An arbitrary formula of no durability has blinded the US government to more-solid steps it might take toward job-creating growth and fiscal health. Facing a cash-flow deficiency on Aug. 2, national leaders have linked action against the ballooning federal deficit to support for a higher debt ceiling. Democrats want to protect popular programs on which the government spends large sums and to increase revenue by selectively raising tax rates, including on oil and gas companies. Republicans want to cut spending and avoid tax increases. At the middle of last week, neither side seemed likely to yield.
Because foundational beliefs about economics and governance collide here, compromise by either side means defeat. One side has committed the US to deficit spending and expansion of government. The other side considers that course ruinous. Somehow, compromise is supposed to emerge from the assertion that tax increases plus spending cuts equal deficit reduction plus more debt.
Bogus formula
It won't work. The formula is bogus and dangerous for what it ignores. Tax rate increases don't automatically raise revenue. Lawmakers can ignore promises to cut spending. With deficit reduction thus subject to question, the calculus of compromise might yield nothing but more debt.
The mere possibility of such an outcome is intolerable. Massive federal spending has failed as an economic stimulant. New employment numbers showing almost no job creation in May and June highlight the failure of political engineering of the economy and underscore the need for a new approach. More debt for more spending will just add to worry about new taxes and higher interest rates, creating more drag than lift for the economy. National leaders should be looking for unneeded cargo that can be jettisoned to lighten the economic load.
The place to start is the Environmental Protection Agency. Under Administrator Lisa Jackson, EPA is an economic wrecking ball. EPA is raising energy costs with economically unbridled programs covering greenhouse gas emissions, ozone limits, and coal-fired power generation plants. It is discarding efficiency by rejecting a flexible permitting system for refineries and petrochemical plants in Texas. It is raising the blending limit for ethanol in gasoline in a move that many engine manufacturers fear will damage their products in automobiles and small equipment and start an avalanche of warranty claims and associated costs.
Last month, EPA demonstrated its recklessness yet again by setting requirements for renewable fuels in 2012 above supplies likely to be available. In 2012, refiners will have to sell 3.55-15.7 million gal of ethanol-equivalent cellulosic biofuel. Problem: No cellulosic biofuel is yet available. One US facility has registered to produce the mandated substance under EPA's credit system. It isn't operating yet.
This year's mandate for cellulosic biofuel is 6 million gal. Because the material isn't available, refiners must buy credits at $1.13/gal. In testimony at a July 12 hearing on EPA's latest proposal, National Petrochemical and Refiners Association Executive Vice-Pres. and General Counsel Gregg Scott called the result "a $6.78 million tax that NPRA's members must pay due to EPA's misguided optimism regarding cellulosic biofuels production." He urged EPA not to repeat the mistake, as it seems inclined to do, this year. And he warned against the imposition of similarly unachievable requirements based on unsupportable expectations for supplies of diesel made from biomass.
Cost and risk
Much that's wrong with the federal budget can be made right by a robust economy. But the economy can't grow as it can and should under a government that regulates with little regard for cost and practicability. EPA has been regulating that way since President Barack Obama took office. The US can't afford its excesses.
As national leaders haggle over the deficit, they shouldn't ignore this issue. Imperious regulation and runaway federal spending affect the economy in identical ways: By raising costs and increasing the risk of investment, they suppress work. As 14 million unemployed Americans can attest, this is precisely what the US doesn't need.
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