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Actually, A National Energy Tax Would Be Good for Maine

In this season of interminable political ads, one Bruce Poliquin TV ad berates his opponent Emily Cain for supporting a “national energy tax.”  The ad says such a tax would be bad for Maine.  I do not know whether Emily Cain supports a national energy tax or not, but I do.  Contrary to the Poliquin position, I know that, on balance, such a tax would be good for Maine people.

It is always politically expedient to oppose tax increases.  No one wants to pay higher taxes of any type, but a revenue-neutral national energy tax on fossil fuels will create three important benefits for Maine.

First, these taxes can provide a stable funding base for highway maintenance and construction.  We all know that “Maine Roads Stink.”  Taxes on motor fuels are essentially user fees that ask those people who use public transportation infrastructure to pay the costs.  Gasoline taxes are perfectly tuned to charge people for vehicle weight and miles driven, the two most important factors in highway wear and tear.  The Maine way is to pay for what you use as you use it.  We should not have to borrow money and pay the extra borrowing costs to maintain our roads and bridges.  And there is no time like the present to raise gas taxes because of the low prices of gasoline.

Second, energy taxes are a means of signaling to consumers the costs of using energy that fall on other people, what economists call external costs.  This I detailed in an earlier blog post, Do You Have a Problem With Gas?  By raising energy costs we ask people to adjust their behaviors to reflect not just the costs to them of energy use, but also the costs they are imposing on others.  The costs of poor air quality and climate change are most important here.  Maine’s climate future would be better served if everyone in the U.S. used fewer fossil fuels to energize their lives.  There is no more fair or efficient means of doing this than a tax on natural gas, petroleum, and coal.  This approach is far superior to tax breaks and subsidies for so-called renewable energy.

Third, a revenue neutral tax on fossil fuels is one where another tax is reduced such that the total revenue collected does not increase.  The Brookings Institution has suggested a “Green Employment Tax Swap” where the increased energy taxes allow a reduction in the payroll tax, one of the most regressive taxes in the U.S.  If such a swap were in place to eliminate or reduce employer and employee payroll taxes on the first $5000 to $10,000 dollars of earning each year, it would both encourage people to work and firms to hire.  Perhaps more importantly, it would make the funding of Social Security and Medicare much fairer than it is now.  (Additional fairness would come from eliminating the exemption of payroll taxes on earnings over $118,500.)  All of these would make a revenue neutral tax on fossil fuels good for Maine people.

Mr. Poliquin, take note.  It is wrong to use the fear of higher taxes without admitting the benefits these higher taxes would generate.  The higher costs of energy would be more than offset by multiple benefits to Maine people.

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