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242 IRET Congressional Advisory 1 (2008)

handle is hein.taxfoundation/iretcgadv0239 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 that will promote growth and efficient operation of the market economy. August 25, 2008 Advisory No. 242 THE GANG OF 10'S ENERGY PROPOSAL While Americans pay $4 per gallon at the gas pump, vast domestic reserves of oil, gas, and coal are being kept from development because of government edicts. Ten senators, five Democrats and five Republicans, have introduced a compromise plan that would tinker with the restrictions.1 The Senators call their plan the New Energy Reform Act of 2008 (New ERA), although they have not yet formally introduced it in legislative form.2 A far more sweeping reform would better serve the nation. With energy prices at heights that would have been nearly unimaginable just a few years ago, it would make sense to allow drilling in most of the areas the federal government has placed off limits, while retaining no-trespassing signs in only a few places of genuine environmental sensitivity.3 The self-described Gang of 10, however, proposes to unlock only a small portion of the reserves that are now off limits. In return, the senators would impose higher taxes on major oil companies, pour more taxpayer money into subsidies for uneconomical alternative fuels, and demand greater cutbacks in energy use from American households and producers. The main features of the Gang of 10's plan The heart of the New ERA proposal is $84 billion of additional federal spending, mostly for alternative energy programs. These include a $20 billion 'Apollo Project' like effort to support the goal of transitioning 85% of America's new motor vehicles to non- petroleum-based fuels within 20 years.4 Six examples of where the money would go are: $7.5 billion to help the auto industry to re-tool and re-equip ... in making alternative fuel vehicles, a consumer tax credit of up to $2,500 to retrofit existing vehicles to run on alternative fuels, a consumer tax credit of up to $7,500 to buy alternative fuel vehicles, tax incentives for alternative fuel pipelines, $2.5 billion for R&D on next generation biofuels and infrastructure, and grants and loan guarantees for ... coal-to-liquid fuel plants with carbon capture capability.,5 The government would deliver the money through tax credits, other tax incentives, loans and grants, and explicit outlays. In nearly all these cases, the fuel savings are not worth the cost. Oil would need to be far above its current price to justify these retrofits and other changes, and if it were, then people would make the changes without government subsidies. A second part of the plan is $84 billion of tax increases and other revenue raisers to offset the added spending. Almost $30 billion of this would come from the oil and gas industry in higher taxes and other charges. In particular, the plan would retroactively change the terms of some existing oil and gas leases in the Gulf of Mexico, and it would deny the major oil companies the section 199 tax deduction that U.S. manufacturers and producers received in the American Jobs Creation Act of 2004 (a 9 percent deduction that effectively reduces the corporate tax rate to 31.85 percent). The proposal calls for nearly $55 billion of other revenue raisers from elsewhere in the economy, but does not say whose taxes would go up. 8~em k3. S I ee~ I ~6I

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