Increasing Government Revenues and Reducing Foreign Energy Dependence by (1) More Domestic Drilling for Oil and Gas and (2) Raising Gasoline Taxes

President Obama had another bad idea when he proposed to use oil and gas royalties to support a green energy development fund to be managed by the government. See Obama's Energy Security Trap which says in part:

"Mr. Obama sojourned recently to Illinois to devote an entire speech to the Energy Security Trust, a proposal he first floated in last month's State of the Union. The president wants to divert $2 billion of federal oil and gas royalties to a dedicated fund for research on post-fossil-fuel vehicles. He presents the fund as a win-win-win-win-win. The technology to emerge from the research will "break this cycle of spiking gas prices." The plan is "nonpartisan." It will strengthen "national security." It won't add "a dime to our deficit." It is about "saving money" and "saving the environment."

Actually, it is mostly about setting up the GOP to abandon the position it has taken on energy after the president's string of taxpayer-funded bankruptcies, from Solyndra to A123 Systems. Using the carrot of federal drilling and the stick of "bipartisanship," Mr. Obama sees a neat way to squeeze yet more subsidy money from a bleeding budget."

Here's what I say about it.

No thank you, Mr. President. But here's another idea which would be beneficial to We the People as a whole and help alleviate our government's financial mess at the same time. Not only would it not add "a dime to our deficit." It would generate much needed revenue to help reduce the deficit in a meaningful way. So here goes.

We need more drilling and domestic oil and gas supplies. Perhaps one way to do that would be to lease or sell federal land to oil companies in a series of auctions (foreign suppliers could bid, too) and then have the government also share in the revenues generated therefrom. More domestic oil and gas supply and more government revenues, both desirable goals, would be the result.

And here's another idea. Since incentives matter, both of the positive and negative variety, let's tax energy usage heavier. We could start with raising the gasoline tax.

Although certainly not to be greeted with joy by our politicians, energy companies, auto manufacturers or even most of my fellow citizens, here's my idea.

We should raise gasoline taxes now --- and by a bunch. That would discourage unnecessary energy consumption and also raise much needed revenues for the government. Both are necessary. {NOTE: And it could and should be done in a way that would minimize or entirely offset the impact on lower income individuals, so let's not get caught up in calling it a regressive tax on the poor and the middle class.}

But according to the NIMA (Not In My Administration) policy of governing, politicians won't enact it anytime soon. Besides, both We the People and influential lobbyists won't like the idea of higher energy taxes.

In fact, Republicans always insist that when using the word tax, it must always be followed with the word cuts. And Democrats always follow the word taxes with "on the rich." So much for using logic and common sense to curtail behaviors that need changing and raising revenues that need raising.

The Case for a Higher Gasoline Tax presents a compelling argument for higher gasoline taxes:

"{I}f our goal is to get Americans to drive less and use more fuel-efficient vehicles, and to reduce air pollution and the emission of greenhouse gases, gas prices need to be even higher. The current federal gasoline tax, 18.4 cents a gallon, has been essentially stable since 1993; in inflation-adjusted terms, it’s fallen by 40 percent since then.

 

Politicians of both parties understandably fear that raising the gas tax would enrage voters. It certainly wouldn’t make lives easier for struggling families. But the gasoline tax is a tool of energy and transportation policy, not social policy, like the minimum wage. . . . 

 

That is because a gas tax provides immediate, direct incentives for drivers to reduce gasoline use, while the efficiency standards must squeeze the reduction out of new vehicles only. The new standards also encourage more driving, not less.

 

Other industrialized democracies have accepted much higher gas taxes as a price for roads and bridges and now depend on the revenue. In fact, Germany’s gas tax is 18 times higher than the United States’ (and seven times more if the average state gas tax is included). . . . 

 

A higher gas tax would help fix crumbling highways while also generating money that could help offset the impact on low- and middle-income families. Increasing the tax, as part of a bipartisan budget deal, with a clear explanation to the public of its role in lowering oil imports and improving our air and highways, could be among the most important energy decisions we make."

 

And It's Lose-Lose vs. Win-Win-Win-Win-Win weighs in on the argument this way:

 

". . . one of the obvious solutions to our budget, energy and environmental problems — the one that would be the least painful and have the best long-term impact (a carbon tax) — is off the table. Meanwhile, the solution that is as dumb as the day is long — a budget sequester that slashes spending indiscriminately — is on the table.

 

Shrinking the tax deduction for charity is on the table. Shrinking Social Security, Medicare and Medicaid for the poor are on the table. But a carbon tax that could close the deficit and clean the air, weaken petro-dictators, strengthen the dollar, drive clean-tech innovation and still leave some money to lower corporate and income taxes is off the table. So the solutions that are lose-lose and divisive are on the table, while the solution that is win-win-win-win-win — and has both liberal and conservative supporters — is off the table.       

 

. . . in support of a carbon tax back in 2007, N. Gregory Mankiw, the Harvard economist, who was a senior adviser to President George W. Bush and to Mitt Romney, argued that “the idea of using taxes to fix problems, rather than merely raise government revenue, has a long history. The British economist Arthur Pigou advocated such corrective taxes to deal with pollution in the early 20th century. In his honor, economics textbooks now call them ‘Pigovian taxes.’ Using a Pigovian tax to address global warming is also an old idea. . . .      

 

According to the Center for Climate and Electricity Policy at the nonpartisan Resources for the Future, a tax of $25 per ton of carbon-dioxide emitted — through the combustion of fossil fuels used in electricity production, commercial and residential heating and transportation — “would raise approximately $125 billion annually.” This $125 billion “could allow federal personal income tax reductions of about 15 percent or corporate income tax reductions of about 70 percent, if all carbon tax revenues were used to replace current tax revenues. Alternatively, the federal deficit could be reduced by approximately $1.25 trillion over 10 years” — roughly what we are trying to do through the foolish sequester. Such a tax would add about 21 cents per gallon of gasoline and about 1.2 cents per kilowatt-hour of electricity. It could be phased in gradually as the economy improves.

 

Experts believe that the mere signal of a carbon tax would get companies to become more energy efficient. And that’s the point."       

 

Summing Up

If the government needs more revenues, and it does, and if the country needs greater domestic energy supply, and it does, and if conserving energy is also an effective way to increase our nation's domestic energy supply, and it is, why not both drill more domestically and raise gasoline taxes?

And other than for purely political reasons and perhaps incurring the wrath of some of We the People, there's absolutely no reason not to so.

So while nobody likes higher taxes, we can take steps which offset any new higher energy taxes with reduced taxes elsewhere. That would be a whole lot smarter than what we're doing now.

In fact, the negative impact of higher gasoline prices would likely be more than offset by lower energy prices resulting from the higher supply. Supply and demand forces at work, in other words.

And the increased government revenues would result from (1) leasing/selling government land and royalties from the added oil and gas and (2) the higher gasoline taxes, thereby enabling us to better control our currently out-of-control annual fiscal deficits.

That's my take.

Thanks. Bob.