Energy bills in context

Nov. 5, 2007
The worst US energy legislation in years should be viewed in context. The House and Senate have passed destructive energy bills while losing control of federal spending and threatening to raise taxes.

The worst US energy legislation in years should be viewed in context. The House and Senate have passed destructive energy bills while losing control of federal spending and threatening to raise taxes. Although the energy bills certainly slap the oil and gas business, the broader context makes clear that Congress has no intention of confining pain to a single, unpopular industry.

If enacted along with many of the spending and taxation measures under consideration, costly energy law would be just one blow in an official pummeling of the US economy. Individually, some proposals can seem affordable. Taken together, they promise a system of twisted incentives and punishing costs. And they emerge from a dreadful ascendance of goodie-bag politics abetted by a tax system needing reform.

Spending spree

According to the politically conservative Heritage Foundation, the 110th Congress has passed legislation in its first 10 months that would increase federal spending by $454 billion and taxes and fees by $98 billion over 10 years. Even larger tax hikes are in prospect. In an Oct. 30 report, Brian M. Riedl, a fellow of the foundation’s Thomas A. Roe Institute for Economic Policy, says the congressional budget resolution would bring the projected tax increase to $2.7 trillion.

Lawmakers, of course, always try to camouflage their gropes for the money, which is partly why the oil and gas business finds itself under attack. House legislation would raise taxes on oil and gas production and spend proceeds on politically favored, uncompetitive energy forms. For consumers, replacing oil and gas with costlier alternatives is expensive. In fact, a governmentally induced jump in energy costs sounds more like a tax hike than the market-driven increases in oil and gas prices popularly fitted to the analogy.

Now lawmakers want to hike individual income tax rates. With energy, they coat mistakes with false virtues like energy independence. With taxes, they’re disguising mischief with a semblance of reform.

Rep. Charles B. Rangel (D-NY), chairman of the House Ways and Means Committee, on Oct. 24 proposed a bill that he said would cut tax rates for 90 million working families but that Republicans on his committee called the largest individual income tax hike in history. The legislation would repeal the alternative minimum tax (AMT), which was designed to keep the wealthiest Americans from escaping income taxation but has come to threaten millions of middle-class taxpayers. Repeal is in order. But Rangel’s measure would offset the revenue effects with, among other things, a 4% surcharge on upper-bracket taxpayers. Republicans say it would raise marginal tax rates-the key to economic effects-to 44% from 35%, well above the average of industrial countries.

Rep. Jim McCrery, the ranking Republican member of the committee, called Rangel’s claim about tax cuts “hokum” because of changes beyond AMT repeal. And he said insisting that AMT relief be offset by tax increases elsewhere would “lock Congress into a system where we are guaranteed to raise taxes by $3.5 trillion over 10 years.”

The threat of a huge, direct tax hike thus joins energy costs set to be lifted by government mistakes. The economy hasn’t been in this much peril since before the presidency of Ronald Reagan.

What’s needed

Neither energy nor tax policy should be this complicated-or this dangerous.

In tax policy, Congress should first repeal the AMT. That’s all: Repeal an economic mouse that became a monster without compensating for supposedly lost revenue Congress never intended to collect. Then it should reform the tax code to lower marginal rates and eliminate complexity. Lower rates would help the economy. Simplification would deactivate a potent tool of political misbehavior. Energy goals should be even simpler: maximum domestic production of commercial energy in a market free of political influence.

On too many fronts, Congress is yielding to political impulses at the expense of real virtues like fiscal responsibility, honest taxation, and economic energy. Its actions threaten long-term prosperity. Both political parties deserve blame. The one that reverses course deserves to win control of Congress and the White House a year from now.