The fiscal cost of Waxman-Markey

By Felix Salmon
June 8, 2009

Couldn’t they have left themselves any leeway at all? The CBO has now costed out the Waxman-Markey act, and has come to the conclusion that over the 10 years from 2010 to 2019, it would raise $846 billion, spend $821 billion, and cost another $50 billion or so in discretionary spending. In other words, it’s at best fiscally flat, and quite possibly will actually cost the government money.

The good news, however, is that fully $693 billion of the $821 billion in direct costs is accounted for by “Outlays Associated with Emission Allowances Freely Allocated”. In other words, if and when there’s a fiscal crunch, any future government can significantly reduce the budget deficit at a stroke just by ceasing to give away carbon allowances. Which of all the different ways to raise taxes is probably likely to be one of the least politically damaging.

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That’s a pretty interesting point, and almost makes me wonder if this is deliberate. After all one of the biggest criticisms of the bill from an environmental point of view is the fact that it gives away too many of the allowances for free, since that won’t change behaviour. Perhaps the idea is that if they can get the framework right, then the ongoing fiscal deficits will do the heavy work in terms of steadily forcing the proportion of free credits down and down.

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