Has the Obama Administration made a $2 trillion mistake?

One of the crucial elements of President Barack Obama’s legislative agenda is his “cap and trade” initiative that would limit carbon emissions and impose a huge indirect tax on them.

In the president’s budget outline submitted a few weeks ago, he estimated that some $680 billion in federal revenue would be raised by the proposal over the next eight years.

Apparently, his advisors are now admitting that cost estimate is woefully low. In a briefing to U.S. Senate staffers recently, an Obama administration representative put the figure at a whopping $1.9 trillion.

This huge new revenue stream doesn’t simply drop from the blue into the treasury. It will come from the pocket of businesses and consumers who use carbon-based energy – and that includes almost everyone.

The Tax Foundation, a Washington, D.C., tax policy think tank, recently completed an analysis of the potential impact of “cap and trade” legislation. Its findings are eye-opening:

“In total, households would face an annual burden of roughly $144.8 billion per year with costs disproportionately borne by low-income households, those under 25 and over 75 years, those in southern states, and single parents with dependent children. … Depending on how the system is structured, cap and trade could reduce U.S. employment by 965,000 jobs, household earnings by $37.8 billion, and economic output by $136 billion per year or roughly $1,145 per household. Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a ‘tax free’ way to reduce green house gas emissions.”

Revenue from cap and trade legislation figures prominently into the president’s future spending plans. It is the principal source of funding for his “middle class” tax cut proposal and increased spending on renewable energy sources.

Some skeptics would argue that the Obama administration knew all along that its estimates on cap and trade revenue were grossly understated and they were relying on a much larger revenue amount from it to pay for additional trillions of dollars in new spending proposals.

What Team Obama may not be factoring in is the impact that a not-so-hidden tax will have in a weak economy. If the cap and trade price tag is closer to the $1.9 trillion estimate, consumers are going to riot when those higher costs are passed on to them at a time when wages are stagnant and job security is ebbing.

From a business standpoint, the results could be devastating. Congress can impose carbon emission taxes, fees, and assessments on U.S. companies, but it can’t impose them on their foreign competitors. That means American industries and their workers could be at a competitive disadvantage with similar companies located in China, India, Mexico and other less developed nations.

Quite simply, that means that the cost of doing business will be higher here, profitability will be lower, and economic growth will be hindered. If cap and trade legislation results in higher unemployment and lower profitability and stock prices for American businesses, no one’s economic best interest will be served.

It is interesting that the justification for imposing such an onerous proposal is the claim by some in the scientific community that climate change, particularly in the form of global warming, is threatening the planet.

Interestingly, the planetary temperature increase in the last century has been 0.4 degrees Centigrade and the earth has actually cooled since 2001. Congress should think long and hard before inflicting economic misery on families and businesses under the guise of rectifying a problem that may not exist to any threatening degree.