Both Presidents Clinton and Obama called for a sweeping national energy tax in their inaugural budget submissions.  In 1993, Clinton called for an across-the-board tax on fuels, based on their heat content, the so-called "BTU tax."  Now, President Obama is proposing a "cap-and-tax" system to raise revenue and reduce greenhouse gas emissions.  Both energy taxes ultimately target energy consumers-families and businesses-and cost millions of jobs. 

Then ... The 1993 Clinton BTU Tax

During the 1993 budget cycle, President Clinton championed a general tax on most energy products.  The tax sought to raise revenue and discourage the use of energy.  The tax would have been based on the heat content or "BTU", British thermal unit, of the particular fuel, and was to be imposed on producers of coal, natural gas, liquified petroleum gases, natural gasoline, nuclear-generated electricity, hydroelectricity, and imported electricity at a base rate of 26.8 cents per million BTU.  Inevitably, these producers would have passed the tax onto consumers.  An additional 34.2 cents was to be levied on refined petroleum products.  Certain favored industries, including wind, solar, and biomass fuels, were exempt from the proposed tax.  It would have generated $71.5 billion in revenues over five years.

This national energy tax proposed by President Clinton met stiff resistance from the American people, the manufacturing and agriculture sectors, consumers, and energy companies.  Economists argued that the tax would be highly regressive, noting that poor and working families spend a disproportionately high percentage of their income on energy, like gasoline and electricity. 

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After passing by a narrow vote of 219-213 in the House, the plan was dropped in the Senate in favor of a transportation fuel tax on gasoline, diesel, and other motor fuels.  However, the legislative episode led to the coining of the phrase "being BTUed" to describe instances where the House passes unpopular legislative initiatives only to be stopped by the Senate.

NOW ... THE 2009 Obama Cap-and-Tax

This year, President Obama's budget assumes revenues from a new "cap-and-tax" energy proposal-generating at least $389 billion over the first five years of the program (beginning in 2012).  According to the Deputy Director of the National Economic Council, it could actually cost "two or three times" that amount-so potentially a $1.2 trillion tax over five years.  Over a comparable five year period, this energy tax is roughly 16 TIMES larger than the Clinton BTU tax. 

The cap-and-tax proposal would cap greenhouse gas emissions from regulated entities and require businesses to purchase permits or "allowances" for their emissions.  The proposal, which imposes mandates and further regulations on manufacturers, is intended to spur a reduction of greenhouse gas emissions. 

However, the Congressional Budget Office (CBO) has stated that these higher costs would be passed on to energy consumers.  According to an analysis by MIT researchers, the total energy bill for the average U.S. household will increase by up to $3,128 per year.  Again, lower income families would be hardest hit by this national energy tax.  Analysis by the EPA shows that emissions reductions less draconian than those proposed in the President's budget would reduce manufacturing output by as much as 12%, resulting in the destruction of at least 3 to 4 million American jobs.  Then-candidate Obama told a San Francisco editorial board last year, "Under my plan of a cap and trade system electricity rates would necessarily skyrocket...that will cost money.  They will pass that money on to consumers..."  History is repeating itself.