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Howard Gleckman
June 3, 2008

What Will Obama Do with a Cap and Trade Windfall?

Interesting confluence of events: Barack Obama is about to wrap up the Democratic Presidential nomination and the Senate has begun debating a major plan to cap carbon emissions—an idea Obama strongly supports.

What makes this coincidence so fascinating is that the emissions bill, known in Washingtonese as "cap and trade," has the potential to be a fiscal life preserver for the Illinois Senator. While the actual dollars will, of course, depend on the details of Obama’s plan, the proposal on the Senate floor is expected to produce an eye-popping $3.3 trillion in new revenues over the next four decades. To do the math, that about $85 billion-a-year.

While that bill has almost no chance of passing in 2008, its supporters frankly call it a "dress rehearsal" for the real deal. Both Obama and John McCain support a "cap and trade" plan, although McCain’s version would generate much less revenue for Washington.

For Obama, however, "cap and trade" could be a way to help pay for a big chunk of his extremely ambitious—and hugely expensive—policy agenda. Massive health reform, more low-income housing, beefed-up homeland security, alternative energy research, and tax cuts for seniors and working families, just for starters. And he has not come close to telling voters how he’d pay for it all.

Could cap and trade, which is really a massive energy tax increase in drag, bail out Obama’s fiscal policy? It might.

For now, all we know is that he’d spend about $150 billion of the revenue windfall on clean energy initiatives over 10 years and an unspecified additional amount on related environmental efforts. He’d probably also use a chunk to subsidize low-income energy consumers. But there would still be plenty of cash left over.

The fate of that dough will be the subject of a big-ticket lobbying campaign over the next few years. Nothing is more fun than watching pols fight over how to redistribute hundreds of billions of dollars.

But the question remains: What would Obama do with all this found money? It would be nice if, between now and November, he shared.

Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.

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