Wednesday, January 7, 2009

Is Change Coming To Energy Policy?

With the Obama Administration only 13 days away and a House Energy and Commerce Committee swinging drastically to the left, it appears almost certain that legislation to address climate change -- more specifically, to reduce carbon emissions -- will be forthcoming during the 111th Congress. This past June, Congress voted on the Lieberman-Warner bill, a cap-and-trade proposal that was defeated in the Senate by a vote of 48-36 (60 votes needed to pass), with 16 Senators not voting. As the roll call vote shows, the legislation had the support of almost all Democrats and most moderate Republicans (Snowe, Collins, etc.), and with the Democrats now holding either 58 or 59 seats, it looks increasingly likely that a serious plan to address climate change will not only be proposed, but also passed.

But for some, this isn't enough. Obama's nominee for Energy Secretary has expressed support for gradually increasing the federal gasoline tax, a view that the Center for American Progress's Matt Miller has also supported. With gasoline prices at a five-year low, they argue, this is the perfect time to bump up the tax on fuel, thus incentivizing consumers away from oil and bringing America closer to both energy independence and decreased carbon emissions. Another argument comes from the National Commission on Surface Transportation Infrastructure Financing. As highway and infrastructure maintenance is largely funded by taxes on gasoline, the aforementioned drop in prices has resulted in budget shortfalls, which could be countered by an increase in the tax rate on gas.

Gary Becker, however, disagrees, invoking the most common argument -- that the economic recession will only be exacerbated by increased taxes on a fairly inelastic staple -- as well as an interesting double-taxation effect when considered with the recent auto bailout:

A further weakening of the financial position of American carmakers would increase the size of the bailout of the American auto industry needed to prevent it from going bankrupt. This implies that higher gas taxes would have a multiplier effect on the tax burden facing American families and businesses- not only would they have to pay more for gas, but they also would at some point have to pay higher taxes to finance a larger bailout.

It will be interesting to see how this debate moves forward, and the direction the Democratic bloc takes early will be indicative of their broader philosophy of governance. With any luck, tried and tired policies will be cast aside, and new and innovative approaches to solve budgetary shortfalls without exacting exorbitant costs in both taxes and lost productivity will take their place. Just one example is a tax on miles-driven, working its way through Oregon's legislature, and discussed by Greg Mankiw yesterday.

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