The route to power in the era of Generation Greed has been to promise something for nothing, and to provide handy rationalizations to feed the entitlement of those receiving it. So Republicans have handed out tax breaks and promised to cut “spending,” but in fact have increased spending on everyone other than the poor, minorities, immigrants, and those living in older central cities. And so the Democrats promise fiscal and environmental sustainability, without any sacrifice or any inconvenience for anyone other than “the corporations” or “the rich.” In the end both parties sacrifice the future, and the children and grandchildren who will live in it. For Democrats and the environment, you saw this in former Vice President Al Gore’s run for President in 2000, when he did his best to hide his environmental credentials. And now you see it in the debate over an energy policy, in which the Democratic Congress may be poised to do to President Obama’s number one priority, self described, what a previous Democratic Congress did to former President Carter’s number one priority: energy.
I believe this is not only a crime but also a blunder, because politics are changing. Not everyone in Generation Greed is greedy, just the majority of those who make the most noise. And everyone younger is having their future destroyed by inaction, not just in an environmental sense, which not everyone can agree on, but in a national security and economic sense, because of the effect of our dependence on foreign oil. I believe a key moment in the last Presidential campaign occurred when candidates Clinton and McCain proposed the usual pandering give away – suspending the gas tax – and President Obama called it what it was. Apparently the Democrats still need to learn what that meant. So, apparently, does President Obama.
The reason most Democrats are promoting “cap and trade,” a complex system to be implemented over a decade, rather than a simple tax on non-renewable fuels n proportion to their environmental and economic damage, is that the cost of cap and trade would theoretically fall on “the corporations.” In one permutation, the plan would simultaneously sell out to those corporations by handing today’s shareholders and executives rights to the atmosphere worth $trillions, rights tomorrow’s entrepreneurs and consumers would have to buy from them in order to do, well, anything. Selling out to the very big corporations they decry while shifting costs to small and new business is another long time vice of “corporatist” Democrats. And yet with cap and trade, if the cost of gasoline, electricity or natural gas were to rise, the Democrats could simultaneously use an indirect tax to push up costs of non-renewable energy and blast the “big corporations” for charging more to consumers. Or so they thought.
The word is leaking out, however, that perhaps ordinary people might end up having to pay something, and (God forbid) make some adjustments, after all. And as a result, Bloomberg News reports, some Democratic members of Congress are saying cap and trade should be abandoned, replaced by few breaks and subsidies. “The problem of doing both of them together is that it becomes too big of a lift.” “I see the cap-and-trade being a real problem.” That the equivalent of the Republicans facing what President Bush called our “addiction to oil,” with its economic and national security and economic implications, by changing the date of daylight savings time. It’s a continuation of the past 35 years, during which we have become a poorer (in terms of our actual wealth and net indebtedness) and less foward-looking country.
Let me briefly reprise something I discussed in more detail here and elsewhere. All the U.S. has to do to cure our energy problems and substantially reduce our carbon emissions is impose a tax that rises as the cost of fossil fuels falls, to keep it high enough to encourage alternatives, conservation, and the possible substitution of more costly domestic supply for foreign supply. History proves this.
After the 1970s oil price shocks alternative energy research, conservation, and domestic fossil fuel production soared. So OPEC cut the price of oil in the mid-1980s to preserve its market share, the alternative energy companies went broke, the domestic oil and gas industry went broke, and conservation went into reverse. Until the U.S. ended up just as vulnerable and dependent.
Did that happen too slowly for people to understand? When energy prices soared from 2006 to 2008 alternative energy and domestic natural gas drilling once again soared, and people once again began to alter their lifestyle and buying habits to conserve. To put a stop to this energy prices have once again fallen. And all across the country solar energy companies are in trouble, the new natural gas wells are shutting down, and conservation is once again something not to be bothered with. Putting right back where we were – reliant on cheap and easy imports, vulnerable to an economic or national security disaster at any moment, polluting the air.
All that is required is a tax that would keep the price of oil, because of its national security and economic implications, and coal, because of its environmental impact, high enough to provide an incentive for conservation and a shift to alternatives as they become available and affordable. For coal, that tax could be refunded to large scale users to the extent that “clean coal” technology kept the bi-products out of the air. And a tax to keep the price of natural gas high enough to encourage drilling. The target price would rise with overall inflation and income. Depending on the market prices, it might bring in a lot of federal revenue, or none at all. But it would encourage conservation, alternative energy, and domestic fossil fuel supply, by providing a reliable target that businesses and consumers could shoot for in making energy decisions.
Such a tax would not only keep the price of fossil fuel-based energy from going down. I can guarantee it would also keep the price from going up. How? If as a result of the tax the cost of a barrel of oil from Saudi Arabia would be the same as a barrel of oil from Texas, and if the cost of natural gas would be the same regardless of who produced it, then how would businesses such as utilities and gasoline refiners decide who to buy from? Who would get the contract?
Purchasers would have to compete on something other than a lower price. Buyers, therefore, would probably choose whichever producers would guarantee stability of supply and price, based on politically safe resources they own, and hedging market prices on an exchange. Unless one occurred within the first five years of the program, I would bet the U.S. would never face another price spike – the price would stay at the mandated target. Another factor could be consumer choice. I suggest that, for example, gasoline, a simple pie chart be attached to every pump, showing the share of fuel there purchased that came from North America, 1973 boycott countries, other OPEC countries, and the rest of the world.
What are the objections to such a tax? There is the Republican objection that any additional revenues would just allow the federal government to avoid the future they have in mind for it – eventual bankruptcy and a huge decline in the senior citizen benefits such as Medicare and Social Security younger generations will receive, as money is diverted to interest on the national debt. A continuation of big government as a result of a failure to starve the beast, in other words.
The Democratic objection, the one apparently agreed with by President Obama, is that a direct tax on energy would be regressive and fall more heavily on the less well off (but an indirect tax via cap and trade wouldn’t)? Regardless of their views about the long run, both parties agree that taxes should not be increased now, with the economy in trouble.
All those objections could be easily dealt with by using all the revenues collected for refund checks, rather than federal spending. To make the politics easier the checks could be sent out, based on estimated revenues, before the energy prices rose, accompanied by a letter telling people they could choose to either use the money to pay for higher energy costs, and go on living as before, or conserve energy and spend the money on other things (possibly things produced in the U.S.) Their choice. As a quick look at data from the Consumer Expenditure Survey from the Bureau of Labor Statistics shows (attached) shows that the program could be structured to be progressive rather than regressive.
The data show that the households whose income placed them in the lowest 20 percent in 2007 spent $20,471 on average, including $2,249 on energy (gasoline and home fuels), or about 11.0% if total spending. The income of such households was lower, but there are other sources of money to spend other than income, such as government programs and (for the retired) past savings – the households in the lowest 20 percent of income averaged only 0.5 workers each. For each higher income quintile, more is spent on energy as total spending rises, and the percent of total spending on energy falls only slowly until one gets to the top 20 percent. The key point – the richer people were, on average, the more energy they used, as he less well off have fewer vehicles and smaller homes or apartments.
Imagine that a reversible tax like the one I described increased the price of energy by 50 percent. That would cost the average American household an additional $2,159, according to the 2007 data (actually less, because such a tax would probably raise energy costs to something less than the high level they had been in 2007, but this is just an example). The average household in the lowest quintile would seen its costs rise by just $1,125, the middle quintile by $2,129, and the highest quintile by $3,372, based on the energy they used.
Now imagine that all households, regardless of their income and how much energy they used, received an equal amount of money back – say $2,159 per year or about $550 per quarter. The average household in the lowest quintile of income would end up $1,035 per year better off, the middle household about in the same situation, and the household in the highest 20 percent would have paid $1,113 more than they received.
The tax and refund, taken as a whole, would be progressive, not regressive, for the average household. But more importantly, every household in every quintile would have an incentive NOT to be average – to conserve, buy more fuel efficient products such as cars, and use alternative energy (or at least more secure and cleaner burning domestic natural gas) as it became available. How is this not a political win? Those enacting the policy would get to pander by sending out checks and take the high road of responsibility at the same time, with a simple program that could probably be implemented in a few months.
Moreover such a program would encourage more domestic fossil fuel production in the short run, in addition to conservation and a shift to alternatives in the long run. It would be a boon, therefore, to energy producing states such as Texas and West Virginia, where a natural gas drilling boom has abruptly ended.
The Consumer Expenditure survey shows that our local Democrats are even more wrong-headed than the federal ones. To balance the city budget the sales tax rate on all non-exempt goods was raised, rather than having some of those exemptions scaled back. Some politicians simply stated, and the mainstream media repeated, that sales taxes on clothing (in particular) hit the poor harder than the rich. Based on what? Did anyone check? One could make the case that the poorest spend slightly more than the richest, as a share of total spending, on footwear, but for other apparel and services it is the reverse – and the differences are small in any event. The exclusion of clothing from sales taxes is at best neutral, and at worst favors the better off.
The United States, with the Democrats in charge, failed to address its energy issues 30 years ago. The United States, with Democrats in charge, failed to address its health care financing issues 16 years ago. In each case a complicated solution was proposed, some political opponents and special interests said boo, and that was the end of that. Americans have given the Democrats unprecedented control of the federal government. Are we going to get another disgrace in return? Unless someone learns that calling out the greedy and shortsighted, and reminding others of the cost of listening to them for decades, provides a benefit in excess of the cost, probably so.