Tax Analysts Blog

Tax Reformers, Beware! Bipartisan Energy Policy

Posted on Jan 3, 2011

"The death of cap-and-trade clears the way for a passel of subsidies and incentives for exploration and innovation."

-Dan Schnur, political analyst, in Sunday's Washington Post

America's conservatives and the business community are pleased with themselves for thwarting any chance of a reasoned policy of carbon reduction in the form of cap-and-trade or a carbon tax. Even if you think global warming is a hoax perpetrated by overgrown hippie scientists it is hard to deny energy security is an issue in a nation whose citizens drive a quarter billion motor vehicles that burn copious amounts of gasoline, of which more than half must be imported from outside the Western hemisphere.

So what is Plan B? Something every politician loves: subsidies. And in order to make them palatable to the Right, the subsidies will take the form of tax breaks. In the last Congress--the 111th (2009-10)--our leaders introduced 159 (!) pieces of legislation to provide tax incentives for expanded energy production. (Yes, I counted them.) These are handouts for solar water heaters (H.R.546), marginal oil wells (H.R.611), “clean” trucks (H.R.650), bicycles used for commuting (H.R. 863), cow and sheep manure used as fuel (H.R. 907), trash used as fuel (H.R.1743), investment in oil refineries (H.R.2631), energy efficient roofing (S.320), and energy efficient law mowers (S. 929).

The only hopes of stopping this bipartisan tsunami of congressional largesse are: (1) the somewhat abstract fear of deficits becomes greater than the immediate pain of higher gas prices (unlikely) and (2) the anti-subsidy elements of the Tea Party are able to remain true to their cause (possible, but difficult).

In December, Congress agreed to an $858 billion birpartisan compromise on taxes that made a mockery of all calls for deficit reduction and tax reform. Look for more of the same if gas prices--already on the rise--begin to approach $4.00 a gallon this summer.

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