The Multibillion Dollar Energy Tax 
By John McClaughry

This week the U.S. Senate begins debate on the Lieberman-Warner "greenhouse gas cap and trade" bill. The bill proposes what the Wall Street Journal has called  "the most extensive government reorganization of the economy since the 1930s".

 If that formulation doesn't alarm you, try this one: Last year the Congressional Budget Office - controlled by the Democrats - reported that, depending on the final version of the bill, it will tax from $50 to $300 billion per year (in 2007 dollars) out of the economy by 2020. Every dime of this is a hidden tax that will ultimately be paid by consumers: industries like IBM, OMYA, and the Vermont ski industry, plus Joe's Machine Shop, Farmer Brown, Marilyn Motorist, and you.

The stated reason for this economy-wrecking bill is the supposed need to reduce carbon dioxide emissions to save the planet from The Menace of Global Warming.

Never mind that there is heated debate among scientists as to whether human-caused greenhouse gases have any detectable effect on the planet's climate. Never mind that even the advocates of the UN's Kyoto greenhouse gas limiting protocol admit that its ambitious carbon dioxide reduction goals would, if (improbably) achieved, reduce global temperatures by less than a third of a degree Fahrenheit by 2100.

The VPIRG Green socialists want action now. And even if there proves to be no climate benefits at all, there will be other benefits: the Lieberman-Warner legislation will impose broad new government controls over America's energy-intensive economy.

If burning carbon is the problem, an economist would argue that the straightforward method of cutting back emissions would be a carbon tax. But a carbon tax has this fatal political flaw: it's a tax that everyone can see and get mad about, and legislators who vote for it will pay the price. The great advantage of the cap and trade scheme is that its victims can't figure out how and by whom they are getting screwed.

Here's how it works. U.S. government bureaucrats will somehow decide how much carbon dioxide emission will be allowed for every enterprise. That's the cap.

Then the enterprises can either cut back their emissions to get under their assigned cap or, if it's cheaper, they can buy emissions credits from other emitters who have credits left over. That's the trade.

The bill now before the Senate specifies that the government would set aside an average of $20 billion a year to 2050 for consumer tax relief, which will be far too little to compensate consumers for the higher prices they'll pay for everything made with energy, including notably gasoline, diesel, and home heating fuel.

The aforementioned CBO report found that the "impacts would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households would". Strangely, the party that constantly wails about the evils of regressive tax policies is now rushing to impose this regressive energy tax on poorer American families.

Much of the impetus for enacting Lieberman-Warner comes from certain big corporations that believe they can make big bucks by pocketing free credits for emissions they have already reduced "voluntarily", and selling them to other energy users. These include Duke Energy, Alcoa, General Electric, BP, Dupont, Shell, and Marsh.

 Strangely, the party that constantly denounces Big Business for earning "obscene" profits thanks to misguided public policies has welcomed these energy-rationing profiteers into their cap and trade coalition. The VPIRG climate guru Bill McKibben has even declared Sen. Bernie Sanders a "hero" for pushing to the front of this screw-the-consumer corporate welfare parade.

Six years ago Gov. Howard Dean put Vermont on record in favor of a cap-and-trade scheme when he bought into what became the Regional Greenhouse Gas Initiative. Gov. Douglas has shown no signs of backing off, and is about to sign a bill (S.350) that instructs the secretary of natural resources and the public service board and department to advocate before "regional or national entities" in favor of  "a national cap and trade program for greenhouse gas emissions."

This political exercise is aimed at dramatically expanding government control over the U.S. economy. The cap and trade scheme obscures the tax it will impose on every consumer. It will require the hiring of untold thousands of new government functionaries to staff a new energy IRS, to inventory every emission, supervise every trade, and punish every cheater.

It will extract trillions of dollars from the economy, and it will yield huge profits for the corporations already organized to game the system. And besides wrecking the economy and screwing the poor, it will punish every motorist already suffering from $4 gasoline, every trucker and equipment operator suffering from $4.75 diesel, and every homeowner suffering from $4.55 heating oil.

And what will the public gain for enduring all this economic misery? One thing is for sure: that misery may dramatically enlarge government and make consumers poorer, but it will produce no detectable effect on the supposed Menace of Global Warming.
 

John McClaughry is President of the Ethan Allen Institute