Kyl: Cap and Trade

President Obama has pledged not to raise taxes on middle-income Americans, but legislation he and congressional Democrats are backing would do just that.

On June 26, the House of Representatives passed legislation described by Harvard University economist Martin Feldstein as “a stealth strategy for a massive long-term tax increase.” All Americans, regardless of income, will feel the effects of this tax hike.

At a time when the economy remains shaky and unemployment has reached a 25-year high, Congress should not be considering new taxes. They would be bad for families and would slow the economic recovery as well. The Senate could take up the House legislation, known as the American Clean Energy and Security Act, though it may not do so until September. That would give all Americans time to register their opinions on the bill.

The bill would implement a “cap-and-trade” program with the ostensible purpose of reducing emissions of carbon dioxide into the atmosphere. Cap-and-trade programs set strict, mandatory limits on carbon emissions from various sources (like electric utilities). Those sources would then either reduce carbon emissions or buy or trade emission allowances to achieve the required overall emissions reductions.

Rather than directly raising taxes on Americans, cap-and-trade raises the cost of living for everyone by raising energy costs and consumer prices for virtually everything. The effect is the same as if they had had their taxes raised. When the nonpartisan Congressional Budget Office analyzed the cost of reducing carbon emissions by 15 percent below 2005 levels, it estimated a family’s cost of living would increase by $1,600 a year. “To put that $1,600 carbon tax in perspective, a typical family of four with earnings of $50,000 now pays an income tax of about $3,000,” Feldstein wrote recently in the Weekly Standard. “The tax imposed by the cap-and-trade system is therefore equivalent to raising the family’s income tax by about 50 percent.” That’s $1,600 that families won’t be able to spend or invest in the economy.

In addition to the tax increase, Americans would also feel the pinch because cap-and-trade will hurt economic growth. The Heritage Foundation concluded that it would slow long-term growth by almost $10 trillion over 26 years.

And jobs would be lost. The Heritage Foundation’s analysis found that Arizona would lose thousands of jobs, over 30,000 in the first year alone.

Proponents of the cap-and-trade proposal argue that job losses will be offset by the creation of new, “green” jobs. But it’s not certain those jobs will materialize, let alone make up for the jobs that are lost. In Spain, whose government has invested heavily in “green” jobs, two jobs are lost for every green job created, according to a Spanish economist.

This year won’t be the first time that the Senate has considered cap-and-trade. In 2008, similar legislation went down to defeat, and this year’s version will once again face opposition from Senate Republicans and some moderate Democrats. If Americans communicate their opinions about this bill to their representatives in Congress, I am convinced it can be defeated again.