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.

$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.

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.

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.

Props to Barack Obama for resisting the siren call for a summer gas tax holiday. In contrast, Hillary Clinton has clambered aboard John McCain’s free-lunch bandwagon, vowing to support the gas tax cut he first proposed a couple of weeks ago. Even worse, she’s now tied it to an energy company windfall profits tax so, as she says, oil companies would “pay their fair share to help us solve the problems at the pump.”

Don’t expect carbon taxes to both dramatically reduce greenhouse gasses and serve as a cash cow for government. They might succeed at one or the other, but not both. That’s the argument Monica Prasad makes in a provocative article in today’s New York Times.

Congress and the President have finally left town. But they left quite a legacy. Here are our nominees for the five biggest fiscal losers of 2007.
The AMT Patch: Sure, Congress finally agreed to keep 20 million middle-class families off the AMT for one more year. But it never paid for the $50 billion temporary fix and ignored proposals to permanently resolve the mess. Just wait until next year, when they do it all again.

When the Senate passed a long-awaited energy bill yesterday, I flashed back to a fascinating off-the-record chat I had back in 2004 with a top executive of a major oil company. He was in Washington to help make sure that the energy bidness got its piece of an especially hideous tax break called the Sec. 199 production deduction.