NoaIzumiCap, Trade, and Spin
March 13th 2009 02:03
As most of you probably know, US President Obama signed the much discussed omnibus budget bill yesterday. The 2009 budget has passed, let the criticism of the 2010 budget begin! Whoops, it already has. A lot of the complaints (so far) have focused on one portion of it, the proposed cap-and-trade plan to auction off carbon credits in an effort to reduce industrial carbon emissions. Opponents are saying, a) that it amounts to a tax and, b) that the cost will be too high and take money out of the pockets of working Americans (the more alarmist ones declare that it will ruin the economy).
obama's Cap and Trade Taxes Will Destroy America
We'll Pry Global Warming From Their Cold, Dead Hearts
Global Warming Bait and Switch
Cap & Trade & Tax: The poor can't eat carbon
Capping Economic Growth
The first complaint is probably fair enough. You have to use a broad definition of the term “tax”, but if you do, it’s definitely an extra tax on power companies, at least most of which will be passed on to consumers.
It’s in the second claim that these guys start to run into trouble. Claims of economic cost run between $800 and $2100 per working family (per year) and one article claims a total cost of 3% of GDP. To put it bluntly, that’s BS.
Creating a Clean Energy Economy
The president wants to auction off carbon credits in a carbon and trade system, with the goal of a 14% reduction of carbon emissions by 2020. The total price of those carbon credits is expected to be $650 billion over ten years, or $65 billion a year. Power companies that bought the credits would then presumably balance the expense mainly by raising the price of energy, passing the cost on to consumers to pay. There are approximately 70 million working families in the US, so if all the costs are passed on, the yearly expense comes to a little under $1000 a year. So most of the critics get that part more or less right, although that still comes out to just $80/month, or less than 2% of median income. Speaking as a member of a median income working family, that doesn’t sound that oppressive to me. As expenses go, that doesn’t exactly make me start thinking bankruptcy.
What most of the articles don’t mention, or downplay, is the tax cut that the auction is meant to finance. $500 billion of the money raised goes back to the people and small businesses that the price increases will hurt the most. So a $65 billion/year expense turns into a $15 billion one, or less than $20 per month per working family. And since the money is directed towards the segments that are hardest hit, poorer citizens who pay a greater portion of their income for energy will almost certainly wind up with no net additional cost at all. Also, it should be noted the money that isn’t returned goes to research alternative energy sources, which will eventually increase our supply of energy (clean and domestically produced energy, I might add), bringing prices back down. So while the expense is real, it’s also temporary.
As for GDP, even ignoring the tax cuts, $65 billion per year is less than 0.5% of GDP, not 3%. The only way to get 3% is to take the expected cost over ten years and compare it to one year’s worth of GDP.
Finally, the estimates assume that the consumption of energy will be constant. Opponents of higher taxes often point out that people will change their behavior to reduce their tax burden and thus reduce projected revenues. Why wouldn’t people do the same thing here, using their energy more efficiently to reduce their cost, minimizing the impact of the policy on them?
The goal of a 14% cut in eleven years seems ambitious to me, but if it does work, or even comes close, we’ll have cut CO2 emissions by a significant amount and made our country more energy-independent for a relatively low cost.
On a footnote, the NASA scientist James Hansen recently advocated a plan of raising the gas tax and using the revenue to finance a tax cut for the people most affected. The Investor’s Business Daily called it “a collectivist redistribution of wealth”.
Green Comes Clean
Now, when the president proposes something similar, only with a cap and trade system instead of a gas tax, the complaint seems to be that it’s not redistributive enough.
Update:
Speak of the devil, here's another one from Investor's Business Daily, that once again claims that the cost will be exorbitant, once again neglects to mention the offsetting tax cut, once again calls for what they used to believe was redistributionist collectivism, and for good measure, once again claims that the Earth has been cooling since 1998.
Assisted Economic Suicide (No, really, that's the actual title)
obama's Cap and Trade Taxes Will Destroy America
We'll Pry Global Warming From Their Cold, Dead Hearts
Global Warming Bait and Switch
Cap & Trade & Tax: The poor can't eat carbon
Capping Economic Growth
The first complaint is probably fair enough. You have to use a broad definition of the term “tax”, but if you do, it’s definitely an extra tax on power companies, at least most of which will be passed on to consumers.
It’s in the second claim that these guys start to run into trouble. Claims of economic cost run between $800 and $2100 per working family (per year) and one article claims a total cost of 3% of GDP. To put it bluntly, that’s BS.
Creating a Clean Energy Economy
The president wants to auction off carbon credits in a carbon and trade system, with the goal of a 14% reduction of carbon emissions by 2020. The total price of those carbon credits is expected to be $650 billion over ten years, or $65 billion a year. Power companies that bought the credits would then presumably balance the expense mainly by raising the price of energy, passing the cost on to consumers to pay. There are approximately 70 million working families in the US, so if all the costs are passed on, the yearly expense comes to a little under $1000 a year. So most of the critics get that part more or less right, although that still comes out to just $80/month, or less than 2% of median income. Speaking as a member of a median income working family, that doesn’t sound that oppressive to me. As expenses go, that doesn’t exactly make me start thinking bankruptcy.
What most of the articles don’t mention, or downplay, is the tax cut that the auction is meant to finance. $500 billion of the money raised goes back to the people and small businesses that the price increases will hurt the most. So a $65 billion/year expense turns into a $15 billion one, or less than $20 per month per working family. And since the money is directed towards the segments that are hardest hit, poorer citizens who pay a greater portion of their income for energy will almost certainly wind up with no net additional cost at all. Also, it should be noted the money that isn’t returned goes to research alternative energy sources, which will eventually increase our supply of energy (clean and domestically produced energy, I might add), bringing prices back down. So while the expense is real, it’s also temporary.
As for GDP, even ignoring the tax cuts, $65 billion per year is less than 0.5% of GDP, not 3%. The only way to get 3% is to take the expected cost over ten years and compare it to one year’s worth of GDP.
Finally, the estimates assume that the consumption of energy will be constant. Opponents of higher taxes often point out that people will change their behavior to reduce their tax burden and thus reduce projected revenues. Why wouldn’t people do the same thing here, using their energy more efficiently to reduce their cost, minimizing the impact of the policy on them?
The goal of a 14% cut in eleven years seems ambitious to me, but if it does work, or even comes close, we’ll have cut CO2 emissions by a significant amount and made our country more energy-independent for a relatively low cost.
On a footnote, the NASA scientist James Hansen recently advocated a plan of raising the gas tax and using the revenue to finance a tax cut for the people most affected. The Investor’s Business Daily called it “a collectivist redistribution of wealth”.
Green Comes Clean
Now, when the president proposes something similar, only with a cap and trade system instead of a gas tax, the complaint seems to be that it’s not redistributive enough.
Update:
Speak of the devil, here's another one from Investor's Business Daily, that once again claims that the cost will be exorbitant, once again neglects to mention the offsetting tax cut, once again calls for what they used to believe was redistributionist collectivism, and for good measure, once again claims that the Earth has been cooling since 1998.
Assisted Economic Suicide (No, really, that's the actual title)
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