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The Cap and Trade Tax

In case you're unclear about what Cap and Trade is, let me offer some information that might shed some light. Cap and Trade is a tax. It's a big, big tax. This is probably the most accurate description of Cap and Trade that I've seen and explains it far better than I could (emphasis mine):

What is "Cap and Trade"?

It is a lie. But not just a lie. It is also theft, socialism, dirt-worship. Big Government, extremism, impoverishment, fantasy and disempowerment.

Cap and Trade is a gargantuan regressive tax and oppressive regulatory scheme of energy rationing. It forces businesses to buy permission slips from a "central authority" to both create and then use energy, a double tax.

Why not just call it an Energy Tax? Because taxes are unpopular. It's called "Cap and Trade" because "Tax and Regulate" is too honest. It is touted as a free market solution to pollution...if by "free" we mean mandatory and by "market" we mean "government".

Once businesses are forced to buy these energy-rationing coupons or permission slips to create jobs, those slips will have value, not unlike a liquor license. Although they really have no value in and of themselves, businesses would then be unwilling to repeal this tax and lose their investment. And it would be woven into treaties, making it difficult to ever again regain our sovereignty, thus disempowering Americans.

Why do all this? Well, first, I'll give you the stated purpose; to lower carbon dioxide levels, the gas you exhale, and therefore lower the Earth's thermostat by a degree or two.

That is madness. We do not control the weather, despite the God-sized egos in Washington DC.

The comparison to a liquor license is a good one, especially since these companies will be forced to compete over a limited supply of carbon credits much like people must compete over a limited number of liquor licenses. The price of energy will sky rocket as anything does that operates under limited supply but limitless demand. As a result, the American people are not going to sit for that. They will very be angry and will take it out on their representatives. So what would government run by liberals do in this situation? I predict they would probably do the worst thing possible: cap consumers' energy costs, which would only compound an already bad situation. The cost of producing energy will still be high but the cost that the consumers pay is capped. The result would be much like what you see in California: rolling blackouts, especially in large populated areas. This is just speculation on my part, but I think it's an accurate prediction.

By the way, GE, the parent company of NBC, is lobbying the Obama administration to be the "central authority" that the above article references, which is why CNBC, MSNBC, and NBC have been so friendly in its coverage of the White House

Obama and many Democrats don't want you to know that Cap and Trade is a massive tax, but it is and they know it. Here's Democratic Representative John Dingle:

So, how much would it cost the typical American household? According to a study at MIT, about $3,900 per household per year:

But, as the saying goes, a lie can make its way halfway around the world while the truth is putting its shoes on. During a lengthy email exchange last week with THE WEEKLY STANDARD, MIT professor John Reilly admitted that his original estimate of cap and trade's cost was inaccurate. The annual cost would be "$800 per household", he wrote. "I made a boneheaded mistake in an excel spread sheet. I have sent a new letter to Republicans correcting my error (and to others)."

While $800 is significantly more than Reilly's original estimate of $215 (not to mention more than Obama's middle-class tax cut), it turns out that Reilly is still low-balling the cost of cap and trade by using some fuzzy logic. In reality, cap and trade could cost the average household more than $3,900 per year.

The $800 paid annually per household is merely the "cost to the economy [that] involves all those actions people have to take to reduce their use of fossil fuels or find ways to use them without releasing [Green House Gases]," Reilly wrote. "So that might involve spending money on insulating your home, or buying a more expensive hybrid vehicle to drive, or electric utilities substituting gas (or wind, nuclear, or solar) instead of coal in power generation, or industry investing in more efficient motors or production processes, etc. with all of these things ending up reflected in the costs of good and services in the economy."

In other words, Reilly estimates that "the amount of tax collected" through companies would equal $3,128 per household--and "Those costs do get passed to consumers and income earners in one way or another"--but those costs have "nothing to do with the real cost" to the economy. Reilly assumes that the $3,128 will be "returned" to each household. Without that assumption, Reilly wrote, "the cost would then be the Republican estimate [$3,128] plus the cost I estimate [$800]."

But do we really expect the Obama administration to return those tax revenues when he's got his national health care program and other big government programs that he wants funded? And what kind of tax revenues are we talking about anyway? This kind:

The deputy director of the White House National Economic Council, Jason Furman, is giving us a glimpse at the real number, telling Senate staff the energy tax scheme would actually raise "two-to-three times" the budget's official $646 billion revenue estimate. Dow Jones reports that 5 people at the meeting confirmed the statement--we can be pretty sure he said it.

Just imagine the impact a tax increase of that size would have on our economy. For states that use coal as a big source of energy, like the midwest, you can expect this kind of result:

President Barack Obama's proposed cap-and-trade system on greenhouse gas emissions is a giant economic dagger aimed at the nation's heartland -- particularly Michigan. It is a multibillion-dollar tax hike on everything that Michigan does, including making things, driving cars and burning coal...

Doing so will drive up the cost of nearly everything and will amount to a major tax increase for American consumers.

Such a tax will hit the Midwest particularly hard, which is why House Minority Leader John A. Boehner, R-Ohio, told the New York Times, "let's just be honest and call it a carbon tax that will increase taxes on all Americans who drive a car, who have a job, who turn on a light switch, pure and simple."

The carbon tax will be paid by energy companies, manufacturers and public utilities, who will pass the cost on to their consumers. Michigan will be especially targeted. It gets 60 percent of its electric power from coal plants, and the state's economy is still reliant on heavy manufacturing such as car and truck assembly and auto parts production.

Michigan will lose as carbon tax money is shifted to states with a greater presence of high-tech and service businesses.

The proposed tax would take effect in 2012 and has the very real potential to throw the nation back into recession, if indeed the expected recovery has arrived by then. It's impossible to raise costs for such basics as manufacturing and energy production by more than half a trillion dollars over a decade and not have the effects felt across the economy.

And this does not just affect the Midwest. Anyone who uses energy will be affected, and that is, well, everyone. Unless you're willing to go off grid. Then again, good luck getting a home loan for a house that's off grid. I wouldn't be surprised to see the sale of generators go up, but the fuel you'll have to buy for the generator will go way up, as well, so that may not be a great alternative. No matter what, the government will get you. I should be happy that I live right in front of a small dam which generates all the electricity in our area, but I'm sure the long arm of the government will find a way to apply the cap and trade tax to us, too.

The president of Czech Republic Vaclav Klaus is trying as hard as he can to knock some sense into European leaders that a cap and trade scheme is the absolute wrong headed thing to do at any time but especially when you're faced with a world recession:

So I am amazed to see people going along with the currently fashionable political argument that policies such as cap-and-trade, government mandates and subsidies for renewable energy can actually benefit an economy. It is claimed that government, working together with business, will create "a new energy economy", that the businesses involved will profit and that everyone will be better off.

This is a fantasy. Cap-and-trade can only work by raising energy prices. Consumers who are forced to pay higher prices for energy will have less money to spend on other things. While the individual companies that provide the higher-priced "green" energy may do well, the net economic effect will be negative.

It is necessary to look at the bigger picture. Profits can be made when energy is rationed or subsidised, but only within an economy operating at lower, or even negative, growth rates. This means that over the longer term, everyone will be competing for a piece of a pie that is smaller than it would have been without energy rationing.

This does not auger well either for growth or working our way out of today's crisis.

I wish President Klaus could find his way to America because we need more thinkers like him here. Right now our government is populated with a bunch of emotional, that's-not-fair! control freaks who are busy at work trying to micromanage every aspect of our lives.


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Comments (12)

I hope this "Crap and Trade... (Below threshold)
MPR:

I hope this "Crap and Trade" passes because, it will be disastrous to the economy. Americans will be hurt but, at this point I don't see anything else that will wake up America to the biggest mistake we have ever made. Electing Obamalala.

From the article,<blo... (Below threshold)
Mac Lorry:

From the article,

Reilly assumes that the $3,128 will be "returned" to each household.

Even if the money to cover the true cost of cap and trade is returned to each household, that will only be true if you qualify according to government rules. For example, here are some rules I made up, but some may come to pass in some form:

  • For each gas or diesel vehicles you own you get back 10% less than the full amount.

  • For every 100 square feet your home is in excess of 1,500 sq ft you get back 5% less than the full amount.

  • For every gas or diesel powered boat or off-road recreational vehicle you own you get back 5% less than the full amount.

  • If you drive to work, then for every mile over 20 that you live from your place of work you get back 1% less than the full amount.

You see how Obama and politicians use the fact that someone is getting taxpayer money to control their behavior in ways that would not otherwise be legal. By taxing people in excess and then giving them back some of that money the government can control people's behavior.

The entire carbon cap and tax scheme comes from environmental religion, not from sound science. As the environmental religion gains more and more government power crazier and crazier ideas will find their way into law. Did you know the priests of environmentalism think individuals should be charged with the carbon footprint of their progeny? Kiss that child deduction goodbye as you'll see a carbon rebate rule like the following:

  • For every child you have in excess of 2 you get back 30% less than the full amount.

If the American electorate comes to it's senses and boots democrats and Obama from office in 2010 and 2012 then this nonsense can be repealed and treaties abrogated. We can then hold hearings to find out who fostered this junk-science based scam on the American public and hold them accountable.

Mac Lorry,Pay backs ... (Below threshold)
MPR:

Mac Lorry,
Pay backs will be a bitch. Tee Hee.

Kim,Awesome, outst... (Below threshold)

Kim,

Awesome, outstanding, superb post.

Of course the only thing cap and trade will do, guaranteed, is raise an enormous amount of revenue for the government.

Power companies are going to have to come up with a way to offset the huge operating liability that will result from carbon trading costs. They could do this by adding the value of carbon trading certificates to their company's book value, or by allowing them to be traded on the open market, like corporate bonds or derivatives.

If lowering its CO2 emissions would make its carbon trading certificates more valuable, then a power company could manipulate the cost of CO2 reduction technology in such a way that the resulting increase in the value of that company's trading certificates would increase the overall value of the company. This might lead to some overall CO2 reduction, since it would therefore be profitable. But at this point, we don't know how -- or if -- that whole process is going to work.

Cap and trade is our generation's "Social Security." SS was really nothing more than a huge payroll tax that Roosevelt desperately need in order to fund the enormous cost of his New Deal government expansions. Similarly, Cap and Trade is what Obama is counting on to fund his huge government expansions, specifically socialized single-payer health care.

Roosevelt was a political genius, and he hoodwinked a generation of Americans into believing that SS was a pension program, with a guaranteed return of the taxes paid in the form of retirement benefits. This seems to parallel the arguments that the cost of cap and trade will be "returned" to the taxpayers.

But where are we now with respect to Social Security? We have trillions of dollars in Social Security commitments that far exceed the revenue of the government, and no way for us to collect enough money to pay for those commitments except for yet another massive tax increase. In other words, with respect to Social Security, we are in big trouble. We should think about the state of Social Security before we fall for another enormous "we promise you'll get all of your money back" tax scheme.

Thank you, Michael. You mad... (Below threshold)

Thank you, Michael. You made my day.

This is by far the dumbest ... (Below threshold)
STaylor:

This is by far the dumbest of Obama's propositions and will do massive damage to a fragile economy. This is probably why it is written to not take effect until 2012 and the effects wont be felt until AFTER the presidential election.

"We can then hold hearings ... (Below threshold)
GarandFan:

"We can then hold hearings to find out who fostered this junk-science based scam on the American public and hold them accountable."

Look no further than Albert Gore. His company stands to make BILLIONS. Of course, that's only ancillary to his real goal of saving the planet.

Maybe Obama is planning of having the US receive foreign aid from other countries.

Grey Davis was run out of C... (Below threshold)
MPR:

Grey Davis was run out of California for mishandling power shortages in California, among other things. California was buying power from power producers in Texas but, the power plants were only permitted to operate a few days a month due to GOVERNMENT REGULATIONS ON EMISSIONS. This drove the cost of generating power through the roof in order to pay for the fines. Gee, kinda sounds like what is coming with "crap and trade". As far this coming later than sooner. Companies that will be affected? They are looking down the road five and ten years, which they should, are making plans to move to countries that won't join the idiocy. And, that will not be good for the unemployment nose dive we are in already.

Do the American people have... (Below threshold)
bobdog:

Do the American people have anything at all to say about this legislation? Do we have the right to vote on it? Can we even debate it in public? Is the "science" really "settled", or is that just a scheme to silence the non-believers?

This tax will remove exactly how much "carbon" from the environment? Exactly how many degrees will it lower average global temperatures? Exactly who is certain of any of this? Not for the one minute sound byte news - who can actually prove it in a convincing way we can all agree on? Or is Al Gore's scientifically irrefutable opinion enough?

For the life of me, I cannot imagine a more destructive taxation scheme, and I cannot imagine a worse time to enact it, even if it was justifiable. I cannot believe that the proponents of this legislation have even a fricking clue about the laws of economics.

They're about to get an education, and the American taxpayer, as usual, will be paying for it.

I want to compliment you on... (Below threshold)
CZ:

I want to compliment you on an outstanding essay. You are on a roll, Kim. This is one of your very best!!

Personally speaking, if the... (Below threshold)
RicardoVerde:

Personally speaking, if the gubmint is going to spend money it doesn't have on stimulus, then why not spend it on shiny new pebble-bed nukes? We could divert our VAST coal reserves to some of the newer natural gas/coal liquid fuel plants thereby lowering our carbon output (as if that really matters) and reducing our dependence on desert sheikdoms. The pebble beds should drastically reduce the volumes of low level radioactive waste generated by water cooled standard nuke plants. It's a shame, but we really need something like the Federal Reserve but for energy and get the cash cow the pols see in energy out of their grubby hands.

I take that back! They'd stuff it full of "progressives" with ivy league degrees in journalism or womens studies to make sure no white male construction workers or professionals get any of the cash.

I believe this meets my rant quota for the day.

"It is a lie. But not ju... (Below threshold)
914:

"It is a lie. But not just a lie. Its also theft. Socialism. Dirt worship. Big Government,. Extremism, impoverishment, fantasy and disempowerment."

So its the U.N.




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