Welcome to the second installment of our series Politics and Taxes.
In our last edition we included links to articles written about the Tea Party movement’s opposition to President Obama’s economic stimulus plan and tax increase proposals.
Today, we have another topic of great contention between Democrats and Republicans: Cap and Trade.
So where’s the tax angle, you ask?
Well, since Cap and Trade is seen as an alternative to direct taxation of carbon emissions, opponents of the proposal have taken to calling it Cap and Tax based on the assertion that U.S. companies effected by it will pass on their compliance costs to consumers thereby substantially increasing the energy costs of millions of middle and lower class Americans.
Cap and Tax theorists say that when the U.S. forces business to take specific actions the government deems necessary or desirable and the costs of that enforcement are ultimately borne by average taxpayers, it is in effect an indirect tax.
In other words, if it quacks like a tax and walks like a tax, it’s a Mallard.
Below are three links from the pro or left wing side of the Cap and Trade and trade issue and three from the anti Cap and Trade, right wing side, with my observations following:
From the Left
Cap and trade is completely in line with standard market economics: you identify an externality that the market does not capture, design a market system to capture and price that externality, and rectify a market failure. The Democrats, who favor the bill, have a huge margin in Congress. They water it down in various ways to make it more palatable to various wavering people. And after all that, it still only passes by seven votes.
I’m really glad it passed: it’s a lot better than nothing. But it could have been better still.
As a bill aiming to cap carbon emissions makes its way through Congress, some are speculating that the measure could help deal-making as well as the environment.
The heart of the bill is a cap-and-trade system for limiting greenhouse gases. In Europe, where a cap-and-trade system is already in place, many big polluters have already sought to offset their costs by acquiring smaller, cleaner companies with plenty of carbon credits.
Markets provide greater environmental effectiveness than command-and-control regulation because they turn pollution reductions into marketable assets. In doing so, this system creates tangible financial rewards for environmental performance.
Because cap-and-trade gives pollution reductions a value in the marketplace, the system prompts technological and process innovations that reduce pollution down to or beyond required levels. This point is not theoretical; experience has shown these results.
An active cap-and-trade market enables those who can reduce pollution cheaply to earn a return on their pollution reduction investment by selling extra allowances. It enables those who can’t reduce pollution as cheaply to purchase allowances at a lower cost than the cost of reducing their own emissions. It enables all participants to meet the total emissions cap cost-effectively. And it gives all emitters incentives to innovate to find the least-cost solutions for total pollution control.
From the Right
Republicans point out that the Waxman-Markey bill would create a convoluted federal bureaucracy that would control key sectors of the economy and of our lives.
The Democrats, not having read the bill, were unable to comment.
I’m sure there must be a historical precedent for the folly that Waxman-Markey represents–ordering the weather to change!–but I can’t think of one offhand.
The cap-and-trade bill, if passed by the Senate and actually implemented over the next few decades, would do more damage to the country than any economic legislation passed in at least 100 years. It would eventually send most American manufacturing jobs overseas, reduce American competitiveness, and make Americans much poorer than they would have been without it.
The cap-and-trade bill will have little, if any, positive effect on the environment — in part because the countries that would take jobs from US industries tend to be bigger polluters. By making the US — and the world — poorer, it would probably reduce the world’s ability to develop technologies that might solve its environmental problems in the future.
The rationale for this bill is to counter global warming by sharply reducing greenhouse gases, primarily carbon dioxide. But even if the bill works exactly as envisioned, the most radical environmentalists admit that it will only slow temperature increases by 2050 by a ridiculous 9/100th of one degree Fahrenheit! Even after all the costs of reducing the use of fossil fuels by 83%, that is all that would result.
That is because all humans across the planet produce less than 5% of all carbon dioxide emissions. So slashing U.S. emissions won’t have much effect in any event. Moreover, don’t expect other nations to follow us in this foolhardy policy. Even the Europeans never really enforced their own cap and trade regulations, so their carbon dioxide emissions have actually increased more than ours over the last 10 years.
From the Tax Lawyer
I am neither a carbon emissions expert nor an international economist, but as a U.S. citizen taxpayer I am concerned by the recent meteoric growth in the federal bureaucracy at the expense of the free market.
The free market is imperfect and I am not suggesting otherwise, but 20 years of dealing with administrative bodies has taught me to believe that a free market run by people who are motivated by a desire to make a profit will, more times than not, be a lesser Lucifer than a bloated officialdom run by tenured bureaucrats who are motivated by . . . . what are they motivated by?
Given the government’s history of inefficiently operating large scale endeavors to regulate and control the activities of private enterprise and their private citizen owners, is it reasonable to expect it will operate this one efficiently?
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