Cap-and-trade: Imperialism of the populous states?

We’ve reviewed Barack Obama’s cap-and-trade policies from a number of angles, but Governor Mitch Daniels of Indiana has a unique analysis that bears consideration.  He sees cap-and-trade not just as an overall tax burden on the energy consumer, although he certainly agrees that it is, nor as a penalty for fossil-fuel producers, which Daniels also sees.  Daniels suggests that the real reason for cap-and-trade is for liberal, coastal states to suck tax dollars out of the Rust Belt in a case of interstate imperialism:

Quite simply, it looks like imperialism. This bill would impose enormous taxes and restrictions on free commerce by wealthy but faltering powers — California, Massachusetts and New York — seeking to exploit politically weaker colonies in order to prop up their own decaying economies. Because proceeds from their new taxes, levied mostly on us, will be spent on their social programs while negatively impacting our economy, we Hoosiers decline to submit meekly.

The Waxman-Markey legislation would more than double electricity bills in Indiana. Years of reform in taxation, regulation and infrastructure-building would be largely erased at a stroke. In recent years, Indiana has led the nation in capturing international investment, repatriating dollars spent on foreign goods or oil and employing Americans with them. Waxman-Markey seems designed to reverse that flow. “Closed: Gone to China” signs would cover Indiana’s stores and factories.

Our state’s share of national income has been slipping for decades, but it is offset in part by living costs some 8% lower than the national average. Doubled utility bills for low-income Hoosiers would be an especially cruel consequence of the Waxman bill. Forgive us for not being impressed at danglings of welfare-like repayments to some of those still employed, with some fraction of the dollars extracted from our state.

And for what? No honest estimate pretends to suggest that a U.S. cap-and-trade regime will move the world’s thermometer by so much as a tenth of a degree a half century from now. My fellow citizens are being ordered to accept impoverishment for a policy that won’t save a single polar bear.

Some Republicans have suggested Daniels as a potential presidential candidate in 2012, when his current term will expire.  Daniels throws a little bit of cold water on that notion in the lead, saying that “I’m not a candidate for any office — now or ever again,” but this may build some momentum for a Draft Daniels movement.  If nothing else, it demonstrates a willingness to fight back that has sometimes eluded other Republicans.

The big secret of this is that Indiana will get bankrupted more by the cap-and-trade system forcing producers out of the state, which will mean that the government won’t get those revenues anyway.  This is yet another demonstration of the administration’s reliance on static analysis for tax policy.  Daniels correctly notes that the policy will hammer Indiana’s economy, which means that tax revenues will fall in general, but also that less energy will get used — which means less revenue from cap-and-trade.  The rise of unemployment in the state will eventually require more federal dollars flowing into Indiana than flowing out of it, and the coastal states will eventually have to subsidize Hoosiers instead of the opposite.