Energy Taxes and the Detroit Bailout
If there are any ranches in
I suspect Obama knows they won’t. Thus, what he’s leaving out of the equation for now is that he wants government to raise the price of gasoline and other fossil fuels by imposing massive new taxes on their consumption.
This could be done directly, with an energy tax. However, Obama prefers doing it indirectly, through a cap and trade program that requires producers to buy government permits to emit CO2. Today, two senior House Democrats proposed their version of such a measure. But the president may discover that while such a program will significantly increase the cost of coal (and thus much electricity), even it may raise gas prices by too small an amount to encourage consumers to buy energy efficient, but expensive, new cars.
A candid discussion of energy tax increases is not exactly a political winner these days, especially with the economy mired in recession. Obama’s budget assumes about $65 billion a year in “climate revenues” but does not describe them. And keep in mind that $65 billion is only about half the revenue that would be produced by the kind of a full blown cap and trade system Obama promised in the campaign.
So for now, the President is focusing on the carrots. Both the stimulus bill and his budget are filled with new tax breaks for producing or buying green. But there is little evidence that these baubles alone will do much to build a market.
In a nice paper he presented to a TPC and Tax Analysts conference last fall, Tax Notes columnist Marty Sullivan laid out some of the inefficiencies of these energy tax subsidies. For instance, Marty found that a buyer of a 2006 Toyota Prius got a significantly lower subsidy per gallon of gas saved than the buyer of a Chevy Tahoe SUV, even though the Prius got twice the mileage as the Tahoe. The buyer of a 2008 Prius got no subsidy at all. Why? Like most tax law, there is no why. It just is.
For his climate change plan to work, and, now, for his
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I actually just read a piece which lays out rather convincingly that the problem is not the cars but the credit markets – and that the underwater loans that most potential car buyers carry matter more than any other factor in why Americans are not buying cars. The fact that you can't get out of a car loan greater than book value in bankruptcy is a big part of the problem.
Until Detroit geeks on this, I have little sympathy for them.
If cap and trade raises the price of coal more than the price of gas, it would seem that the reason is that coal is contributing more to CO2 emissions than is gas. Which, if true, would make such a situation completely reasonable when your goal is reducing CO2 emissions. Of course, if reducing dependence on foreign oil, independent of climate concerns, is also a consideration, then this is not sufficient. But there is another, quite straightforward answer to that issue: oil tariffs.
Tax what you don't want: emissions and foreign oil. Makes sense, right?
To address the whole issue of raising energy costs during a recession, it is probably wise to take the tack of rewarding the good rather than punishing the bad. Instead of raising the cost of CO2 emissions or of foreign oil, subsidize clean energy and domestic energy. Pay for it the way all responsible politicians do: with a tax on the very wealthy. What are they gonna do, move to Canada? (Personally I have no problem with raising taxes across the board, but I suspect 95% of Americans might.)
Another issue: take a step back from the trees and look at the forest. The solution to America's dirty car problem is not to replace hundreds of millions of dirty cars with clean cars. It's to get people to drive the cars they already own less often and more efficiently. Whether America solves the energy problem will depend not on whether it makes more fuel efficient cars but whether it needs to use cars, fuel efficient or not, as often as it does today. There are manifold transit and transportation efficiencies out there waiting to be taken advantage of, from ridesharing to mass transit expansion to walkable and bikable cities and neighborhoods. In the end, such structural changes in the transportation system will do more for system-wide fuel efficiency than will even herculean improvements in private vehicle efficiency.