Proposed Btu tax makes the most sense if implemented without subsidies
PRESIDENT Clinton's welcome proposal for a British thermal unit (Btu) tax could reduce the deficit twice as fast if it also milked an overlooked cash cow: federal energy subsidies. Washington spends tens of billions of dollars a year on subsidies, mainly to the nuclear and fossil fuel industries. It's better to let all energy options compete on economic merit.
Does it make sense to keep subsidizing a commodity heavily while taxing it lightly? The debate over energy taxes has miraculously missed this question.
Why not remove subsidies and price all energy forms closer to their true cost by applying an economically rational tax? This would not only at least double revenues; it would also revitalize business by encouraging more competitive levels of energy efficiency, free up enormous amounts of capital now invested uneconomically in energy supply, and reduce environmental damage from energy use. This market-oriented prescription would promote both conservative fiscal priorities and liberal social goals.
The proposed Btu tax is basically sensible, but would be even better if it cut subsidies, too. Direct subsidies include tax breaks, cheap loans and guarantees, and R&D funding, which goes mostly to "clean coal" (which isn't), nuclear fusion (which hasn't delivered any power), and nuclear fission (which now delivers less energy than wood).
The Department of Energy recently estimated total energy subsidies at $5 billion to $13 billion, but failed to include several pricey items such as many tax breaks and the Strategic Petroleum Reserve. The Alliance to Save Energy will soon release a study showing a real total more than twice as large.
These studies didn't even count major indirect subsidies. For example, peacetime readiness of American forces earmarked for Persian Gulf intervention costs taxpayers a whopping $50 billion a year. In a rational world we would spend this money on reducing dependence on foreign oil, or at least pay this cost at the pump and not from taxes.
Mr. Clinton's proposed Btu tax is estimated to bring in some $71 billion over four years - substantially less than what the government will meanwhile pay out in energy subsidies. The president has proposed to reduce (though not remove) some energy subsidies. However, most subsidies remain, and even more have been proposed for nuclear fusion, an uneconomic option.