Governors Beware: Cap and Trade will Squeeze Your Budget

Nicolas Loris / June 24, 2009

The current recession has caused many states to deplete their rainy day funds, and if politicians in Washington have anything to say, governors could see their deficits grow even further. The Waxman-Markey cap and trade bill will prolong and exacerbate the recession and stifle any chance of a quicker economic recovery. The goal of cap and trade is to drive up energy prices so high people will use less energy, but even after reduced consumption, people still need to drive their cars and turn on their lights at home. All cap and trade does is force people to spend more on their energy bills. These higher energy prices result in a slower economy, which means less production, higher unemployment, and reduced income. This is bad news for states.

The increase in state’s deficits that result from the Waxman-Markey legislation will force painful cuts in state services and/or tax increases. Economists at The Heritage Foundation found that the average impact on operating surpluses (deficits) at the state and local level is a decrease of $9.3 billion dollars (in 2009 inflation-adjusted dollars) between 2012 -2035. The baseline forecast predicts states, overall, will run budget deficits through 2015 but because of the Waxman-Markey bill, these aggregate state deficits will continue through 2017; that is two more years of painful choices for state and local politicians and two more years of reduced state services for those in the population who probably most need them. The table below shows the increase in deficits (or decrease in surplus for those states with operating surpluses) by state in the year 2012 alone, as well as the current budget turmoil states are facing. The sum total shortfall for the 50 states and their localities in 2012 is -$5.3 billion (in 2009 inflation-adjusted dollars). (more…)