Taxing Too Much - the President’s “Cap and Tax” Proposal

Taxing Too Much: the President’s “Cap and Tax” Proposal

MARCH 17, 2009

 

Taxing Too Much: The President's "Cap and Tax" Proposal

March 17, 2009

 

 

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 ...

-President Barack Obama

Meeting with the Editorial Board at the San Francisco Chronicle, January, 2008

 

 

STATUS

The President's budget assumes at least $646 billion in new revenues from a "cap-and-tax" energy proposal.  Though "cap-and-tax" proposals were introduced in both the House and the Senate in the 110th Congress, neither proposal was fully considered by either body (in the Senate, there was a threat of filibuster and the House bill was never marked up in Committee).  The 111th Congress will likely consider such legislation, with House and Senate leaders promising Committee action on a bill by Memorial Day.  

 

BACKGROUND

The President's "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.  Many Members are concerned that such a costly mandate will be passed on to consumers in the form of higher energy costs, amounting to a tax on all energy use.  To that end, the Congressional Budget Office (CBO) has clearly stated that these higher costs would in fact be passed on to consumers.  Such a tax increase would lead to either a devastating reduction in energy use, an erosion of the American family's budget, or both. 

 

Q & A

Will this proposal cause energy prices to rise?  Yes.  According to an analysis by MIT researchers, the total energy bill for the average household will increase by up to $3,128 per year.  According to Congressional Budget Office (CBO) testimony, "The rise in prices would impose a larger burden, relative to income, on low-income households than on high-income households for two reasons.  First, low-income households spend a much larger fraction of their income than do high-income households.  In addition, energy-intensive items compose a greater share of low-income households' total expenditures."  Current cap-and-tax proposals attempt to offset some of this cost to low-income families with further government spending, in the way of a "Making Work Pay" refundable tax credit (which would send money to many low-income taxpayers who pay no income taxes). 

 

How would it affect manufacturing output and job loss?  Manufacturing output would fall considerably.  Analysis by the Environmental Protection Agency (EPA) shows that emissions reductions less draconian than those proposed in the President's budget would reduce manufacturing output by as much as 12%.  This would result in the destruction of at least 3 to 4 million American jobs.  According to the same CBO testimony, "Investors might see the value of their stocks decline, and workers could face higher risk of unemployment as jobs in those sectors were cut."

 

Will a "cap and trade" proposal create an economic boost in new "green" jobs?  No.  Such a proposal would actually reduce economic growth, gross domestic product (GDP), and employment opportunities.  Any "green" jobs created would not be enough to offset the millions of jobs lost as a result of these energy taxes. 

 

How would GDP be impacted?  GDP loss could hit at least $155 billion (possibly $500 billion) in a single year, and cumulative gross domestic product losses could be at least $1.7 trillion (possibly $4.8 trillion). 

 

Will a cap-and-tax mandate work to reverse "global warming"?  Unilateral action by the United States would have virtually no impact on global emissions.  Other major emitting countries such as China (the world's largest emitter of greenhouse gases) and India have clearly stated that they will not reduce their emissions.  As a result, the rapid growth in emissions in other countries would quickly overwhelm any reductions from the United States.  According to analysis by the EPA of S. 2191, the Climate Security Act, if all Kyoto countries adopt similar cap-and-tax programs, the lower emissions levels would only lead to less than one degree reduction in global temperatures in 2095-while costing the U.S. economy more than $10 trillion dollars.

 

"Hiding a tax hike inside an environmental policy inside a budget bill is another layer of deception and a new low even for Washington, DC." - President of Americans for Prosperity

 

For questions or further information contact Sarah Makin at 6-2302.

 

A Report of the MIT Joint Program on the Science and Policy of Climate Change; Assessment of U.S. Cap and Trade Proposals; http://web.mit.edu/globalchange/www/MITJPSPGC_Rpt146.pdf.

CBO Congressional Testimony; The Distributional Consequences of a Cap-and-Trade Program for CO2 Emissions.  http://www.cbo.gov/ftpdocs/100xx/doc10018/03-12-ClimateChange_Testimony.1.1.shtml.

Analysis of The Lieberman-Warner Climate Security Act (S. 2191) Using The National Energy Modeling System (NEMS/ACCF/NAM); http://www.accf.org/pdf/NAM/fullstudy031208.pdf.

A Report of the Heritage Center for Data Analysis; The Economic Costs of the Lieberman-Warner Climate Change Legislation; http://www.heritage.org/Research/EnergyandEnvironment/upload/cda_0802.pdf.

EPA analysis of S. 2191; http://www.epa.gov/climatechange/downloads/s2191_EPA_Analysis.pdf.