Economics 101

The Foundry, Morning Bell: “The issue of economics is not something I’ve understood as well as I should,” John McCain famously admitted to the Boston Globe late last year. And yesterday in Portland, Ore., McCain proved it by outlining a cap-and-trade plan designed to reduce U.S. carbon emissions by 60% by 2050. The plan McCain outlined is only slightly better than the current cap-and-trade bill in the Senate, which reduces emissions by 70% by 2050. . . . The distinction McCain tries to draw here between a cap-and-trade system and a new tax on energy is completely erroneous.

If a cap-and-trade system works perfectly (and that is a huge assumption considering the high transaction and compliance costs, not to mention the rent-seeking from special-interest groups that is guaranteed to affect the policy’s implementation), then it functions in exactly the same way as an energy tax does. A 2008 Congressional Budget Office analysis of the Lieberman-Warner bill stated that the legislation would increase overall federal revenues by $1.21 trillion between 2009 and 2018. In other words: McCain wants to raise your taxes by $1.21 trillion dollars over the next decade.

But the damage does not end there. When you tax something, you get less of it. And in this case, that “it” is energy, a necessary component of every business in the United States. The Heritage Foundation released a study yesterday estimating the impact of Lieberman-Warner on the U.S. economy and found that even under the most generous assumptions, the bill would inflict a cumulative loss in gross domestic product of at least $1.7 trillion. . . .

One telling difference between McCain’s speech as delivered yesterday in Portland and the prepared remarks e-mailed to reporters on Sunday was a call for punitive tariffs against countries that do not limit carbon emissions like India and China. These tariffs are a key part of the Warner-Lieberman bill. Under Lieberman-Warner, all goods entering the U.S. would have to include a written declaration identifying carbon reduction allowances acquired. For example, if the production of a product generates two tons of CO2, importers of the product would need to buy two tons of allowances from the world market. Negotiating and verifying these tariffs and allowances would kill free trade as we know it.

Trillions in new taxes, trillions lost in GDP, and a huge global trade war. These are the costs of a Lieberman-Warner cap-and-trade style approach to global warming. And for what? Even if the U.S. meets Kyoto’s ambitious goals, the Earth’s surface temperature would be reduced by an imperceptible 0.14°F per 50 years. You don’t need an economist to tell you this is a bad deal for the United States. . . . [Read More]

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Tags: cap-and-trade, carbon emissions, CO2, Economics, Free Trade, increased taxes, Joe Lieberman, John McCain, John Warner, Kyoto Protocol To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. Thanks!