Tag Archives: pricing

Calculating the Value of Solar Energy for Ratepayers

Recently, I testified at the Rhode Island Statehouse regarding the impact of the state’s Distributed Generation Contracts law on ratepayers. In preparing the testimony, I realized it is important for legislators to have a tool to estimate those impacts under a variety of scenarios. I decided to create that tool for them, which is attached here:

Unger – Value of RI Solar

This isn’t intended to replace a full economic impact study, and actually significantly underestimates the positive benefit of solar for ratepayers. But it gives a general sense that cab hopefully help better inform policy related to renewable energy and utility regulation. Try it out.

Advertisements

Leave a comment

Filed under Economic Policy, Energy Policy

Facing The Harsh Reality Of Our Unsustainable Status Quo

Not since Hitler offered his solution to the despair of the great depression has civilized society faced such clear signs of serious danger.  Unlike that era, in which complex problems could be somewhat simplified in a focus on the persona of an evil man, the problems the world face today reflect the accumulated irresponsibility of a short sighted world view that has predominated modern culture for generations. Simple answers of good and evil don’t suffice. The harsh reality of historic flagrant irresponsibility is coming to a crescendo.

The tyrannical stability in the Middle East, that has under girded the western world’s dependency on cheap petroleum for decades, is being reconciled with the aspirations for freedom that our foreign policy rhetoric has encouraged, as the entire mid-east explodes with demands for legitimate governance and a just economy. As we launch yet another war in a Muslim country, the conflicted history of our “national interest” becomes increasingly clear, while the future of the petroleum supply to which our society is addicted becomes increasingly murky.

At the same time, the economic crises in Europe and America escalate with the risk of municipal, state and national insolvency increasing around the world. Large European financial institutions are lining up for more bailouts, while the ever more political power and wealth is concentrated in the “too big to fail” banks in the US.  The Federal Reserve is desperately propping up the bond market with irresponsible levels of  “Quantitative Easing” that will inevitably lead to high inflation, a significant increase in interest rates and greater challenges in funding future US treasury debt. The Fed also continues to accumulate the risk of the speculative endeavors of Wall Street as liabilities for the federal tax payers.

Meanwhile in congress, Democratic Party “leaders” argue the federal government should be spending $1.6 trillion more than it takes in, while the Republican “leaders” condemn the Democrats irresponsibility arguing we should only be burdening our children with $1,5 trillion in additional unsustainable annual debts to support the short term spending they can’t get under control.

With the recent earthquake and tsunami, the fantasy of safe nuclear power has been exposed, as the Fukushima nuclear disaster unfolds in the most technologically advanced and emergency prepared nation in the world.

Reading the news, there seems to be so many serious problems all at once and one has to wonder why there seems to be so few responsible leaders insisting on credible solutions.

Government spending can’t exceed revenues for long. Promising entitlements without realistic means of paying for them is neither kind or compassionate, but rather foolishly cruel and irresponsible, since those promises can’t be kept.  Merely calling it “investment” does not turn unsustainable spending into anything other than what it is.  True investments have realistically profitable projected returns. Unless someone can show how their suggested “investments” will provide significant financial returns and reduce the need for future taxes and spending, we should insist on a balanced budget every year, through reduced spending or increased taxation. We can’t afford more empty promises for a postponed mythical future responsibility based on unrealistic projections.

In a little over a hundred years, we have burned through about half the world’s petroleum and other fossil fuels reserves that have taken hundreds of millions of years to form. Do the math. How sustainable could that be? Even if fossil fuel reserves end up being many times those known today, we cannot pretend that future generations will benefit from the luxuries our generation has enjoyed through wastefully burning through so much of the world’s richest concentrated sources of energy. Our society can no longer allow energy companies to value these resources at the mere cost of extracting them from the ground, or even less with the insane subsidies that governments provide. We have to consider the value to society these stored resources represent and include that value in pricing the use of fossil fuels. What’s the right price? Hard to say. But if it will take another hundred million years to replace them, that price sure should be a heck of a lot higher than it is today. And the value shouldn’t go entirely to a few companies just because they have a permit to mine or drill.

Resources that have taken hundreds of millions of years to form should be treated as an annuity for society to be valued in a manner that accrues to many future generations. Like the massive debt being incurred to support our excessive government spending today, the waste of fossil fuels at unjustifiable and unsustainable low prices represents blatant theft from our children.

As for the chimera of safe inexpensive nuclear power, the evolving mess in Fukushima is once again highlighting the sheer lunacy of using such dangerous technology for producing electricity. After decades of research and compromise focused on Yucca mountain as the sole depository in the nation for nuclear waste, in order to garner the political support of Harry Reid for some short term policy initiatives, President Obama ended consideration of the Yucca Mountain project, abandoning the only option for nuclear waste disposal the US has ever seriously considered. Now and for the foreseeable future, like the waste causing problems at Fukushima, our nuclear waste is accumulating in temporary pools at nuclear power plants around the country, with no plan at all for what to do with materials that even nuclear proponents agree will be highly dangerous for thousands of years. Those waste pools, like the reactors themselves, remain attractive targets for terrorists and some will be casualties in the next not quite adequately predicted natural disaster or the inevitable accident caused by human error, aging equipment or some other unexpected factor. Even if nukes weren’t dangerous on their own, nuclear power is the perfect cover and  materials resource for the proliferation of weapons of mass destruction, both for rouge nations and terrorist organizations.

Perhaps the thing most crazy about nuclear power is that the nuclear industry is not remotely cost effective, so the federal government continues to subsidize nukes in all sorts of overt as well as indirect ways.  With the Price Anderson Act, the government absolves this most dangerous industry in the world from the need to cover its own liabilities with insurance in the manner that every other US business does. Without Price Anderson’s unjustifiably shielding an entire industry from responsibility for its real liabilities, no insurer would insure the industry, no investor would give nuclear power even the slightest consideration and the existing nuclear plants would be shut down instantly. No private investor considers nuclear power without the other huge subsidy of giant loan guarantees from the federal government. Meanwhile the nuclear industry’s research and development is funded almost entirely by tax payers.

As the federal government allows fossil fuels that took hundreds of millions of years to form to be squandered in a geological blink of the eye, while it subsidizes a nuclear industry that proliferates nuclear weapons, terrorist targets and the most toxic and radioactive byproducts known to science, we are told that solar and wind energy are not economically competitive. But wind and solar are actually very affordable and low cost in any sensible economic calculation that accounts for the real costs and values of the alternatives. While we squander billions in subsidies to fossil fuels and nuclear power while risking our credibility, the financial viability of our government and the lives of our brave troops in overseas wars to protect this Kafkaesque status-quo, we are told putting a real price on all these “economic externalizes” of our current unsustainable system is just impossible.

We are rapidly approaching the time we have to face the harsh reality that rather than sensible policy solutions that we are told are politically impossible,  it is in fact sustaining our current insane paths in energy and finance that is actually going to be impossible to justify or sustain.

How have these blatant and cruel abuses of our own children come to be accepted conventional public policy? Irresponsible politics is simply failing us. Unless we make some hard choices and real changes, our children face a future of deprivation, economic collapse and armed conflict throughout the world. Politicians who continue to believe they can spout empty platitudes while postponing hard decisions until after their next elections don’t deserve any consideration at all for re-election. The hard problems our nation and our world face need serious solutions now.

The politician that gets my vote is the one who is willing to develop a credible plan to repeal the Price Anderson Act, shut down the nuclear power industry, put a serious tax on fossil fuels while removing taxes on work and productive investment, end the wars and close most our over seas military bases, completely balances the federal budget, break up the “too big to fail banks” and make serious realistic reform to the unsustainable false promises that Social Security, Medicare, Medicaid and other social programs represent.

Hard stuff? – You bet. Disruptive? – No question. Can it all happen over night? – No way. But we have to start these hard conversations and address these hard policy questions in a credible manner – Now.

My college aged kids think I am an unrealistic  idealist for even suggesting such radical changes, even while agreeing that they make more sense than the current status quo. But it is increasingly clear to me that if my generation doesn’t act with some self constraint, their generation and my grandchildren will suffer a very diminished future.

There is a fundamental priority coded in the DNA of all life that creates opportunity for the next generation and for the future of the species. The selfish abandon with which we squander resources today and burden our children’s future has become like a cancer of immoral irresponsibility in our society. It is as if we have lost hold of the most basic premise and purpose of life itself.

We need to rediscover and commit to our moral obligation to future generations and make some very hard decisions as a nation. All sides need to just stop the political grandstanding and get serious. We need real leaders offering courageous calls for meaningful change.

2 Comments

Filed under Best Stuff, Economic Policy, Environmentalism, Fundamental Perspectives, Uncategorized

A New Tax Policy for the 21st Century

The following was published in the Spring 2011 Issue of Northeast Sun, the journal of the Northeast Sustainable Energy Association.

A New Tax Policy for the 21st Century

Let’s revitalize the US economy by replacing all federal revenues with a simple energy tax

America needs new answers regarding energy, economics and the environment. There are no real solutions on the table. And everybody knows it.

One radically simple proposal could work: Replace all federal government revenue with a simple energy tax. That may sound impossible. But it is a far more realistic approach to the problems our country faces than the pseudo-solutions that make their way through Congress these days.

This idea could inspire and appeal to Americans across the political spectrum while igniting an unprecedented era of economic prosperity. Along with radically reducing energy waste and pollution, it could release our society from the burdens and economic distortions of our current tax system, make our economy vastly more efficient and our industries far more competitive internationally, and provide the security of greater energy independence.

The numbers work

According to the US Energy Information Agency, in 2009 our country consumed about 18.8 million (18,771,400) barrels of petroleum a day, the equivalent of more than 287 billion (287,765,562,000) gallons of petroleum a year.

The Congressional Budget Office reports that all federal revenues for fiscal year 2010 were about  $2.2 trillion ($2,162,000,000,000). That includes all individual income tax, corporate income tax, investment taxes, social security tax, disability insurance, hospital insurance, unemployment insurance, excise taxes, fees, energy and transportation taxes, and every other form of federal government revenue other than debt.

Doing the math, if we replaced every source of government revenue with a tax on petroleum, that tax would be only $7.51 per gallon. And if you add the average mid-December 2010 cost of premium gasoline of $2.85 a gallon (before taxes), the total price on gasoline and other petroleum products would average about $10.36 per gallon.

That isn’t a whole lot more than average prices for premium gas in Europe in mid-December 2010, as reported by the US Energy Information Agency: Belgium, $7.42; France, $7.15; Germany, $7.39; Italy, $7.19; Netherlands, $7.93; UK, $7.31. And those countries are burdened with massive taxes on top of high energy prices.

Along with paying far more for petroleum, in 2009 Europeans paid about twice what Americans paid for natural gas and coal. If our federal energy taxes roughly doubled the price of both the billion-plus short tons of coal and the 23 trillion cubic feet of natural gas we consume each year, that could partially offset and reduce taxes on petroleum, leaving our overall level cost of energy around the same as Europeans currently pay—while replacing all other forms of government revenue completely.

To keep American industry competitive, the feds should also collect a tariff on goods from countries that don’t implement similar levels of taxation on energy. That unilateral action would do far more to spur responsible energy policy worldwide than well-intentioned but unenforceable international treaties. At the same time it could further reduce energy taxes or help offset the federal budget deficit.

Most sensible people would favor the opportunity to adopt a European level of energy prices in exchange for no government interference with business revenues and personal income: no IRS, no income taxes, no payroll taxes, no business taxes, no inheritance taxes, no government fees.

The obvious pushback

Many will argue that high price signals will encourage energy conservation and alternative energy resources, thus putting government revenues at risk.

Radically reducing energy waste and pollution is one of the fundamental benefits of this proposal.  Reducing the need for military adventures and compromised foreign policy to secure oil are other intended benefits. With the Congressional Budget Office reporting that federal expenditures are now more than twice what was spent in the year 2000, most Americans are also ready to see the excesses of government spending and intrusions into the economy constrained.

As the idea of tax shifting is taken seriously and refined, we can likely find consensus to tax other wasteful or counterproductive activities. With a shift to rational taxation, we can balance our federal budget and pay down our out-of-control federal debt, while more appropriately aligned market forces improve our lives and the environment.

We should begin the tax-shift conversation by recognizing how affordable it could be to align rational revenue policy with sensible market mechanisms that would encourage economic prosperity, job and business growth, broadly shared environmental and clean-energy goals, and the basic principles of personal freedom and liberty that our country was founded upon.

Big changes for big challenges

Minor adjustments to the sclerotic, contradictory patchwork of public policies that have emerged over the decades won’t address the massive challenges that confront our nation. As we face continuing economic stagnation and pass the era of peak oil production, it’s time to get serious about transforming our economy and restoring our economic productivity. We need to rethink the role of government and how we fund it.

It is clear from polls that most Americans are fed up with Congress, the federal government, and politicians from both parties. Everyone hates the complexity, irrationality, and obvious corruption of our tax system, which discourages work, productivity, entrepreneurship, job creation, and almost every other goal and fundamental value that our economy is purported to be based upon.

Think of the productivity gains that would be unleashed if businesses could make decisions based on common sense rather than manipulations of the tax code.

Think of the jobs that would be created if we no longer imposed punishing taxes on working and productive investment, if we eliminated the insane tax subsidies for shifting industrial productivity overseas, and if we eliminated the payroll tax penalties on hiring.

Think of the time, money, and talent that would be freed up if we no longer had to spend countless hours and dollars reporting our personal business to the government. The IRS itself estimates that about 7.75 billion hours of human labor went into completing 2009 tax forms—and that doesn’t include the vast amounts of time and money spent figuring out how to game the system and avoid taxes.

Making the transition

Change this profound couldn’t and shouldn’t happen overnight. We should plan a transition over at least fifteen years, first replacing the most regressive and counterproductive forms of taxation, like payroll taxes, with energy taxes, and then phasing out other forms of taxation while increasing energy taxes. The transition period would give businesses and individuals time to make appropriate plans and investments for the future. The certainty associated with substantial energy taxes would do far more than any other solution being proposed to encourage investment in energy conservation and clean energy.

To minimize the cost, complexity, and impacts of tax collection, energy taxes should be implemented at the wholesale level, at the mine, well, or port of entry. Another technicality that could help ease the transition would be a ratchet mechanism on energy prices. Whenever market forces pushed energy prices up, they would be allowed to rise, but as energy prices declined, energy taxes would rise at a matching rate. This would have the added benefit of discouraging unproductive speculation in energy trading markets.

Change this fundamental would affect every American. Inevitably, the winners and losers will lobby madly to turn a simple idea into the complicated sausage making that is the hallmark of Congress. But if we insist that its simplicity and transparency are critical to its success, perhaps a bold proposition like this could gain enough support to overcome the corrupting influence of lobbyists.

Why tax fossil fuels?

Energy is the lifeblood of a modern economy. The highly concentrated energy available from fossil fuels is a precious resource both for us and for future generations. Unlike metals or other materials that can be readily recycled in a prudent society, once mined and burned, fossil fuels are gone forever. They shouldn’t be squandered but rather husbanded wisely, as higher prices would encourage. Balance of trade deficits, compromised foreign policy, pollution, the cost of military entanglements, and other challenges resulting from our fossil fuel addiction offer clear reasons to focus taxation on fossil fuels. It is far past time to put a fair price on the costs of the traditional energy industry’s “economic externalities.”

Arguably, irreplaceable fossil fuels that have taken millions of years to form should be considered common resources that provide benefits for the common good. Although we begrudgingly accept being forced to pay such taxes today, government funding through the confiscation of the fruits of citizens’ work and investment is actually far less rationally or morally justified.

Finding broad-based consensus

We all need to overcome our fear of sensible change. This proposed tax shift represents a real test for clean-energy advocates, environmentalists, and political liberals, conservatives, and libertarians to all match our rhetoric with good policy solutions. Are conservatives really willing to effectively promote liberty, economic efficiency, and fair free markets? Are liberals able to admit that like so many federal policies they have supported, our convoluted tax system is completely failing to meet their progressive goals? Are libertarians able to admit that there is a role for government and that collecting taxes rationally is better than the corrupt irrational system of taxation we have today? Are environmentalists ready to support policies that are economically sensible? Are clean-energy advocates ready to compete in a fair marketplace rather than begging for government subsidies? Rather than blaming others for our nation’s problems, we all need to focus on finding solutions sensible enough to garner broad support.

Let’s start taxing waste and pollution instead of punishing people for working, creating jobs, and making productive investments.

Let’s try real market-oriented solutions and restore the economic competitiveness our nation enjoyed before every aspect of the economy was micromanaged by the government and manipulated for tax reasons.

Let’s encourage conservation of our limited fossil fuel reserves so we don’t impoverish our children, grandchildren, and planet with our profligate waste.

Let’s fundamentally reform the American economy with a government funding system that doesn’t undermine the most essential ideals and principles of our national heritage.

Let’s support an idea bold enough, simple enough, and compelling enough to actually work.

2 Comments

Filed under Best Stuff, Economic Policy, Energy Policy, Fundamental Perspectives, Politics

Pricing Energy

I’ve been thinking a lot lately about the price and value of energy. Generally I am a strong believer in the rationality and self correction of markets. But thinking about what we pay for energy in different forms, as measured in dollars per BTU, one sometimes has to wonder about how markets determine value.

In this article at the Oil & Gas Evaluation Report, I ran across a pretty amazing table (below).

The difference of values between natural gas and petroleum is pretty hard to explain on a $/MMBTU basis. Much harder to explain would be the difference in price between fuel  and beer. I know at least most beers taste better than fuel ethanol for instance, and the processes for getting that flavor is more complex than simple fermentation. But deep water oil drilling and petroleum refining aren’t cheap or easy either.

The amazing thing about these figures really is how little we play for energy. I wonder how long that can really last.

https://i0.wp.com/www.oilandgasevaluationreport.com/uploads/image/BTU.bmp

 

Leave a comment

Filed under Economic Policy, Energy Policy, Fundamental Perspectives

The Cheesy Nanny State

The New York Times reports that “While Warning About Fat, U.S. Pushes Cheese Sales”.

Domino’s Pizza was hurting early last year. Domestic sales had fallen, and a survey of big pizza chain customers left the company tied for the worst tasting pies.

Then help arrived from an organization called Dairy Management. It teamed up with Domino’s to develop a new line of pizzas with 40 percent more cheese, and proceeded to devise and pay for a $12 million marketing campaign.

Consumers devoured the cheesier pizza, and sales soared by double digits. “This partnership is clearly working,” Brandon Solano, the Domino’s vice president for brand innovation, said in a statement to The New York Times.

But as healthy as this pizza has been for Domino’s, one slice contains as much as two-thirds of a day’s maximum recommended amount of saturated fat, which has been linked to heart disease and is high in calories.

And Dairy Management, which has made cheese its cause, is not a private business consultant. It is a marketing creation of the United States Department of Agriculture — the same agency at the center of a federal anti-obesity drive that discourages over-consumption of some of the very foods Dairy Management is vigorously promoting.

Urged on by government warnings about saturated fat, Americans have been moving toward low-fat milk for decades, leaving a surplus of whole milk and milk fat. Yet the government, through Dairy Management, is engaged in an effort to find ways to get dairy back into Americans’ diets, primarily through cheese.

This story reminds me of my friends who ran a dairy farm in the 1980s. They got heavily subsidized by the Massachusetts Division of Food and Agriculture  to modernize their long unused dairy barn, buy some cows and get into the milk business in a state funded effort to promote local agriculture. Two or three years later, when the the US Department of Agriculture was trying to prop up wholesale milk prices, they were paid a huge pile of cash by the feds to slaughter their cows and promise not to sell milk for some bureaucratically determined period of time. So they went back full-time to the construction business just as the housing boom was starting to pick up and bought themselves a nice large sailboat with all the government largess.

Perhaps it just shouldn’t be the governments job to either market certain products, tell us what to eat, or micromanage whole industries. Why is a federally funded and mandated organization paying for Dominic Pizza’s marketing program? And why do the do-gooders in the federal government feel empowered to tell us what to eat?

Can we really afford to spend a fortune for one part of the government encourages certain activities, while other government bureaucrats are paid to discourage those exact same things? Wouldn’t it perhaps make more sense to stop squandering tax dollars on the nanny state and just let the market sort things out and treat citizens as if they had some responsibility for their own lives?

Once again, this story points out  the need for congress to clarify and restrain the role of government in our society. Though cutting government programs will be politically difficult, there sure are a few programs that seem ripe for not only cutting, but permanent elimination.

1 Comment

Filed under Economic Policy, Politics

Sequel To Bretton Woods?

Jeremy Warner suggests that “the age of the dollar is drawing to a close”. He doesn’t really suggest what new framework for international economic exchange might be established as the US dollar rapidly loses its role as the world’s reserve currency.

More and more it appears that, though it will likely never be proclaimed officially, we are returning to a commodity based valuation for all the world’s currencies. As our trading partners and international bond holders increasing lose faith in the value of the dollar and commodity markets shift to trading in several other currencies, the most effective commodity to track for understanding relative currency valuation will likely be petroleum.

In describing the death of the hegemony of the almighty US dollar, Warner rightly describes the G-20 summit as a “hopelessly unwieldy exercise in global government wouldn’t recognize a corpse if stood before it in a coffin.”

As the G-20 goes about the meaningless charades, traders in the commodities and currency markets will sort out the relative value of the worlds currencies. For a good sense of where the adjustments are headed in the long term, a look at the World Debt Clock offers some pretty clear hints. As bad as things are economically here in the US, and while everyone discusses the crisis in Greece, watching he debt clocks escalate, it appears that England and Ireland may play very prominent roles in future rounds of sorting in the world economy and currency markets.

Leave a comment

Filed under Economic Policy

Replace ALL Federal Government Revenue With A Simple Energy Tax

America needs a new answer regarding energy, economics and the environment.  Our current systems are failing and the solutions currently on the table won’t work.  And everybody knows it.

We also need to rethink how we fund our government. The current tax system discourages work, productivity, free enterprise, job creation and almost every other goal and value our economy is purported to be based upon. The anger growing across America is in large part inspired by the complexity and irrationality of our tax system.

It is increasingly obvious that it isn’t enough trying to address the massive challenges that confront our nation by making minor adjustments to the sclerotic patchwork of contradictory public policies that has emerged over the decades. And recent efforts at government micromanagement of the entire econ0my are clearly not going to work. It is pretty clear from the polls that most Americans are fed up with Congress, the federal government and with politicians from both parties.

But one real solution to address many of our most fundamental challenges is astoundingly simple, clear and bold. It is a solution that can be strongly supported by people across the entire political spectrum of America – once we overcome our profound fear of sensible change.

I propose that it is time that we replace 100% of our federal government revenues with an energy tax and in doing so completely unleash our society  from the burdens and distortions of our current counterproductive tax system.

That sounds completely impossible at first thought, but as shown below, the numbers work. It is actually a far more realistic proposal than all counterproductive pseudo-solutions to the daunting problems our country faces that make their way through Congress these days.

After the failures of the Copenhagen Climate Conference and the Cap and Trade corporate welfare scheme in the Senate, the environmental and clean energy communities are regrouping to figure out what’s next.

Many environmentalists are now jumping on board with the Breakthrough Institute and others who are calling for massive new government research and development for clean energy solutions on the order of the Manhattan Project or NASA’s mission of the 1960’s to put a man on the moon. Surely better technology will be welcome. But after all the recent waste our federal government has been involved in and the massive deficits we already face, it is highly doubtful that Congressional or public support for such a huge government effort will be forthcoming.

Others have long argued that if we are serious about reducing pollution from our wasteful energy system, making renewable energy cost competitive, spurring the growth of dynamic new energy industries, creating bountiful new job opportunities, reducing our dependence on foreign oil, improving our balance of trade deficit and all sorts of other notable goals – then we clearly need to raise the price of petroleum. And we should do it simply and completely transparently through an oil tax. But up until now everyone, including me, has been talking about timid energy tax solutions that are unlikely to be enough to either do the job or garner adequate public support.

Upon reflection, I’ve come to realize conventional solutions aren’t nearly enough. Neither a modest energy tax or  significantly increased public investment in clean energy technology,  while infinitely better than corrupt proposals like Cap and Trade, are bold enough solutions. Facing continuing economic stagnation, as we pass the crest of the era of peak oil production, it’s time to completely re-imagine political possibilities and get serious about  transforming our economy and restoring our nation’s economic productivity.

Replacing 100% of our federal government revenues with an energy tax is a transformative proposal that can inspire the American people and appeal across the political spectrum, while igniting an unprecedented era of economic prosperity.

Look at the numbers:

According to the US Energy Information Agency, our country currently consumes 19,498,000 barrels of petroleum a day, which is the equivalent of 298,904,340,000 gallons of petroleum a year.

All federal revenues for fiscal year 2010 are projected to be about $2,165,000,000,000. That includes all individual income tax, corporate income tax, investment taxes, social security tax, disability insurance, hospital insurance, unemployment insurance, excise taxes, fees, energy and transportation taxes, and every other form of federal government revenue other than debt.

So doing the math, if we were to replace every single source of government revenue with a tax on petroleum, that tax would only be $7.24 per gallon. And if you add in the full recent cost of gasoline of about $2.60 a gallon nationally, not even discounting for the federal and state taxes already built into that price, the total price on gasoline and other petroleum based fuels would be $9.84 a gallon.

According to the US Energy Information Agency, that isn’t significantly more than average European gas prices in March of this year: Belgium-$7.18, France-$6.98, Germany-$7.12, Italy-$7.06, Netherlands-$7.68. And those countries are burdened with massive taxes on top of high energy prices.

On average according to the US Energy Information Agency, along with paying far more for petroleum, Europeans paid about twice what Americans paid for natural gas and coal in 2009. So if we added to the energy sources being taxed to offset current federal revenues both the over one billion short tons of coal consumed each year in the US, along with the 23 trillion cubic feet of natural gas we consume annually, the overall level of fuel taxes could be around the same as  European energy prices, while completely replacing all other forms of federal taxation and government revenue.

Most sensible people would jump at the opportunity to trade a European level of energy prices in exchange for no IRS, no income taxes, no payroll taxes, no business taxes, no inheritance taxes, no government fees and no government interference with our business revenues and personal income.

For those who will inevitably scream this level of energy taxation will make American industry uncompetitive, the one other revenue source the feds should have is a tariff on goods from countries that don’t implement similar levels of taxation on energy. That unilateral action will do far more to spur other countries toward responsible energy policy than complicated well intentioned, but unenforceable climate treaties. At the same time it could further reduce our energy taxes, or perhaps help offset the federal budget deficit.

Of course change this profound couldn’t happen overnight and would need to be phased in. And inevitably in the transition, the winners and losers will all be lobbying madly in Washington to turn a simple idea into the inevitable compromised and complicated sausage making that is all Congress seems able to produce. But if we insist that simplicity and transparency are fundamental to success, perhaps a bold proposition like this could gain enough public support to overcome the corrupting influence of lobbyists.

Is this whole idea completely crazy? …..  Maybe.

Or maybe its so obvious and simple that the only reason not to consider it is all the special interests that will be completely upended by the elimination of our current corrupt and senseless tax system. Lets face it, this kind of change would impact every single American in a major way and will scare the hell out of many. But in the end, anyone honest will recognize that it would be a far more rational and sensible way to fund our government than the increasingly untenable ways we do so today.

Think of the business and investment potential it would unleash. Think of the truly free economy unfettered by manipulations of the tax code. Think of the productivity gains when businesses make decisions based on common sense rather than tax consequences. Think of the rebirth of American industrial opportunity when advantages are eliminated for cheap products from China being subsidized by their low cost energy, lack of environmental standards and the low cost of wasting fuel in transport. Think about the jobs created when we no longer impose punishing taxes on working, on hiring and on productive investment. Think of the jobs restored to this country when we eliminate the insane tax subsidies for shifting industrial productivity overseas and eliminate the payroll tax penalties on hiring people. Think about the time, money and talent it would free up when we no longer have to spend countless hours and dollars reporting our personal business to the IRS. (According to CNS news: The Internal Revenue Service  estimated that about 7.75 billion hours of human labor went into completing all of the 2009 tax forms and that doesn’t begin to count the huge amounts of time and money wasted figuring out how to game the system and avoid taxes).  Think of the personal freedom and productivity regained for everyone when we eliminate the entire irrational tax code.

Many will argue that people will start to conserve energy with high price signals, thus putting government revenues at risk. Radically reducing energy waste and pollution is one of the two fundamental propositions of the whole idea. And yes, significantly reducing the size and scope of the federal government is the other fundamental goal and benefit, one that would be a welcome relief to the vast majority of Americans.

Most Americans fundamentally trust and favor transparent market oriented solutions and don’t want the government meddling in our lives and in our economy.  Watching the sales of fuel efficient cars after the 1973 Oil Embargo, the 1979 Iranian Oil Crisis and the huge spike in gasoline prices in the summer of 2008, as well as the lack of interest in such vehicles when oil prices dropped, nobody should question the reality that unlike government programs, price signals actually  work to inspire the goals clean energy advocates hope to achieve.

This proposal is a real test for environmentalists, as well as political liberals and conservatives alike.

Are environmentalists really concerned about the environment, or as opponents often suggest, are environmental issues merely excuses for increasing the power of elitist bureaucrats to exercise government control over every aspect of our lives?

Are conservatives really interested in political freedom, economic efficiency and free markets, or is all their rhetoric really just a cover for protecting the special privileges and loopholes for increasing the wealth and power of the already wealthy and powerful corporate oligarchies in our country?

Liberals are bound to hate the idea initially because it removes all the redistributionist “progressive” aspects of our tax code. But based on the accelerating levels of wealth disparity in our country, the impenetrable complexity of the tax code and the hypocritical shenanigans that many prominent liberal politicians get caught using to avoid the tax burdens they want to impose on the rest of us, maybe its time for everyone to just admit that the current system is completely failing to meet those idealistic goals, which are negated by all the special loopholes embodied in the unreadable thousands of pages of the tax code. The reality is that when one includes payroll taxes in the overall calculation, our current tax system is neither progressive, fair or in any way rational.

Rather than everyone just pointing fingers and blaming the other guys for our problems, if we focus on finding solutions simple enough, bold enough and sensible enough to actually garner broad support, maybe maybe there is a possibility of rediscovering consensus in our society.

Lets start taxing waste and pollution instead of using the tax system to punish people for working, creating jobs and making productive investments. Let’s actually try real market based solutions and restore the economic competitiveness our nation enjoyed before every aspect of the economy was micromanaged by the government and manipulated for tax reasons.   Let’s encourage the prudent conservation of our limited fossil fuel reserves so we don’t impoverish our children and grandchildren with our prolifigate waste. And yes less sensibly prune back the over-reaching size and scope of our federal government.

Why single out fossil fuels for taxation? Energy is the lifeblood of a modern economy. The highly concentrated energy available from fossil fuels is a precious resource both for us and for future generations. Unlike metals and other minerals that can be readily recycled in a prudent society, once mined and burned, the concentrated energy in fossil fuels is dissipated and unavailable for future use. Arguably, those concentrated energy resources stored over millions of years shouldn’t be squandered, but rather be husbanded wisely, as higher price signals would encourage. Balance of trade, foreign policy, pollution and a variety of other reasons which almost everyone is aware of, further contribute to the selection of fossil fuels as the sensible focus for taxation.

Perhaps as this fundamental idea of tax shifting gets refined, we will find consensus to add other wasteful, dangerous or polluting industries to the mix of appropriate consumption taxes, so we can begin to balance our federal budget and pay down our out of control federal debt, while also making our nation a safer, healthier and saner place to live.

But we should start the conversation recognizing how surprisingly affordable it could be to align rational revenue policy with sensible market mechanisms that would encourage economic prosperity, job and business growth, broadly shared environmental and clean energy goals along with the basic principles of freedom and liberty that our country was founded upon.

Let’s fundamentally reform the American economy with a government funding system that no longer undermines the most essential ideals and principles of our national heritage. Let’s support an idea bold enough, simple enough and compelling enough to actually work.

3 Comments

Filed under Best Stuff, Climate Policy, Economic Policy, Energy Policy, Environmentalism, Politics