“In fact, they’re all but lying.” Those are pretty strong words to be used in a national news source, especially one that aspires to be an arbiter instead of an advocate. So, it is disappointing that Time magazine would make that statement either in clear ignorance of the facts or as a way of bending the truth itself.
Time’s article refers to groups whose cost estimates for the Waxman-Markey cap-and-trade energy tax exceed $175 per family per year, or roughly what government number crunchers argue it would be. Heritage is one of those groups, but our estimate of nearly $3,000 per year per family of four is a much more truthful answer to the cost question than is $175.
Why is the $175 figure so sacred to Time? It is from a Congressional Budget Office forecast that it declares is “[a] more reliable study” since the CBO presumably is non-partisan. Let’s look at this “more reliable” study. Footnote 3 exposes its most fundamental problem:
“The resource cost does not indicate the potential decrease in gross domestic product (GDP) that could result from the cap. The reduction in GDP would also include indirect general equilibrium effects, such as changes in the labor supply resulting from reductions in real wages and potential reductions in the productivity of capital and labor.” [Emphasis added.]
GDP (Gross Domestic Product) is the broadest measure of national income. So, it seems, in calculating the bill’s impact on the economy, the CBO left out the part that actually measures the bill’s impact on the economy.
The Heritage analysis estimates that the lost GDP works out to $1,889 per family of four in 2020, the year for which the CBO says the total cost is $175. Remember, the CBO explicitly left this measure of income loss out of their “more reliable” calculation. Did Time know that? If it did, would it change its mind about which groups are telling the truth? Let’s hope so.
How did Time explain the extraordinary difference in cost to families? How does it explain the higher cost estimates? “[T]hose numbers assume that billions of tons worth of inexpensive carbon offsets won’t be available under the bill, which would significantly inflate the overall cost.” Wrong again.
The CBO study with the $175 cost estimate is derived from a more complete study done two weeks earlier. On page 16 of that study, the CBO projects CO2 emitters will use 300 million tons of domestic offsets and 425 million tons of international offsets in 2020—a total of 725 million tons of offsets (offsets are a scheme that effectively raises the CO2 caps, thus reducing costs). Not only did Heritage recognize the availability of the offsets, we even assumed a slightly more generous use of 729 million tons in 2020. We went beyond the level assumed by the CBO.
Our handling of offsets is clearly explained in our study. Time says that different assumptions on this critical variable led to the large differences in economic impacts. Would Time have said “all but lying” if it knew that Heritage and the CBO used virtually identical assumptions as opposed to the completely different assumptions claimed in the article? Let’s hope so.
Time implies that the higher cost estimates come only from industry groups. However, independent think tanks on both the left and right agree that income losses from Waxman-Markey will be significant.
The Heritage Foundation and the Brookings Institution are often viewed as counterweights on the ideological spectrum. The Brookings Institution estimates Waxman-Markey will cost about 1.8 percent of GDP in 2035 and 2.5 percent by 2050. By way of comparison the Heritage study projects a 2.2 percent lost GDP in 2035 (we do not make projections beyond 2035). The studies dismissed by Time find similar large losses in income. The loss in the CBO study works out to less than 0.2 percent of GDP—one tenth that of Brookings, the so-called liberal think tank.
Economists from liberal think tanks, conservative think tanks, and industry associations agree that Waxman-Markey will reduce income by hundreds of billions of dollars per year. The CBO analysis purports to show an impact that is one-tenth that of these other studies. Time throws out the studies that do look at lost income, calls their authors liars, and substitutes a result from a study that doesn’t count lost income as part of an economic impact.
Time says the CBO study is “more reliable.” Is Time ignorant or is it just lying?