Lincoln * Institute

Colin A. Hanna

Colin A. Hanna

Let Freedom Ring, USA


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Let Freedom Ring

Cap the Well, Not Cap and Tax

by Colin Hanna

White House Chief of Staff Rahm Emanuel infamously said "Never allow a crisis to go to waste." Following President Obama's Oval Office address earlier this week, it is apparent that the same team is doing its best not to let the oil spill crisis in the Gulf "go to waste". Prior to the Gulf disaster, the American Power Act (the Senate version of cap and

trade) seemed all but dead. That was as it should be. But now, when the Senate reconvenes after the July 4th recess, it looks like the American Power Act will be explicitly taken up or another energy bill will be proffered onto which the key provisions of the American Power Act will be attached.

The problem is that there is no link between cap and trade regulations and the crisis in the Gulf. As President Obama himself admitted in a speech at Andrews Air Force Base in March of this year, "the bottom line is this: given our energy needs, in order to sustain economic growth, produce jobs, and keep our businesses competitive, we're going to need to harness traditional sources of fuel even as we ramp up production of new sources of renewable, homegrown energy."

Therefore, even if cap and trade legislation were passed, we would still need to "harness traditional sources of fuel" and would still need access to new sources of oil and natural gas. In other words, we will still need to drill for oil and natural gas even if cap and trade regulations are passed. Furthermore, cap and trade regulations do not fix the problems that created the Gulf crisis, so we will still need to fix these problems. All that would change if cap and trade legislation were passed is that President Obama and Congress would have chosen one of the worst possible times to impose job killing legislation on the economy.

The U.S. economy has been growing thus far in 2010, but not at the robust pace one would expect at this phase of an economic recovery.

Unemployment remains unacceptably high. Additionally, the looming tax cut expiration and other policy mistakes the Administration has already made have set the economy up for a major economic downturn in 2011.

Piling cap and trade regulations on top of all of this will only make a terrible economic situation even worse.

The economic impacts from cap and trade regulations will be felt across the country and will manifest themselves in many different ways.

First, the wealth of individuals across the country will fall.

Economist Arthur Laffer estimates that cap and trade will cause the S&P500 to fall between 3.1% and 6.1%, or between $1,090 and $2,175 in lost wealth for every man woman and child in the U.S.

Furthermore, energy taxes, such as gasoline taxes, are generally viewed to be regressive because the dollar value of the tax imposes a larger burden on people of lesser means compared to wealthier individuals.

When energy prices increase, these price increases will likewise impose a higher "tax" on lower income people. As a consequence, the costs of the cap trade regulations will be felt most acutely by those least able to afford these costs.

America's manufacturing base will be particularly hard hit, as will the agricultural industry, the transportation industry, as well as America's energy industry and energy infrastructure. Industries that are not generally considered to be high risk have also expressed concern regarding cap and trade regulations. For instance, the restaurant association has expressed concerns regarding cap and trade's direct and indirect impacts on their member restaurants.

If implemented, cap and trade regulations would add significant costs to production and have a devastatingly negative impact on the long term growth of America. The negative impacts would be felt across the country and impact people through higher costs, reduced job prospects, lower incomes, lower wealth, and a reduced standard of living. Linking cap and trade regulations to the current environmental crisis in the Gulf does not change this fundamental reality.

By Colin A. Hanna

President, Let Freedom Ring <>