Hannity ignores CBO to attack cap and trade as regressive

Sean Hannity hosted Ralph Reed, who cited a study by the Tax Foundation, which, he said, “shows” that “the cap-and-tax burden falls heaviest on the poor and the lower middle class.” However, the study did not consider the effect of the government's distribution of revenue generated by a cap-and-trade system to lower-income households.

During the July 1 edition of Fox News' Hannity, Ralph Reed, chairman of the Faith and Freedom Coalition, stated that "[t]here's a new study from the Tax Foundation that shows, by a margin of 5-to-1, the cap-and-tax burden falls heaviest on the poor and the lower middle class." Host Sean Hannity added: “Poor, elderly, farmers.” But the Tax Foundation's study did not consider the effect of the government's distribution of revenue generated by a cap-and-trade system to lower-income households. Additionally, Hannity and Reed ignored the Congressional Budget Office's (CBO) June 19 analysis of the version of the American Clean Energy and Security Act that passed the House Energy and Commerce Committee, which found that households in the lowest income quintile would see an average net benefit of about $40 per year.

The Tax Foundation's most recent analysis of a cap-and-trade system, a March 2009 “Working Paper No. 6,” which the Tax Foundation described as a “new study” in its Summer 2009 newsletter, considered “a typical cap-and-trade system,” not the system detailed in the House committee's version of the energy bill. The study found that the lowest income quintile would bear a burden of $617, or 6.2 percent of income under a typical cap-and-trade system, while the top quintile would bear a burden of $2,091 or 1.4 percent of income. But the Tax Foundation analysis specifically stated that it did not consider how the revenue generated by a cap-and-trade program “may be disposed by lawmakers in various ways that may affect these household burdens”:

In this analysis we focus primarily on the burden of cap and trade to households in the form of higher consumer prices. As noted above, cap and trade also generates government revenue that may be disposed of by lawmakers in various ways that may affect these household burdens. Because of uncertainty about how lawmakers may or may not dispose of future cap-and-trade revenue, we present only household burdens from higher consumer prices throughout the body of the study.

According to the CBO analysis, the “net impact” of the energy act's cap-and-trade system “would reflect both the added costs that households experienced because of higher prices and the share of the allowance value that they received in the form of benefit payments, rebates, tax decreases or credits, wages, and returns on their investments.” CBO also stated that the distribution of revenue under the legislation would offset much of the cost of the bill to households. In its June 19 analysis of the energy act, CBO stated that "[i]n the aggregate, most of these [higher consumer] costs would be offset by income or other benefits provided to households as a result of the distribution of the value of the emission allowances."

From the CBO analysis:

The GHG cap-and-trade program established under H.R. 2454 would impose costs on U.S. households and provide some financial benefits, as well as the benefits associated with any changes in the climate that would be avoided as a result of the legislation. (This analysis addresses only those financial benefits.) The costs would be incurred through higher prices for the goods and services that households consumed, and the incidence of those costs would be determined primarily by households' consumption patterns. In the aggregate, most of those costs would be offset by income or other benefits provided to households as a result of the distribution of the value of the emission allowances.

CBO provided the following chart breaking down the cost of the bill by income quintile:

From the July 1 edition of Fox News' Hannity:

RALPH REED (chairman of the Faith And Freedom Coalition): Yeah, look, the fact of the matter is the Democratic brand is starting to lose a lot of its shine, because this is a president who ran promising hope and change, saying he wouldn't be an old-style Democrat, saying we weren't going to re-fight the battles of the 1990s, saying he didn't have, you know, a stake in the fight in the 60s in the culture wars.

And what we've gotten, Sean, is classic liberal, big bureaucracy, big government, massive tax increases. Under cap and tax, electric utility bills are going to go up 90 percent --

HANNITY: Nationalized health care.

REED: -- the price of a gallon of gas is going to go up 74 percent.

And here's the tragedy. He promised that no one making less than $200,000 a year would see a dime in a tax increase. And --

HANNITY: And he said it over and over again.

REED: -- and let me finish this point. There's a new study from the Tax Foundation that shows, by a margin of 5-to-1, the cap-and-tax burden falls heaviest on the poor and the lower middle class.

HANNITY: Poor, elderly, farmers.

REED: It's a highly regressive tax that falls hardest and punishes those least able to pay.

HANNITY: All right. Here's --

POWERS: Can we just get back --

HANNITY: Go ahead.

POWERS: -- to this idea, though, that the Democrats are unhappy with Obama? I mean, that's just not reality.