New USA Energy Policy

[NeilBlanchard]

Hello,

Here's a very good article from the Christian Science Monitor, on what the new USA energy policy looks to be:

A closer look at Obama’s energy plan

[croddie]

Nothing worthwhile here unfortunately. I do expect at least some good policies from the new government, and more federally funded research into renewable power (good). An unanswered question is whether nuclear power will be supported vigorously or not (one of the Republicans' strengths and McCain's in particular has been backing nuclear power; let's hope that continues and new plants get built soon).

Rebate checks: ridiculous populism, both parties culpable. Just like windwall profits taxes. Can you imagine an economist saying: - oh, let's implement a distortionary income tax and give it back as a lump sum. - oh, look at my nicely designed business tax scheme, but we'll have to change it when firms make more profits than expected.

Hybrid vehicles: another populist move, not as good as alternative measures. Everyone can understand "environmentally friendly government funds hybrid vehicles". But the more effective and efficient fuel tax, which has traffic benefits as well as environmental, is somehow anathema.

Cut oil consumption: measures to reduce (like fuel/pollution taxes) are all well, but good luck cutting oil consumption when the price has just halved.

Require x% from renewable sources: fine but "I require ..." is hardly a policy.

Cap and trade: carbon tax is a more rational policy but cap and trade can do the same thing, just in a much more complex way.

[aristide1]

I say let's waterboard Cheney and find out what the old policy was. After all it's not torture.

[Mats]

I say let's waterboard Cheney and find out what the old policy was. After all it's not torture.

That one really made me laugh!!!

[jaganath]

more effective and efficient fuel tax, which has traffic benefits as well as environmental, is somehow anathema.

i suspect because it is a regressive tax which hits the poor hardest.

[xan_user]

I didn't see mentioned if / when Obama was going to put the Solar panels, that President Carter installed, back on the white house roof.
Regan removed them as soon as he took office. Reportedly because they were associated with hippies. (Gee, do ya think moves like this possibly sent the wrong message to Detroit?)

Strictly from a security stand point, you would think an additional power source that's not dependent on outside re-fueling or grid tie-in would be standard policy for all important government buildings. ?

[croddie]

more effective and efficient fuel tax, which has traffic benefits as well as environmental, is somehow anathema.

i suspect because it is a regressive tax which hits the poor hardest.

The income tax is very capable of dealing with redistributive issues.
A fuel tax doesn't hit the poor hardest (in monetary terms). The cost is an increasing function of income.
It generates revenue that you can use to reduce tax/increase rebates to help the poor, the rich, or both. You have a more efficient situation from lower pollution, lower traffic, and lower prices (before tax) all from the the effect on demand. (The last being an advantage to the US since it is a net importer of oil.)

[jessekopelman]

A fuel tax doesn't hit the poor hardest (in monetary terms). The cost is an increasing function of income.

Explain. How is fuel consumption in any way a function of income? I'd also argue that fuel is largely an inelastic good for the poor. Low income is a very good indicator of poor job mobility (ie one can't just change jobs to have a shorter drive to work and use less fuel). Meanwhile, how could a fuel tax possibly lower the cost of consumer goods? Such taxes are always passed to the consumer.

A far more progressive approach to solving vehicular pollution and traffic congestion is to invest in public transportation and make the bulk of the roadways into toll roads. Those whose time is worth a lot of money get to pay for the privilege of driving on well maintained congestion free roads. Those who can't afford to drive anymore can take the bus. It is interesting to note that this is very similar to Mayor Bloomberg's plan for NYC. Obviously this would be very bad for car manufacturers, no matter how fuel efficient their vehicles, but it would be karma. Almost every decent sized town had effective public transportation at the turn of the 20th Century and the car makers spent a lot of money to make sure they were dismantled in order to bolster the need for everyone to have their own car.

[croddie]

A fuel tax doesn't hit the poor hardest (in monetary terms). The cost is an increasing function of income.

Explain. How is fuel consumption in any way a function of income? I'd also argue that fuel is largely an inelastic good for the poor. Low income is a very good indicator of poor job mobility (ie one can't just change jobs to have a shorter drive to work and use less fuel).

I mean only that wealthier people spend more on fuel, on average.
Here is the first piece of data I could find:
http://dspace.udel.edu:8080/dspace/bits ... yIsGas.pdf
Look at figure 6. Multiply by income and you have a very increasing graph.
Actually not only is expenditure increasing in income but as a proportion of income it is also increasing up to $40k income, so even a tax without any redistributive correction can't be called regressive.

Meanwhile, how could a fuel tax possibly lower the cost of consumer goods? Such taxes are always passed to the consumer.

A tax on fuel will lower the cost before tax of fuel because of its effect on demand. That's an efficiency advantage for a country that imports fuel. It doesn't lower the cost after tax.

A far more progressive approach to solving vehicular pollution and traffic congestion is to invest in public transportation and make the bulk of the roadways into toll roads. Those whose time is worth a lot of money get to pay for the privilege of driving on well maintained congestion free roads.

I don't know what you mean by progressive but investing in public transportation is certainly important but doesn't eliminate the need for a fuel tax. There are pros and cons of toll roads vs fuel taxes but except for reducing congestion on specific roads fuel taxes are better because they do exactly what road taxes do while at the same time discriminating against inefficient cars, and without the implementation costs. However if congestion is the major problem they are probably better.

[jessekopelman]

I mean only that wealthier people spend more on fuel, on average.
Here is the first piece of data I could find:
http://dspace.udel.edu:8080/dspace/bits ... yIsGas.pdf
Look at figure 6. Multiply by income and you have a very increasing graph.
Actually not only is expenditure increasing in income but as a proportion of income it is also increasing up to $40k income, so even a tax without any redistributive correction can't be called regressive.

This is interesting data, but I'd argue that both you and the studies author are seriously misinterpreting it.

Figure 6 -- this is the graph of fuel expenditures as a function of income. One of the main problems with this graph is that it is by household. I would think that the greater the income, the greater the chance of it being a two worker household (ie double the work commute). Also, note the relatively steep falloff in percentage expenditure for incomes above $40k. Certainly consumption continues to increase with income, but economic impact does not. Thus any fuel tax would indeed be regressive. The definition of a regressive tax is one that has a greater financial impact on the person paying less money in taxes than on the person paying more. For example, let's say there were a new 10% fuel tax. The people in the survey earning under $70k would all see an increased tax load of at least 0.3%, while the %70k+ earners would only see an increase of 0.25%. The $70k+ people would pay more money, but they would be giving up a smaller percentage of their income to the purchase of fuel. That is the very definition of a regressive taxation situation.

A non-regressive solution would be to tax the vehicles and not the fuel. This is done to a very small degree today in the US and to a much larger degree in Europe. The main idea here is that it is the luxury vehicles that tend to get the worst gas mileage, so a tax based on estimated mileage is going to be a lower percentage on the cars poor people buy and a higher percentage on the cars rich people buy. By implementing such a tax so that is a function of both base price and fuel efficiency, the progressive nature could be further assured. The problem with this sort of tax is that one could argue that it could negatively effect the overall economy by lower profitability for manufacturers that in turn leads to job cuts. Another problem with this or any other federal sales tax designed to curb consumption is that States make a great deal of money both on sales tax on vehicles and on fuels. Less expensive vehicles and less fuel purchased means less revenue for the States and trying to offset this by redistribution of any new Federal sales taxes are doomed to bureaucratic inefficiencies.

[croddie]

This is interesting data, but I'd argue that both you and the studies author are seriously misinterpreting it.

I am not interested in the study btw, only the graph.

Figure 6 -- this is the graph of fuel expenditures as a function of income. One of the main problems with this graph is that it is by household. I would think that the greater the income, the greater the chance of it being a two worker household (ie double the work commute).

The effect is ambiguous (just reshuffling the graph a bit), and since the proportion of income is flat for a large part of the graph, it will still be flat afterwards, and so income still increasing. You need a very big change to make income decreasing and that wouldn't happen by changing to look at individuals.

Also, note the relatively steep falloff in percentage expenditure for incomes above $40k. Certainly consumption continues to increase with income, but economic impact does not...

Yes, the increasing function was absolute and not proportionate expenditure. The tax is very slightly regressive at the high end but this can be corrected by changing income tax. You can't decide on taxes on an individual bases applying e.g. socialist notions at each point; you need to evaluate as a whole. If you want to help the poor you can do it via income tax and make other taxes on the basis of efficiency.

A non-regressive solution would be to tax the vehicles and not the fuel. This is done to a very small degree today in the US and to a much larger degree in Europe.

This is very ineffective because you are not affecting usage of cars, only the types of car. There is no reason an inefficient car that is used infrequently (thus causing minimal pollution, traffic, and gas use) should be taxed as much as an inefficient car that is travels long distances (causing a lot of all of those things). You should tax the thing you want to hit.

The problem with this sort of tax is that one could argue that it could negatively effect the overall economy by lower profitability for manufacturers that in turn leads to job cuts.

All taxes negatively affect the economy but you can use the revenue to lower other inefficient taxes to give a net improvement.

[croddie]

On gas taxes:
http://gregmankiw.blogspot.com/2006/10/ ... festo.html

[xan_user]

Around here the wealthy's commute is a tele-commute.

They own business far away from where their works can afford to live, so the workers spend hours every day burning gas just to get to work.(to pay taxes to then in turn bail out the wealthy buisness owners after they rape the company for profits...)

Even if wealthy do spend more driving Ferraris, their fuel cost(tax) in relation to disposable income must be WAY lower than those earning less per year than the wealthy spend on sox and underwear.

Last year, in a 3 month period alone, i spent 1/16 my yearly income on auto fuel. If I had made a that $ 500,000 i was planning on making that would be $80,000 in gas. That's a hell of a lot of driving to do in one year, even if you have a Ferrari and a Hummer.