Wednesday, July 01, 2009

Cap & Trade: Who Pays the Cost?

Congress narrowly passed a cap & trade bill that the Congressional Budget Office has estimated to cost more than $600 billion over 10 years. Who will pay the cost of this federal mandate? It depends on the industry.

For products for which the consumer is relatively insensitive to price hikes or there are few competitors, such as electricity, the consumer will pay most of the burden as the producer passes on the increased cost to its customers. For products for which the consumer is much more responsive to price increases or there are many competitors, such as food, the producer will absorb the increase in cost.

Thus it is clear that contrary to the bluster from politicians, Americans, both rich and poor will experience an increase in their costs in the next ten years. Whether one calls that a tax hike is irrelevant.

Ernie Goss

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