Wednesday, August 15, 2007

From Oil to Energy Part III

Recently, I wrote a proposal and its follow up for getting our country energy independent. To say that my conservative colleagues were hostile to the proposal and everything related to it would be to make quite the understatement. I still believe in my proposal and more importantly, I still believe that energy independence is crucial to winning the war on terror.

Let me first explain my interest in this. I don't much care about global warming or any of that. The only thing that I want to accomplish is to reduce dramatically, 90% and more, the amount of money that Saudis and countries like them make when we fill up our cars or other vehicles. If we cut off the main financial source of terror, terrorism dies quickly.

I thought about it again last night. I tried a thought experiment. I thought what would Ronald Reagan do if he were faced with getting the country energy independent. Generally, I don't like to do such hypotheticals however in a thought experiment it seemed appropriate.

I believe that Reagan would try to resolve this problem with tax cuts. I think that he would have believed in the power of the entrepeneur and would do everything to give them the incentive they need and simply keep government out of the way.

Thus, my proposal is such: cut the capital gains, income, and dividend taxes to ZERO, for any entrepreneurial endeavor that involves alternative energy. This statement carries with it serious risk right away. How do we define alternative energy? What we are trying to do is reward those entrepeneurs that look to bring products on the market that challenge petroleum. The definition must be narrow and clear, so that activist judges don't use this for any number of their own pet projects.

As such, my definition of alternative energy for this purpose is any energy source that can be used as an alternative to oil as a means of providing energy. (I welcome all in the comments section to help strengthen to definition).

I would then lower to ZERO, the capital gains, income and dividend taxes of any company or division of any company which works on any source of energy that can compete with oil in powering anything that oil currently powers. (While the overwhelming majority of these would be sources to power automobiles, I want to open this up to anything powered by oil). It must be zero because we need to provide overwhelming and intense incentive for entrepeneurs to enter the alternative energy field. For instance, if the income tax is zero on alternative energy sources, I believe even the oil companies themselves would wind up investing heavily in their own alternative energy divisions and certainly much heavier than they are now.

In fact, with this sort of incentive I believe that we would be energy independent in five years maximum.

Now, let's go through some of the political pitfalls of a real politician not only proposing but trying to implement such a proposal. First there would be the liberals who would immediately propose a series of tax increases to account for the "massive" tax cuts, and loss of revenue this would likely produce. Second, in order to pass this legislation their would need to be compromise and the first compromise would be that the tax wouldn't be zero. This must be avoided. Unless the incentive is intense, no taxes at all, the revolution to energy independence would take too long, and in the meantime there would no doubt be some or a group of politicians that would muck up the progress by introducing regulation or taxes or who knows what. In order for this to work, it needs to be so intense that the revolution would be so quick that politicians don't get a chance to screw it up.

Finally, there is the dilemma of whether or not we would make such tax cuts permanent. If these tax cuts are temporary, then the intensity of the incentive is wiped away by the uncertainty of its continuity. Entrepeneurs aren't going to have much incentive of entering a new field to enjoy significant tax incentives, if they don't know that those tax incentives are still around just when they really start to enjoy them. On the other hand, if these tax incentives are made permanent then we probably would face significant tax revenue shortfalls even after the task has been accomplished, and furthermore would artificially overemphasize alternative energy at the expense of every other industry, beyond that which we need to achieve energy independence.

My proposal is to place a ten year window on the initial tax cuts however also placing another five percent tax reduction (down to zero of course) to any company that entered the alternative energy field in the first ten years. In other words, these tax cuts would last ten years, with Congress having the power to make them permanent, and any company that entered the field in the first ten years, would be grandfathered in to enjoy 5% reduced taxes on future alternative energy income, capital gains, and dividends, over all others.

All right, that is my proposal. Have at it.


Anonymous said...

Shame Ronald dismantled the existing alt energy policy, the ones that made the US 1st in wind and solar.

mike volpe said...

What kind of cars are powered by wind and solar energy? How did he dismantle them? If you despise Reagan as it clearly seems you go, then that is your loss. Anyone that doesn't appreciate the genius and greatness of Ronald Reagan is missing out in my opinion. That said, if you are going to attack him and be credible you really are going to have to be a lot more specific than that.