Getting It Wrong: Energy Tax Policy

Getting It Wrong: Energy Tax Policy

by Clint Stretch

Winston Churchill said that Americans can be counted on to do the right thing, after we have exhausted all other possibilities. He might have added that we usually start with the least direct and most complex approach. So it is with the energy tax policy expressed in President Obama's FY 2014 budget.

The President is committed to a green energy future and his FY2014 budget contains a dozen and a half proposals to encourage transition to a green economy by rewarding investments in green energy and removing tax support for fossil fuels. Laudable as the green energy goals are, the budget proposals make a better case for a straight-forward carbon tax than they do for themselves. The proposals include $30.7 billion in clean energy-related credits, a continuation of the decades' old arguments over fossil fuel tax preferences, an accounting change that would fall heavily on major oil and gas companies, and repeal of the production activity deduction for oil and gas and coal activities...

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A better approach, albeit one that requires courage, would be a tough carbon tax that would support a real transition to a green economy by raising the price of fossil fuels. This price change would call forth innovative, free-market clean-energy solutions, with a minimum of interference from Washington. It could also generate substantial revenues for deficit reduction, lower rates or both. Hopefully, it will not take us too long to get to Churchill's promise of inevitably in coming to the right answer.

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