Post misleadingly claims CBO found cap and trade would cause “loss in after-tax income for poorest households in America”

From the June 17 New York Post article:

While the House passed a climate-change bill last year, the Senate version remains stalled.

Some Democratic members are concerned about the murky science behind global warming, and worry about raising costs for voters or doing anything that will result in lost jobs.

According to the Congressional Budget Office, curbing emissions by 15 percent would amount to a 3.3 percent loss in after-tax income for poorest households in America.

Testimony Post cited didn't refer to a specific bill

CBO testimony Post cited dealt with generic proposal that did not include offsets to households. The Post's claim that “curbing emissions by 15 percent would amount to a 3.3 percent loss in after-tax income for poorest households in America” apparently refers to November 1, 2007, testimony by then-CBO director Peter Orszag. Orszag was not discussing a specific bill, but rather referencing possible approaches to reducing carbon dioxide emissions without incorporating any offsets to households. From Orszag's testimony:

Obtaining allowances -- or taking steps to cut emissions to avoid the need for such allowances -- would become a cost of doing business for firms that were subject to the CO₂ cap. However, those firms would not ultimately bear most of the costs of the allowances. Instead, they would pass along most such costs to their customers (and their customers' customers) in the form of higher prices. By attaching a cost to CO₂ emissions, a cap-and-trade program would thus lead to price increases for energy and energy-intensive goods and services that contribute the most to those emissions. Such price increases stem from the restriction on emissions and would occur regardless of whether the government sold emission allowances or gave them away. Indeed, the price increases would be essential to the success of a cap-and-trade program because they would be the most important mechanism through which businesses and households were encouraged to make investments and behavioral changes that reduced CO₂ emissions.

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. For example, not incorporating any benefits to households from lessening climate change, CBO estimated that the price increases resulting from a 15 percent cut in CO2 emissions would cost the average household in the lowest one-fifth of the income distribution about 3.3 percent of its income but the average household in the top quintile about 1.7 percent of its income.

Orszag: “Lawmakers could more than offset the price increases experienced by low-income households.” In his testimony, Orszag explained that “by providing for the sale of some or all of the [carbon] allowances and using the revenue to pay compensation,” lawmakers “could more than offset the price increases experienced by low-income households.” He provided an example that “would increase average income for households in the lowest income quintile by 1.8 percent”:

Lawmakers could more than offset the price increases experienced by low-income households or the costs imposed on workers in particular sectors by providing for the sale of some or all of the allowances and using the revenue to pay compensation. For example, CBO examined the ultimate distributional effects of a cap-and-trade program that would reduce U.S. CO₂ emissions by 15 percent and concluded that lower-income households could be better off (even without including any benefits from reducing climate change) as a result of the policy if the government chose to sell the allowances and used the revenue to pay an equal lump-sum rebate to every household in the United States. In that case, the size of the rebate would be larger than the average increase in low-income households' spending on energy and energy-intensive goods. Such a strategy would increase average income for households in the lowest income quintile by 1.8 percent. ... At the same time, average income for households in the top quintile would fall by 0.7 percent, CBO estimates.

CBO score of actual House bill found it would increase income of poorest quintile

CBO estimate of the actual bill found poorest Americans would gain income. the Post claimed that CBO found that “curbing emissions by 15 percent would amount to a 3.3 percent loss in after-tax income for poorest households in America,” the Post did not note that the CBO's score of the bill passed by the House found the bill would actually benefit the poorest Americans. CBO found that the poorest quintile of Americans would receive a net gain of 0.7 percent of their after-tax income in 2020, and a net gain of 2.1 percent of their after-tax income in 2050. From the CBO estimate:

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Lindsay Blitstein is an intern at Media Matters for America.