David Roberts points to this CBO graph illustrating the distribution of the economic fallout from the proposed cap-and-trade program on the various income levels. The top chart displays the tax incidence under three different implementations of cap-and-trade: one where the carbon allowances are sold and the revenue is redistributed to households, one where they’re sold and the revenues are used to cut corporate taxes, and one where the allowances are simply given away. He decides that the first option (on the left) is preferable because it is “vastly more progressive.”
Perhaps he means to suggest that the option on the left is progressive and the options on the right are regressive, but really they’re all regressive. The fact that all groups lose is clearly indicated by the bottom chart, which shows that all three schemes are expected to decrease GDP.
Clearly no one with a heart likes the looks of the second and third scenarios. In these plans shareholders would profit because companies could offset the carbon tax on their bottom line. The costs would be passed on to those who can least afford it.
The first option, though, it not much better. The top chart illustrates that poorer households would be better off because the government would send a lump-sum check to every household in the U.S., and for lower-income households the check would be larger than the increase in their energy expenditures. The top quintiles would be worse off because companies would take a hit to their bottom line because of the added cost of purchasing allowances. While this scenario does shield the most vulnerable demographic, (income redistribution concerns aside) the lump-sum transfer provides no incentive or a disincentive to work. Furthermore, companies would also have a disincentive to hire, because they would be less profitable. Obviously that scenario is undesirable, to say the least, especially given the current jobs outlook.
In short, there is no way to get around this simple truth, pointed out by President Barack Obama himself on the campaign trail:
“Under my plan of a cap and trade system electricity rates would necessarily skyrocket … that will cost money. They will pass that money on to consumers …”
If we want lower emissions we have to pay for it. One way or another, consumers will pay more, in increased costs or in jobs. And that includes the consumers lowest on the economic scale. In that sense every plan is regressive, not progressive.
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