The Wall Street Journal does an excellent job today exposing the strain a cap-and-trade system would place on the average American. You see, companies tend not to simply eat additional costs. As surprising as this may be to President Obama and his populist supporters, the costs get passed on to the consumer.

Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions. With President Obama depending on vast new carbon revenues in his budget and Congress promising a bill by May, perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.

Politicians love cap and trade because they can claim to be taxing “polluters,” not workers. Hardly. Once the government creates a scarce new commodity — in this case the right to emit carbon — and then mandates that businesses buy it, the costs would inevitably be passed on to all consumers in the form of higher prices. Stating the obvious, Peter Orszag — now Mr. Obama’s budget director — told Congress last year that “Those price increases are essential to the success of a cap-and-trade program.”

Hit hardest would be the “95% of working families” Mr. Obama keeps mentioning, usually omitting that his no-new-taxes pledge comes with the caveat “unless you use energy.” Putting a price on carbon is regressive by definition because poor and middle-income households spend more of their paychecks on things like gas to drive to work, groceries or home heating.

The Congressional Budget Office — Mr. Orszag’s former roost — estimates that the price hikes from a 15% cut in emissions would cost the average household in the bottom-income quintile about 3.3% of its after-tax income every year. That’s about $680, not including the costs of reduced employment and output. The three middle quintiles would see their paychecks cut between $880 and $1,500, or 2.9% to 2.7% of income. The rich would pay 1.7%. Cap and trade is the ideal policy for every Beltway analyst who thinks the tax code is too progressive (all five of them).

The fact that this needs to be explained is pretty sad. If you charge companies more money to operate, they pass those costs on to their customers. They don’t eat the new costs. End result? Joe and Sally in Tulsa using up more of their paycheck for the same goods. And the people hurt the most are those with smaller disposable incomes.

A cap-and-trade system would be bad news for any American watching every dime as it is. The Obama Administration and Congressional Democrats need to learn that the effect isn’t felt on the company’s bottom line; it’s felt in the average American’s wallet.

Via Hot Air.