Free Markets, Free People

Cap-And-Trade – The Impact And The Politics

It is time to get real about what the promised cap-and-trade tax means to the average American.

Politicians love cap and trade because they can claim to be taxing “polluters,” not workers. Hardly. Once the government creates a scarce new commodity — in this case the right to emit carbon — and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag — now Mr. Obama’s budget director — told Congress last year that “Those price increases are essential to the success of a cap-and-trade program.”

Essentially Congress will be creating a new commodity literally out of thin air. It will only create a certain amount of that commodity and so create instant scarcity. As we all know, scarcity drives up prices. The next year, the plan is to remove a portion of the created commodity from the market creating even more scarcity and driving prices for the commodity even higher.

Imagine steel as the commodity. Imagine steel prices going through the roof. Do you suppose they might effect the price of, say, automobiles? Metal buildings? The price of building a bridge or sky scraper?

So who, in the final analysis, is going to end up paying for this increase in steel prices? Why the final consumer, of course. Naturally, with steel, in some cases you can choose to consume (buy a new car, rent an office or approve the bridge) or not consume. However, with the CO2 tax on all industry, to include manufacturing, service, transportation and energy, you have little choice in the matter of consumption. You will be picking up the tab for this.

That brings us full circle to the promised tax cut for 95% of America and my promise that what government gives with one hand it takes with another, making the tax cut illusory at best:

Hit hardest would be the “95% of working families” Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat “unless you use energy.” Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.

After all the caterwalling the left does about “progressive taxation” they are about to implement the most regressive tax I can imagine. And as I’ve pointed out, the tax is pervasive, touching just about all aspects of life. Food prices will rise. Energy prices will go through the roof.

The Congressional Budget Office — Mr. Orszag’s former roost — estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all five of them).

Of course there is talk of subsidizing those at the lower end of the economic ladder so the impact of rising prices is lessened. Naturally that also negates the impact of the cap-and-trade system. In the end, your tax dollars subsidze the system while increased prices are passed along by so-called polluters. As the price of permits rise over the years, permit holders pay the increasing cost, pass it along and you again subsidize it. The rich can afford it, the poor will be subsidized, so who will get squeezed? Why that middle class that Obama and Biden are so concerned with.

Economically, estimates are that we’re going to have a miserable year in ’09 and possibly ’10. But we may begin to see a recovery really start to take hold in ’11, just in time for the 2012 presidential election. The smart politicians in Washington plan to delay cap-and-trade implementation until 2012. The reason should be obvious. If cap-and-trade has the expected impact on the economy, we could very well see the recovery stall and head back into recession. But politically the timing would be perfect. The mirage of recovery would be just enough to keep the current administration in power for another 4 years, before the economy wrecker of cap-and-trade begins to do its work.


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14 Responses to Cap-And-Trade – The Impact And The Politics

  • Yes, cap & trade is a load of manure.  Unfortunately, I don’t think we can count on the power industry to fight it.  I just read an article in BusinessWeek how the big power companies are “on board” with cap and trade because they think it will allow better planning.  They should be fighting tooth and nail.  I think they are making a deal with the devil, and we all will regret it.  (The healthcare bigwigs had the same pre-government intervention attitude, by the way.)

  • The question is: WHY?

    Do the libs really, really, really believe in this global warming nonsense and really, really, really believe that artificially driving up the cost of energy is necessary to combat it?

    Or are they merely going for the two-fer of grasping for money and power while punishing “the rich”, using the charade of “combatting global warming” as cover?

    I’m honestly not sure which possibility is more frightening.

    • Wealth redistribution and fees/fines/taxes.  Pretty soon every schlub (that includes me) will be ‘allowed’ to produce (x) amount of carbon dixoxide.  For not using my (x) amount (based on a government ‘standard rate’ like the standard deduction) I will be awarded tax credits.  These ‘surplus’ credits will be available for purchase by large carbon users, who of course, will also be granted a quota of carbon they can produce which of course will fall far short of what they will actually produce (because we need them to transfer their wealth to purchase more credits).  Failure to purchase the credits and exceeding your allotement will result in fines of course and taxes as well.   I’m sure there will be an ‘itemized’ version for taxation by which I can prove my ‘offsets’ exceeded my ‘creation’ of carbon, and I will be entitled to turn my carbon credits over to the new Federal Department of Managing and Selling Bullshit for resale to large carbon users.

      And let us not forget the point of the article, the further raise in cost to consumers because it’s going to take money to purchase those credits from FDMSB!  But think of all the new jobs!  Carbon emission inspectors, carbon emission detectors, carbon emission regulators, carbon emission revenue agents (shut down the still molly!  it’s the carbon revenuers, they’s come agin!), carbon emission enforcement agents (for armed and dangerous carbon law breakers).  Not to mention the various and sundry normal office workers needed by the FDMSB to push paper back and forth from the desk of the “have carbon” department to the desks of the workers in the “need carbon” deparment.

      • Yeah, I think you and jjmurphy are right: it’s a power grab, pure and simple.  The dems (spit) complained vociferously that Bush was using the WoT for purposes of gaining political power.  Indeed, the high priest of global warming, Algore, once shrieked that, “HE BETRAYED THIS COUNTRY!  HE PLAYED ON OUR FEARS!!!”

        But look at what they are doing.  They are using a ginned up, faked up, phony, manufactured “crisis” to impose increasing taxes, regulation, and control on us.  They can get away with it because of (A) the woeful state of education, especially science education, in the country, and (B) the fact that MiniTru has helped to squash any dissent regarding global warming.  When I see casual references that accept global warming as a fact in popular TV shows, I know that sanity and reason have lost the battle.


  • docjim505 – I would go with the power and money grab.  When you look at their personal lives, these liberals couldn’t care less about the eniviroment.

  • Every day, I see more and more that this stinking phony Clown™ in the White House is so distorting, so ruining, so destroying America in so many ways, it leaves me breathless.
    How much damage can one naïve pr!ck do? How ruinous can The Clown™ be to America? Check out the news each day, and see as we are sliding closer to war in Korea, or to making nice with Iran and the Taliban, and to mucking up our relationship with England.
    In short, The Clown™ is a disaster. Wait – he is an INCREDIBLE disaster. How long before there is a tidal wave of popular opinion against him? When will the American people awake and rise up to oppose this tyrant?
    The Clown™. Worst. President. EVER.

  • I can’t read or hear the words “cap and trade” without thinking “shell game.”

  • Write in campaign – “Mr President, for the good of the country, resign”.  

    BWAAAHAHAHAHAHAHAHAHAHAHA….for a moment I think I was serious.

  • The carbon tax, a/k/a Cap and Trade, strikes me as as the legislative versi0n of Marbury v Madison.   The only authority the Supreme Court to rule laws unconstitutional is that they gave themselves such authority in Marbury.

    Likewise will Congress claim the authority to regulate carbon under the Interstate Commerce Clause by deeming carbon to be a commodity.    If Congress simply deem anything to a commodity and then regulate, what the point of having the Interstate Commerce Clause in the darn Constitution in the first place?

  • I just emitted some carbon (and methane) in the general direction of DC.

  • Cap + Trade also has a serious flaw in respect to its goals – it does not reduce carbon dioxide footprints and therefore it does not help the planet.  The concept is so badly flawed that its immediate effects are detrimental to the planet, Cap + Trade schemes are well intentioned screw ups.

    Cap + Trade is a tariff applied to locally produced goods, designed to discourage the emission of carbon dioxide from the local economy.  However the problem is global, NIMBY-istic schemes like these are doomed to fail.

    However, with the CO2 tax on all industry, to include manufacturing, service, transportation and energy, you have little choice in the matter of consumption. You will be picking up the tab for this.


    It is not a tax on ALL industry.  If you purchase Latin American, Asian or African goods instead of anything locally manufactured you will not pay this or any other Capped carbon emission tariff.  Those goods being manufactured elsewhere will also require long distance transportation to you (again un-Capped emissions), so even for goods made with the same efficiency of production your purchase will entail more carbon dioxide emissions.  Cap + Trade will increase the carbon footprint of each consumer, increase the chances of catastrophic climate change.

  • The energy crises, and the tax crises caused by the administration’s policies will kill any nascent recovery before it gets going.

  • If they wish to do something like this, they should consider something like the VAT, in the way that it applies to imports as well as domestic production, and exports are exempt. This way no one is getting preferential treatment.