During the presidential campaign, Barack Obama and John McCain profoundly disagreed on many issues, among them climate change legislation and the tax treatment of health care. Now, President Obama seems to be bowing to one of McCain’s poor ideas while resisting one of his better proposals. 

It is funny how the politics of these issues is playing out. Many economists agree that McCain had the right idea on health care—the Arizona senator proposed replacing the current exclusion for employer-sponsored insurance with a generous tax credit. Yet, Obama continues to resist (though with increasingly less vigor) any change in the tax treatment of insurance.

On the other hand, when it came to cap and trade legislation, McCain favored giving away credits to create a market for CO2 pollution. Obama preferred auctioning those rights to pollute. The difference is more than technical. While in the long run both versions promise to reduce carbon emissions by raising the cost of fossil fuels, an auction could generate $100 billion or more annually in new federal revenues. By contrast, giving away the credits would create a windfall for those companies that produce fossil fuels. 

Surprisingly, both Obama and the House Democratic leadership seem to have abandoned the idea of an auction in the face of opposition from Republicans (who called it a huge tax hike) and energy and farm state Democrats (who steered the new subsidy to their local industries). The result: The cap and trade bill passed by the House last week would give away about 85 percent of the credits. 

Before he so quickly capitulated, Obama had big plans for that new revenue. His 2010 budget would have spent about $120 billion on clean energy technology over the next decade. But Obama would have used the biggest chunk, more than $500 billion, to extend his signature middle class tax cut, the Make Work Pay credit. His idea was to use the credit to help offset the higher energy costs for middle-class families. Now, I have no idea where he’ll get the money for either initiative.

I am not so worried about the clean technology subsidies since this sort of industrial policy rarely works anyway. But helping out low- and moderate-income taxpayers who end up paying more to air condition their homes or fuel their cars seems to be a necessary step. Now, my biggest fear is that Obama and Congress will merely extend Make Work Pay without finding the offsetting revenues. Something else for those Chinese bondholders to finance, I suppose.

With so much attention paid to health care, this massive energy bill slipped through the House with barely a notice. Now, it goes to the Senate where, I fear, it will only be made worse. After all, there are still about 15 percent of the credits to be given away.        

 

It seems TPC has gone green. Len Burman has told us what he thinks of the bike subsidy (not much) and Rosanne Altshuler has struggled to figure out what tax breaks she can get for installing energy efficient windows. Not to be outdone, here is my own contribution: Big tax subsidies to encourage production of ethanol have helped yield two results: They have contributed to an increase of as much as 15 percent in the cost of food, and they have produced no measurable reduction in auto-related greenhouse gas emissions. Oops.    more »

As a bike freak and a tax geek, you’d think that I’d be thrilled about the new tax break for qualified bicycle-commuting reimbursement. I’ve been riding my bike to work for 30 years, so this new tax expenditure has my name written all over it. The biker in me wants to cry out, “It’s about time!” But the tax geek just groans.   more »

It’s never too early to plan for next year’s taxes. Let’s say you’re thinking about doing some energy-saving home improvements soon and want to know what federal tax credits are available and how they work. How would you find out? You might try the IRS website. I did but, unfortunately, couldn’t find any information about energy credits for 2009.   more »

If there are any ranches in Detroit, President Obama has just bet one on his yet-unborn plan to cap greenhouse gasses. Obama has effectively ordered GM and Chrysler to build more fuel-efficient cars in return for billions more in federal bailout money. But will enough people buy those cars with gas at $2-a-gallon to make this a successful strategy?   more »

Nice to see Tom Friedman on the energy tax bandwagon. As he wrote in his Dec. 27 New York Times column, “I’ve wracked my brain trying to think of ways to retool America around clean-power technologies without a price signal—i.e., a tax—and there are no effective ones.” Friedman needs to give his cranium a holiday break. Policymakers have been searching for this magic bullet for years, without success. They’ve tried government-mandated (CAFE) auto mileage standards, tax credits for the use of everything from hybrid cars to low-E windows, massive government subsidies for production of alternative fuels and sincere pep-talks from sweater-clad Presidents. Nothing has worked. Take a look at this chart from the Energy Information Agency:    more »

Just as demand for both alternative energy and low-income housing is growing, is the market drying up for the tax credits that drive much of the investment in both? Evidence is that the answer is “yes.” The culprits: the crumbling economy, paralyzed bond markets, and the government itself. This may be yet another example of the always-deadly law of unintended consequences.    more »

Note to President-Elect Obama: Don't do it. I understand the politics. I even get the symbolism—iconic industry and all that. But the economics is really bad. Here are five reasons why:    more »

Let it be written: If the Senate-passed financial services bailout bill turns out to save us from the next Great Depression, we will owe a deep debt of gratitude to… chicken poop. If not, we can simply say the entire proposition turned out to be little more than, well, you know.    more »

When it comes to taxes, Sarah Palin turns out to be an intriguing mix of Barack Obama and John McCain. Like Obama, she favors a tax rebate for consumers funded by a windfall profits tax on energy companies. But, like McCain, she also backs a gas tax holiday.    more »

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.   more »

Yesterday, John McCain disclosed details of his plan to cut the use of fossil fuels—and thus greenhouse gases--through a cap and trade system of mandatory emissions reductions. As we have written, cap’n trade is not the name of a cheesy seafood restaurant. It is Washington-speak for a huge new tax on oil, gas, and coal. This is a good thing, but we ought to talk about it honestly.   more »

$451 million in tax breaks for timber companies. Ka-ching. $500 million for biodiesel. Ka-ching. $126 million for racehorse breeders. Ka-ching. $20 million for Aggie bonds. Ka-ching.    more »

Before you get the idea that a big increase in energy taxes is just the latest raving of an elitist, inside-the-Beltway policy wonk, you might want to know that I’m not the only one who likes this idea. So do John McCain, Hillary Clinton, and Barack Obama.    more »

While TaxVox and others have disclosed the folly of a federal tax holiday, some have suggested that temporary state gas tax relief might work better. Some New York State legislators are already pushing for such a plan. But before cash-strapped states jump on the bandwagon, they might consider how a previous experiment in Illinois and Indiana worked out. In 2000, Indiana announced that it would be suspending its 5 percent gasoline sales tax for 120 days beginning July 1. In response, Illinois also suspended its levy for six months that July.. Quaint as it seems today, the changes were spurred by a spring spike in Midwest gas prices to (gasp) $2.00 – a level drivers would now gladly embrace.    more »