At a time when many Americans are struggling financially, President Obama is proposing the largest tax increase in history. Not only does the budget include $989 billion in new taxes, but it also includes another $646 billion in new tax revenue from his cap-and-trade plan. The new taxes on energy in the budget and the cap-and-trade tax would effectively increase taxes on 85 percent of the energy we use. That means higher gasoline prices, higher electricity prices, and higher costs for businesses that are already struggling. Obama’s plan is pure economic de-stimulus.

Many analysts are describing Obama’s budget as a $989 billion tax hike, but it would actually wring $1.6 trillion out of the economy over the next ten years, making it the biggest tax hike in history.  What others are missing is that in addition to the $989 billion, the budget includes $646 billion in anticipated cap-and-trade tax revenues. Just this component alone would be the second biggest tax hike in history.

In fact, one could go further and argue the cap-and-trade tax alone would be the largest single tax increase in history. Before this budget, the largest previous tax increase was the Revenue Act of 1942—the tax plan crafted to win World War II. Unlike cap-and-trade, which is a single program, the Revenue Act of 1942 contained multiple different tax increases. The 1942 plan raised $110.5 billion in one year (in 2009 dollars)[1] by increasing personal and corporate income tax, increasing “excess profits tax”, and by reducing the personal exemption. As an single tax, however, cap-and-trade is the largest tax in history.

While many lawmakers support a cap-and-trade program, most economists believe that a straightforward carbon tax would be much less subject to corruption. Cap-and-trade seems as if it’s costless, because there is no direct tax on Americans or businesses. The government is simply auctioning off permits in a voluntary market, right?

Not at all. Cap-and-trade is not a “free market solution” because the government is changing the rules and making it illegal to do something that was perfectly fine up till now. Calling something a “market solution” does not make it one. Cap-and-trade is Washington-speak for a tax hike.

The economy is on the ropes. The Dow Jones is now trading at roughly half of 2007’s peak, and Fed chairman Ben Bernanke is cautioning that the recession may well last into 2010. Unemployment and poverty levels are rising daily. Yet the Administration, which promised hope and change, has plans to burden taxpayers with the largest tax increase in American history. This may be change, but it’s certainly not what anyone had hoped for.


The White House has recent disclosed that they dramatically underestimated the size of the cap and trade tax as outlined in the budget.  The White House has told Senate staff the size of the cap and trade tax is between $1.3 trillion and $1.9 trillion.

[1] According to the Department of the Treasury, the Revenue Act of 1942 raised $73.4 billion in 1992 dollars. That is $110.5 billion in 2009 dollars (brought forward to 2009 dollars using the CPI calculator).

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