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Cap and Trade = Predatory Taxation

9:28 AM, Jun 26, 2009 • By JOHN MCCORMACK
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Remember when certain congressmen and presidential candidates denounced "predatory lending" last year? Too-good-to-be-true teaser rates on adjustable-rate mortgages supposedly tricked borrowers into taking out loans they couldn't afford. It was never clear to me why people wouldn't understand that adjustable-rate mortgages could be adjusted, potentially leaving borrowers paying a lot more in the future, but I suppose that some lenders had acted improperly to the extent that they actively tried to conceal what an adjustable-rate mortgage means.

Now we see Obama and other supporters of the Waxman-Markey cap-and-trade bill selling the bill by doing what mortgage-brokers were condemned for--advertising its initial cost without factoring in big increases in the future. Call it predatory taxation.

The president and other cap-and-trade supporters are pointing to a CBO study that estimates the program will cost $165 per household in 2020. But as Jim Manzi notes Obama's predicts that cap and trade will cost $1,100 per household by 2050. Other estimates are much higher.

As the Journal noted yesterday, the Heritage Foundation

found Waxman-Markey would cost the economy $161 billion in 2020, which is $1,870 for a family of four. As the bill's restrictions kick in, that number rises to $6,800 for a family of four by 2035.

Regardless of whose numbers are more accurate, it's clear that cap and trade will cost much more in 2050 than it will in 2020. Keep in mind that Congress will not have to pass a new bill each year to keep these progressive tax increases intact.The cost of cap and trade progressively increases as it lowers the cap on carbon emissions. In 2020, Waxman-Markey purports to reduce emissions by 17 percent of 2005 levels; in 2050, it aims to reduce emissions by about 80 percent of 2005 levels. And as the CBO reported:

The incidence of the gains and losses associated with the cap-and-trade program in H.R. 2454 would vary from year to year because the distribution of the allowance value would change over the life of the program. In the initial years of the program, the bulk of allowances would be distributed at no cost to various entities that would be affected by the constraint on emissions. Most of those free allocations would be phased out over time, and by 2035, roughly 70 percent of the allowances would be sold by the federal government.

Ezra Klein claims that

the bill will actually be cheaper for consumers in the years after that. In the early years, many of the carbon permits are simply given away. In the later years, those permits are sold, and the proceeds rebated to taxpayers. That's why the policy doesn't end up costing us much money. But in 2020, the year CBO examines, that process hasn't been completed: 17 percent of allowances will be sold and 83 percent given away. By 2035, about 70 percent of allowances would be sold, with only 30 percent given away.

In other words, cap and trade progressively yields greater revenues by effectively charging more for carbon permits. These increasing costs are passed on to consumers, but they are somehow "rebated" to consumers. The bill does not, however, require all revenues from cap and trade to be directly returned to consumers with rebate checks. Lucky for consumers, many of the billions in the cap and trade tax will be "rebated" to them with greater government spending.