Cap-and-Trade = The Biggest Tax Increase In U.S. History

By Phil KerpenPolicy Director, Americans for Prosperity

President Obama opened his address to a joint session of Congress last month by saying "the economy is an issue that rises above all others." By that standard, his key energy proposal fails badly. Obama's proposed Kyoto-style cap-and-trade plan would be the biggest tax increase in American history. It would hit every American who fills a gas tank, pays an electric bill, or buys anything that has to be grown, shipped, or manufactured.

Cap-and-trade is a way to impose a massive energy tax and pretend it's not a tax. It puts a cap on overall greenhouse gas emissions, and establishes a market for companies to buy and sell the permits. In Obama's version, the permits would all be auctioned off and the hundreds of billions of dollars would be used to fund higher government spending.

The economic impact of imposing these huge new costs on energy consumers would be devastating. Even using the Obama administration's own numbers, it would amount to a tax hike of $645.7 billion over the first 8 years, over $80 billion per year.

But as the cap becomes more and more strict over time, those costs would skyrocket into the trillions of dollars.

Obama's proposed 83 percent reduction below 2005 levels by 2050 dwarfs the proposal from last year's Lieberman-Warner bill, which included a 63 percent reduction.

An analysis commissioned by the American Council on Capital Formation and the National Association of Manufacturers projected the economic impact of last year's bill by 2030: 3 to 4 million fewer jobs, $4,022 to $6,752 in lower annual disposable income per household, an annual hit to GDP of between $631 billion and $669 billion, and much higher energy prices -- 60 percent to 144 percent higher for gasoline and 77 percent to 129 percent higher for electricity.

These figures are all adjusted for inflation. The hardest hit will be those least able to pay: lower income families, who spend a disproportionate share of their income on energy. The Obama plan requires considerably steeper cuts and therefore will be even more expensive.

Much of the cap-and-trade tax revenue will be earmarked for the so-called Making Work Pay tax credit, worth $400 for a single-worker family and $800 for a two-worker family. So while the left hand offers $400 or $800, the right hand snatches $4,000 (or more) from the pockets of American families. Some deal.

This is not an unintended consequence of the plan--it's the intended goal. President Obama made it plain as day when he said that he wants to give so-called renewable energies a market advantage. That requires stepping in with heavy taxes to dramatically raise the price of fossil fuels, which are much, much cheaper than renewables and are projected to remain so for a long time, especially since oil prices have come down sharply.

And what do we buy, environmentally, with this enormous hit to the economy? Basically, nothing. Cap and trade is already failing to reduce emissions in Europe. And even if emissions targets are met, climate models show that the reductions would have no detectable impact on global average temperatures. That's why leading climate alarmists have hailed a Kyoto-style cap-and-trade regime as just the first step of 30 to curb global economic activity. There's never a good time to embark down such a path, but it seems particularly hare-brained during an economic crisis.

And that's not all, I urge you to also keep an eye on the Environmental Protection Agency. April 2nd marks the two-year anniversary of the Supreme Court decision in Massachusetts v. EPA that found, on a 5-4 decision, that the EPA can shoehorn a cap and trade regime into the 1970 Clean Air Act, passed before anyone in Congress--or anywhere else--had even heard of global warming theory. EPA is likely to celebrate the anniversary by laying plans for moving ahead. Before Congress does anything else on this issue, they should pass a clean bill to stop the EPA and give us time to consider our policy through the proper democratic process.

No matter whether it's through legislation or regulation, cap-and-trade would destroy the only bright spot in the current economic environment, low energy prices, and cause severe economic pain. Anyone who supports it can't be serious about putting the economy first.

Phil Kerpen is director of policy for Americans for Prosperity.