Arizona Professor Mona Hymel, writing with Beth Wolfsong, has a paper called Americans and their "Wheels": A Tax Policy for Sustainable Mobility, accessible on SSRN via this link. Economists understand the use of tax incentives and subsidies to affect behavior that harms the environment or to encourage the development of fossil fuels and alternative energy sources. Environmentalists and social scientists are well aware of the societal and environmental impact of the automobile. Yet the authors note a regretable paradox.
One incredible, amazing technology--the car--gobbles tax-subsidezed energy as it takes us to our distant homes or jobs or malls exhaling noxious gases along the way. And yet, while more evidence stacks up pointing to the car as a key contributor to environmental decline the present tax structure in the United States drives our ever-increasing dependence on the car. ... This articles draws on economic and social research to advocate for the development of tax policies that address the destructive environmental realities of continued and increasing fossil fuel usage. New policies, however, must take into account who Americans are, both socially and cutlurally, and how they expect to live and travel." Id. at 1.
The article catalogues the historical incentives provided to the energy industry, noting that tax incentives for fossil fuels date to 1913, while energy-conserving tax provisions first appeared in 1978. Unfortunately, Congress has not developed a suitable strategy for moving away from fossil fuels--they still account for the vast majority of tax subsidies for energy. In fact, Congress has increased subsidies for fossil fuel as recently as the 2004 tax bill, which permitted producers and owners of royalties from marginal wells to take a oil depletion deduction in excess of their net income, and created a new tax credit for producing oil and gas from marginal wells. The tax code also allows investors to expense most of the costs of acquisitions of reserves.
As a result, Hymel and Birdsong report a tax rate differential favoring oil and gas producers: their marginal rates range from 8-9 percent for independents and 7-24 percent for integrated companies, compared to marginal rates in other industries of around 31-32 percent. They note that "[t]he various tax incentives available for conservation and renewable technologies are just a drop in the bucket when compared with the U.S.'s enormous investment in fossil fuels and its [sic] infrastructure." Id. at 20. The differential amounted to about $33 billion in tax subsidies for alternative energy and $106 billion in tax subsidies for fossil fuels. Id. at 22.
Even more discouraging, the article points out that "the 'environmentally-friendly' tax subsidies that purport to encourage alternatives further encourage dependence on the car and fossil fuels." Id. at 21. This is because the mixed fuels incentives actually encourage fossil fuel use, even though it may result in a more efficient combustion mixture. It does not result in less fuel use or less reliance on cars.
The authors' recommendations? Phase-out fossil fuel subsidies. Phase in conservation subsidies. Presumably the authors think the latter should include elimination of the parking fringe benefit, which they mention as hogging the majority (85 percent) of the tax subsidy provided for transportation fringes, with only 15 percent going for commuter highway transportation and transit passes. Develop alternative fuels. Presumably the authors are calling for more tax credits for renewable energy technologies, although they do not clearly say so. Develop a more sustainable society. The authors illustrate their concept of a "new society" with Portland Oregon, which has developed an urban plan to limit growth, force higher-density projects, and reduce automobile dependency. Are they suggesting that the federal income tax code should provide tax incentives to support such planned urban growth? Maybe what they are suggesting is that by eliminating the fossil fuel subsidies and encouraging the development of renewable energy, these societal and cultural changes will simply be easier to achieve. Those who develop tax policy should consider what kind of society is likely to develop from the kinds of subsidies and incentives provided.
Recent Comments