Inhofe Exposes Cap and Tax Scheme in Obama Budget

WASHINGTON, D.C. - U.S. Senator Jim Inhofe (R-Okla.), Ranking Member of the Senate Environment and Public Works Committee, went to the Senate Floor this morning to expose the cap and trade tax scheme included in President Obama's budget. The following are excerpts of his Senate Floor speech:

Over the next few weeks we will be debating the merits of an issue that I have spent nearly 10 years debating as a rank and file, former Chairman and now Ranking Member of the Environment and Public Works Committee.  That issue is global warming and a cap and trade program to regulate greenhouse gases. More specifically for today, I want to discuss the inclusion of such a cap and trade proposal in the President’s budget. 

 In my view, the President did a good thing by including an estimate of the revenues that will be generated under such a proposal in his budget.  It allows us to have an honest debate about the costs of a program of this magnitude on the American people—not to mention the enormous redistribution of wealth for pet projects and programs under the umbrella of “clean energy.”  In fact, according to a new report from the Center for Public Integrity, the number of lobbyists seeking to influence federal policy on climate change has grown more than 300 percent in five years.  This represents more than 4 lobbyists for every Member of Congress, with a slew of new interests from Main Street to Wall Street clamoring for new taxpayer-funded subsidies.

The Administration’s decision to include cap and trade—and the revenues generated by it—in the budget forces my colleagues here in the Senate to no longer hide the ball.  They can no longer prevent discussion of what a program of this magnitude is or isn’t, and the public is finally beginning to pay attention. To put it simply, they are realizing that cap and trade is a regressive energy tax that hits the Midwest and the South harder than the East or West Coasts. What the public will continue to learn, much to the dismay of my colleagues, is that the high costs of cap and trade can’t be erased with so-called “tax relief,” and cap and trade will have no effect on the climate.  While the numbers of lobbyists and companies are lining up inside the Beltway, outside of Washington businesses and consumers are coming to realize that cap and trade is designed to deliver money and power to the government. There is nothing in it for taxpayers, consumers or the climate. 

Let me further explain. In this time of recession and economic pain, the Administration and proponents of mandatory global warming controls now need to be honest with the American people. The purpose of these programs is to ration fossil-based energy by making it more expensive, and therefore less appealing for public consumption. It is a regressive tax that imposes a greater burden (relative to resources) on the poor than on the rich.  That is because the poor spend a larger percentage of their income on energy costs than the rich.

Need proof? The President’s own Office of Management and Budget Director, Peter Orszag, is on record while at CBO, restating what we know to be true: higher energy costs will impact the poor more than the rich.  “The rise in prices for energy and energy-intensive goods and services would impose a larger burden, relative to income, on low-income households than on high-income households.” (September 2008 testimony before the House Committee on Ways and Means)

Also, Orszag was very clear that taxing carbon consumption will dramatically increase energy costs for consumers. 

Orszag said, “Under a cap-and-trade program, firms would not ultimately bear most of the costs of the allowances but instead would pass them along to their customers in the form of higher prices for products such as electricity and gasoline.”  Orszag is also on record saying, “The higher prices caused by the cap would lower real (inflation-adjusted) wages and real returns on capital, which would be equivalent to raising marginal tax rates on those sources of income.”  (November 2007 testimony to the U.S. House of Representatives Committee on Budget on “Approaches to Reducing Carbon Dioxide Emissions”)

The rest of the country outside the Beltway is also beginning to wake up. The Administration should take note.  In the last month alone, there have been a slew of articles detailing how cap and trade is an elaborate system designed to tax and raise energy costs, which, as I noted earlier, disproportionately affect the South and Midwestern States.

Wall Street Journal: “Cap and trade, in other words, is a scheme to redistribute income and wealth – but in a very curious way.  It takes from the working class and gives to the affluent; takes from Miami, Ohio and gives to Miami, Florida; and takes from an industrial America that is already struggling and gives to rich Silicon Valley and Wall Street ‘green tech’ investors who know how to leverage the political class.”  (“Who Pays for Cap and Trade?” 3-9-09)


Warren Buffett: “That tax is probably going to be pretty regressive.  If you put a cost of issuing—putting carbon into the atmosphere—in the utility business it’s going to be born by customers.  And it’s a tax like anything else.” (CNBC interview 3-9-09)

Ben Stein:  “Why add another element of uncertainty to energy production, especially if the goal of suppressing carbon-based fuel burning can be accomplished by another means? Energy companies have enough problems as it is — including reduced supplies, political risks and wildly changing prices for raw materials.”  (New York Times, 2-21-09)

CNBC’s Jim Cramer: Obama’s Budget is “pushing an aggressive cap and trade program that could raise the price of energy for millions of people.”  ( 3-5-09)

The Detroit News: “President Barack Obama's proposed cap-and-trade system on greenhouse gas emissions is a giant economic dagger aimed at the nation's heartland -- particularly Michigan. It is a multibillion-dollar tax hike on everything that Michigan does, including making things, driving cars and burning coal.” (3-4-09)

Wall Street Journal: “Not only does cap and trade tax at the point of production (even if some of those costs are ultimately borne by consumers elsewhere), but it also shifts economic activity away from those industries. The states that produce the most emissions are going to see the strongest ancillary declines in income and increases in unemployment. The top carbon states -- in absolute, not per capita, emissions -- include Ohio (No. 3), Pennsylvania (No. 4), Indiana (No. 7) and Michigan (No. 9).”  (3-13-09)

All of these reports reflect the numbers that were released in the President’s proposed budget, which estimated that a cap and trade program would generate $646 billion in federal revenues through 2019. Wait until they discover that the costs of such a program will actually be much higher. In fact, the budget document itself suggests that this does not represent the full amount and that additional revenues may flow to the Treasury.  The Budget contains Footnote 5, which reads: “Shown here are those proceeds from auction emission allowances that are reserved for clean energy technology initiatives and to compensate families through the Making Work Pay tax cut…All additional net proceeds will be used to further compensate the public.” The question is, how much?

Let us be honest. The total costs of the program will be well over the $646 billion when you factor in the private sector mandates and the total costs to reduce emissions. If past economic models are any indication, the total costs of a program could be 3 times more expensive than what the Administration’s numbers predict. And the Administration’s numbers of just the auction revenues aren’t small, roughly $80 billion per year.

Nearly 10 years ago, the Wharton Econometric Forecasting Associates did a definitive economic analysis of the costs of the Kyoto Protocol on the domestic economy. They found that Kyoto would cost 2.4 million US jobs and reduce GDP by 3.2%, or about $300 billion annually.

Well, nearly 10 years later we come full circle with the same debate. According to MIT, an analysis of similar legislation as the President’s budget proposal suggests much higher revenues.  An MIT study (“Assessment of U.S. Cap-and-Trade Proposals”, Report 146) published in April 2007 closely modeled the Sanders-Boxer bill (S. 309, 110th Congress), a bill the President co-sponsored, which mandates even less aggressive emissions reductions targets (80% by 2050) as what the President’s budget calls for (83%).  When asked, the Congressional Research Service confirmed for us that the emissions reductions mandated were nearly identical to President Obama’s proposal. That study estimates revenues of nearly $366 billion per year.  That equates to a $3,128 per household tax in 2015 (compared to the President’s $80.3 billion or $684 per household tax in 2015). These numbers certainly start to sound familiar when comparing it to Wharton’s analysis of roughly $300 billion per year.  

The Congressional Budget Office analyses and testimony also emphasize a wide range in allowance values among various cap and trade proposals, including an upper limit of $300 billion annually, further validating the point that this will cost much more than what the Administration is telling us.

To put that in perspective for my colleagues here I point you to this chart that shows the largest tax increases in history.


Now you will hear that some of these revenues are going to fund tax relief and be returned to the people. For purposes of this budget proposal, the Administration plans to spend $15 billion per year to fund clean energy technologies and will allocate $63-68 billion per year to pay for the “making work pay” tax credit, a campaign promise that was not linked to climate change or offsetting increased energy costs that would result from a cap and trade system.  We saw a similar example of this in the Lieberman-Warner debate last year, where sponsors tried to argue that the redistribution would offset the balance of revenue or taxes being taken in by higher energy costs.  However, we learned firsthand that this wasn’t true. While the bill’s sponsors tried to convince us that there was actually tax relief in the bill, we learned that families and workers would still have to pay $6.735 trillion into the system in the form of higher energy costs to get back an estimated $802 billion in tax relief.  That’s a return of $1.00 for every $8.40 paid. 

Similarly in his budget, the President wants to recycle $525 billion through the "making work pay" tax credit that goes to many people who don't pay income taxes.  However, as noted by the Wall Street Journal, “$400 for individuals and $800 for families still doesn't offset carbon's income raid, especially in states with higher carbon use.”  This squares with what the Congressional Budget Office concluded in 2003: “The government could use allowance value to redistribute the cost of a carbon cap and trade program, but it could not eliminate that cost.”

Finally, my colleagues may argue that at least this money will be going to a good purpose, for the cause of fighting global warming and having America lead the way. However, I think many would find it very troubling indeed to learn that even if you believe the IPCC science on climate modeling, the science dictates that it will be ineffective. EPA even confirms it.  Put simply, any U.S. only attempt to avert global warming is a futile effort without meaningful, robust international cooperation. I believe the American people should at least be aware that cap and trade is all cost with no benefit. 

Now my colleagues will argue that we must focus on a new global international policy where the U.S. should lead in order to reach such pie-in-the-sky reduction levels, which need to be even more stringent now, according to many. However, these efforts need a reality check.   The Chinese government announced in January that it is aiming to increase its coal production by about 30 percent in 2015 to meet its energy needs.  According to their reports, even with substantial increases in efficiency and the broad introduction of climate-friendly energy technologies, China's CO2 emissions will almost double in the next two decades compared with 2002 levels.   In addition, India and other developing countries continue to state they will not agree to binding caps and that climate funding should be viewed as an entitlement, not aid, to be paid for by the American taxpayer.

These are the details of what cap and trade is or isn’t that some of my colleagues don’t want discussed here on the Senate floor. But under the guise of transparency and honesty, which the Administration has stated numerous times is one of its top priorities, I think it is fair game for the American public to be informed about both sides of this story.  I look forward over the next few weeks to continue to explore each of these items in the context of a larger budget debate. If it is time for anything, it is time for us to get realistic about these policies, and focus on what is achievable, both globally and domestically, to help bring down energy costs to consumers and make us more energy secure so the American public doesn’t get yet another raw deal.