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  • CBO Plays "Let's Pretend" on Kerry–Lieberman Scoring

    Here’s a principles-of-economics question: Suppose the U.S. gross domestic product (national income) is currently $14 trillion. Then suppose the U.S. raised all tariff, income tax, and sales tax rates to 100 percent. How much money would the government collect? If you realized that nobody would generate taxable income under such a regime and answered “zero,” congratulations.

    If, instead, you answered $14 trillion, you may have a future at the Congressional Budget Office (CBO), because that is how they analyze (score) the fiscal impacts of the Kerry–Lieberman climate change bill. In defense of the many good economists at the CBO, the Kabuki Theater of legislation-scoring requires they use static analysis—that is, they have to assume that higher tax rates do not affect investment or work-effort decisions and, therefore, have no negative impact on national income and income-tax revenues.

    This leads to the sort of stylized ritual we observed Wednesday. First, the CBO sent the lead sponsor a letter estimating the costs of the Kerry–Lieberman cap-and-trade climate bill, in which analysts assume no detrimental impact on national income despite tax increases of hundreds of billions of dollars per year. Then Senators Kerry and Lieberman issued a statement earnestly announcing the CBO’s unrealistic projection of a $19 billion deficit reduction as though people might actually believe it. And finally, in Act III, the media reported the results with a straight face.

    Please note that, even though Senator Kerry said this isn’t a cap-and-trade bill, we can be pretty sure that’s what it is because (1) Senator Lieberman said it is a cap-and-trade bill; (2) the CBO said it is a cap-and-trade bill (actually they said it “would establish two separate regulatory initiatives known as cap-and-trade programs”); and (3) it has to be a cap-and-trade bill—it directs the EPA to cap allowed CO2 emissions, and the associated permits can be traded.

    If it seems like déjà vu, don’t worry, you have seen this before in the form of the wildly unpopular Waxman–Markey and Kerry–Boxer bills from last year. How different is Kerry–Lieberman? Here’s what the CBO letter says about Kerry–Lieberman in comparison to the two bills from last year:

    Regarding the GHG cap-and-trade program, all three pieces of legislation include roughly the same caps on emissions, roughly cover the same entities, and allow for about the same amount of total offsets used to satisfy compliance.

    The CBO notes that the new bill (Kerry–Lieberman) throws some bones to the nuclear power industry and adds not-so-likely-now revenue-sharing for oil-and-gas leases on the Outer Continental Shelf. Also, in what would be a good first step if they were to carry it forward a couple of centuries, the full onset of the bill’s provisions are delayed a couple of years.

    In short, this bill is last-year’s model with a new hood ornament and some mud flaps. So, using the Kerry–Boxer bill from last fall as a guide, here’s what we could expect should the bill become law:

    • Not less debt but trillions of dollars more government debt (after adjusting for inflation, Kerry–Boxer would add $2.7 trillion to the national debt by 2035—putting a family of four on the hook for an additional $27,000)
    • Fewer jobs (employment under Kerry–Boxer would track 1.4 million jobs below business as usual, on average, for the years 2012–2035, and peak job losses would exceed 2.5 million)
    • Higher energy prices (by 2035 Kerry–Boxer would add 45 percent to gasoline prices and 72 percent to electricity prices)
    • Lower income (Kerry–Boxer would chop $9.9 trillion from GDP between 2012 and 2035—an average loss of over $4,500 per year per family of four).

    The Senators’ statement and the CBO letter ignore almost all of the important economic impacts of the proposed legislation. Instead there is a bit of hoopla over one laughably optimistic estimate for one really expensive bill.

    Posted in Energy [slideshow_deploy]

    5 Responses to CBO Plays "Let's Pretend" on Kerry–Lieberman Scoring

    1. Pingback: » Financial News Update – 07/08/2010 NoisyRoom.net: The Progressive Hunter

    2. Pingback: PA Pundits - International

    3. Pingback: CBO’s Static Cap and Trade Analysis | National Review Institute Blog

    4. Carbonicus, Atlanta says:

      Let's make it simple.

      Every credible analysis of the cost of cap and trade approach to "curbing global warming" (emphasis added) comes in in the range of 1-4% of GDP, toward the lower end of the range early on and toward the higher end in later years of the policy.

      US GDP currently $14 trillion, ergo 1% = $140 billion, 2% = $280 billion, and so on. And these are ANNUAL costs to the US economy, NOT one time costs.

      In discussions with senate staffers last year in the runup to passage of Waxman Markey, Obama staffers told senate staffers that despite the administration's stated number of approx. $65 billion per year in new revenue 9read: tax) from cap and trade, the administration privately expected these revenues could be double or triple the stated figure. Double = $130 billion/year, Triple = $195 billion/year. This can be fact checked. Jason Furman, deputy director of the National Economic Council made the comments to senate staffers in late February 2009.

      So, that's the "cost".

      Now let's look at the "benefit".

      All credible analyses show that, if the US implements the Waxman Markey bill or anything close to it, in the absence of China, India, Russia and Brazil (BRIC) signing up for similar CO2 emissions reduction goals, the difference in global average surface temperature resulting from this US policy by the year 2100 would be on the order of .15 – .25 degrees Celsius.

      So, I ask readers and thinking people around the world.

      What good could be done for the lot of human health and the environment for $100+ billion dollars EVERY YEAR? How many CERCLA and RCRA sites could be cleaned up? How many former military and DOE facilities could be cleaned up? How much REAL pollution could we eliminate to waterways and air for this amount?

      Is this an appropriate expense given the higher environmental priorities we (should) have? Does the benefit justify the cost?

      If you answered "yes" to these last questions, I'd urge you to become more educated on the facts and less wed to ideology. Mother Nature and the laws of physics do not yield to ideology…..

    5. Pingback: What Does New Jersey’s Cap & Trade Program Mean for You? « NO NJ Cap and Trade

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