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134 IRET Congressional Advisory 1 (2002)

handle is hein.taxfoundation/iretcgadv0131 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies thait will promote growth and efficient operation of the market economy. September 11, 2002 Advisory No. 134 THE ENERGY BILL CONFERENCE - FUEL FOR FOLLY The House and Senate have both passed energy bills, which must now be reconciled in conference. Judging from the contents of the two bills, the best outcome for the conference would be a deadlock and a return to square one in the next Congress. The House bill has three good features, but is saddled with a bunch of ill-advised tax credits and subsidies. The Senate bill has one good feature of its own, and lacks or waters down the good features of the House bill. The Senate bill has fewer subsidies, but adds mandates that would do The House an extraordinary economic passed enegy mischief..... miscief.now be recon~ The pluses in the House Judgingfrom bill are: two bills, the / confeence w Various provisions for faster an. d a retun t tax depreciation or fuller next Congress access to depletion or intangible drilling allowances for various conventional energy production and transportation properties against the regular corporate and alternative minimum taxes. Since the ideal tax treatment of investment is immediate expensing, faster or less restrictive write-off of these expenses is sound tax policy. The Senate bill has fewer and less generous provisions. - Phase-out of a 4.3 cent a gallon tax on railroad diesel and inland waterway fuel. - Drilling in a tiny corner of the Arctic National Wildlife Refuge. If OPEC insists on keeping world oil prices above the levels needed to make Alaskan oil competitive, it is of benefit to drill there. It cii 0 would add a bit to world supplies and help keep the OPEC price from going even higher. The Senate bill rejects this provision. The minuses in the House bill are: * A raft of so-called conservation provisions, including new or increased tax credits or mandates for producing energy from uneconomical non- conventional sources (e.g. a mandate for increased use of alternative fuels including ethanol, tax Senate hae both incentives for clean coal and bills, which must coal gasification projects, eagricultural and animal waste, detc.) or buying excessively st coesof the energy efficient products touc o t whose added cost does not d bie a deadlock match the energy savings (e.g. square one in the tightening of the deadly CAFE standards, and credits for 'alternative motor vehicles, energy efficient housing, solar hot water, and other items). These provisions are reminiscent of the silliest features of President Carter's moral equivalent of war energy policy. They would divert us from using cheap energy to using more expensive energy or energy substitutes. The market economy normally encourages us to take resources worth $.50 and turn them into output worth $1, adding value in the process. These tax credits and subsidies encourage us to take resources worth $1 and turn them into output worth $.50. This is not a bargain. It does not add to GDP, it reduces it. - A slew of research and demonstration projects, many of which should either be left to private sector e~sm S I ee~ a ~ee

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