Your tax cuts could come courtesy of carbon cap-and-trade

(Photo: Thaddeus Robertson)

President Obama is pegging continued middle-class tax cuts to the carbon cap-and-trade system he has promised (since the campaign) to enact, to combat global warming.

The economic stimulus plan enacted tax cuts on individuals making less than $200,000, and those tax cuts are supposed to start showing up in our paychecks within weeks, in the form of reduced tax deductions. But to make the one-time cuts permanent, Obama will suggest paying for them with some of the money generated by a carbon cap-and-trade regulation on industry, according to accounts of the budget he unveiled last week.

Successful cap-and-trade regulations are already in place for other air pollutants, like the sulfur and nitrogen oxides that cause acid rain and smog. The idea is that whole industries must meet a federally specified "cap" on total emissions, but that individual plants can swap credits for pollution in a new commodities market. If a plant emits less pollution than its government allotment, it can sell pollution credits to plants that exceed their allotments.

Some critics say a simple tax would be more efficient and direct, and require less-complex regulation. Other critics say any attempt to put a price on carbon emissions would put a drag on industry and the economy as a whole. Supporters say it is the most politically feasible way to use a proven regulatory strategy to reduce global warming pollution.

Now, environmentalists will probably question two aspects of Obama's cap-and-trade plan: Why does it wait to deliver money until 2012 (conveniently or not, the end of Obama's term)? And is it appropriate to spend money from the program on anything but renewable energy, energy efficiency, and other investments that will support the effort to reduce global warming pollution?

Of an expected $75 billion windfall, Obama would spend $15 billion on clean energy research and development, and $60 billion on tax cuts, according to the Washington Post. One rationale for tax cuts, undoubtedly, will be that the system will drive up the cost of energy for regular Americans, so the tax cut will offset the expected higher costs of fuel, electricity, and products that rely on fossil fuels.

But in the short term, tying millions of people's tax cuts to a controversial environmental regulation could be a stroke of genius: Suddenly, everyone's paycheck could benefit from fighting global warming.

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