On January 26, with competing headlines announcing at least 77,000 job cuts in just one day while jobless claims hit a 26-year high, President Obama made his first major policy address on energy. The president described the our energy challenge in very stark, clear terms:
“At a time of such great challenge for America, no single issue is as fundamental to our future as energy. America’s dependence on oil is one of the most serious threats that our nation has faced. It bankrolls dictators, pays for nuclear proliferation and funds both sides of our struggle against terrorism,” Obama said. “It puts the American people at the mercy of shifting gas prices, stifles innovation, and sets back our ability to compete.”
But he did disappoint in one significant way when he said: “I cannot promise a quick fix. No single technology or set of regulations will get the job done.”
Actually Mr. President, there is one major policy solution that would go a very long way to addressing the energy challenge and at the same time stem the staggering loss of jobs that dramatically stole the headlines away from your speech. And this simple policy shift can make major strides in addressing both our energy and economic challenges by encouraging market based solutions without incurring additional government debt.
What we now need Mr. President, is your leadership to not only speak clearly about the energy challenges we face, but to also act boldly in solving them. We need you to lead the effort to promote and pass the Freedom Tax.
The Freedom Tax is a revenue neutral shift in tax policy away from taxing jobs and work and substituting a tax on petroleum. Taxes are very effective in shifting market signals to discourage whatever is being taxed. Currently our high levels of taxes on employment discourages job creation, while our very low level of taxes on petroleum encourages wasteful use of petroleum products and discourages the development of effective alternatives.
With two thirds of our petroleum imported and world wide petroleum discoveries now forty years past their peak, many of our current and potential future national problems can be traced directly to our excessive use of petroleum. Trade deficits, environmental problems, economic challenges and our most significant national security concerns can all be traced directly to our unsustainable levels of petroleum use. While well intentioned people may dispute the details of such impacts, nobody credible suggests that our excessive use of petroleum is either good for the nation or sustainable at current levels.
There is an emerging consensus that the place to start a tax shift to the Freedom Tax is in reducing FICA payroll taxes significantly while substituting a tax on petroleum imports and production. Opinion leaders across the political spectrum all suggest and support such a plan. Today what is needed is a concerted effort to push for its passage through Congress.
Ideally the Freedom Tax will be phased in to reduce immediate disruptions to markets and to the expectations and lifestyles of Americans. The easiest mechanism to do this is through a ratcheted increase in the tax on petroleum. When market forces push the price of petroleum higher, prices would be allowed to rise. When market prices decline, the Freedom Tax would ratchet up to maintain then current pricing. Such a mechanism has the added advantage of discouraging volatility and speculation in petroleum markets and providing a more predictable future for companies developing alternative energy supplies.
For the balancing tax reductions, in the current economic environment, the most rational tax based economic stimulus would be a reduction in FICA taxes, ideally in a 50/50 split of employee and employer contributions. Such changes would reduce the impacts of the least progressive aspect of our current tax system, immediately put more money directly in the pay checks of every worker and reduce the cost to businesses of keeping and creating jobs.
Shifting taxes away from discouraging job creation and instead taxing our nations unsustainable addiction to petroleum is a policy that everyone can support. So, how can we help gain your support, Mr. President?