Jun 23 2009, 10:00AM
Daily Chart: How Progressive is Cap and Trade, Part Two
Yesterday I made a chart that tried to put the burdens of the Waxman-Markey cap and trade bill in context. The share of C&T costs paid by the poorest Americans will be lower than the share of all federal taxes paid by the same group. But the share of C&T costs paid by the wealthiest Americans is also far lower than the group's federal tax share. This means that a unusually high portion of cap and trade's costs fall on middle-income Americans. The top quintile pays $245 a year, but the second highest quintile pays more: $340 a year.
My friend Brad Plumer, who writes TNR's environment blog, took me to task on his Twitter feed: The big point of the CBO analysis shouldn't be how the burden of cap and trade is distributed -- it should be that the burden is negligible. Okay, fair enough. So here's a chart that approaches the cost of cap and trade from a different angle: Not as a percentage of total tax liability, but as a percentage of household income.
This chart has three variables: The percentage of household income spent on energy, the percentage of household pretax income that would be spent on cap and trade under the Waxman-Markey bill, and the percentage of after-tax income that would be devoted to the same cause.
This is simple: Because low income households spend a relatively large portion of their income on energy, a flat carbon tax or C&T system will impose relatively large costs on low-income households. But what is striking here -- and, I think, what is important to people like Brad -- is that the after-tax costs remain low.
On the other hand, it's still pretty crummy to be in the third or fourth quintile.
One fine-looking refinery, via Scott Cassidy's Flickr photostream. All the data for this chart comes from the CBO. The data on total household energy spending is from a June 2008 report. The other household spending data is from the most recent cost estimate.
I think Mr. Clarke is focused on the wrong issue here. I also think Republicans are focused on the wrong issue. The purpose of this exercise is two-fold. First, we should be figuring out a way to reduce petro-states' power in Russia, Venezuela, Iran, and Saudi Arabia. Second, we should be figuring out a way to minimize the negative consequences of global warming in the least harmful way possible to the U.S. economy.
Waxman-Markey accomplishes neither. It is an invasive command and control bill that gives away carbon allocations to utilities for ten years, after which point they'll undoubtedly be given away for another ten years. Not only is it unproductive, it is counterproductive, becuase it displaces a possible reform like the carbon tax that will actually lower carbon emissions and act as a tax on petro-states because the incidence of the tax will not fall entirely on U.S. producers, retailers, and consumers. If Waxman-Markey is passed, Democrats will assert that they have solved global warming, and the issue will fall out of the public debate. Meanwhile, we will have actually solved nothing.
This is obviously not Clarke's fault. The fault of focusing on the costs of Waxman-Markey fall on Republicans, who are largely focusing their criticism on the costs of the bill. Instead, I would recommend that both Republians and Mr. Clarke line up behind Representative Inglis's (R-SC)bill that would institute a carbon-based fuels tax, and provide a corresponding cut in the payroll tax and a raise in retirement benefits.
Why didn't the CBO factor in the benefits of reduced CO2 emissions? Isn't the entire objective to achieve those benefits? If so, shouldn't those benefits be quantifiable? If not quantifiable, should we be doing this?
Did the CBO factor in the cost of corruption, graft, nepotism, simony, in the creation and distribution of extremely valuable property rights by Congressmen? Remember that Obama promised to auction the permits, but the Waxman bill basically says that Congress owns the permits and will allocate them as they see fit (i.e., in a way to get them reelected.) If you can’t get a congressman to hand over a permit, your startup costs will be vastly more expensive than a connected competitors. (In the 19th century, you couldn’t form a corporation except by legislative acts and the legislature always took something for itself, which retarded the growth of syndicated investment structures.)
You should've noted that the numbers you used are estimates for 2020. The CBO expects that permits will mostly be given away for free until then (70% are to be sold by 2035), so little or no income will be returned to households over the next decade. The net numbers you reproduce are a long, long way off.
More important, CBO estimates are limited to what the Waxman bill says. But you are free to use common sense and reasonably ask: in 11 years, will the Congress (1) sell permits or continue handing them out to favored constituents like the present Congress? and (2) if the Congress sells the permits, will it really distribute the revenue to the Citizens per capita or rather plug it back into the general budget?
These subtleties would seem to undermine the entire tilt of your post ("the after-tax costs remain low").
I reserve the right to get mad in the future, if that happens!