I have been asked by several people in the last year about the future of coal in the United States, so let me offer a few thoughts about that.
Last year, the coal industry produced just north of a billion short tons and exported about 10% of that. There are some who think that exports are going to be able to make up whatever shortfall in demand will occur as a result of fuel switching in the generation sector. That seems unlikely for a variety of reasons, not the least of which is port capacity.
We recently conducted a nationwide survey of 1006 registered voters (margin of error 3.1%) on a variety of energy and environmental issues. The results are fairly straightforward, but it is worth noting a few of the more salient results. These include:
- Debt and deficit issues are now viewed by voters as almost as important as jobs, but the economy continues to overwhelm both of those as the most important issue. Economic growth remains at the top of the American voters’ minds; we need to keep that in mind.
- When asked initially, respondents opposed a carbon tax 64%-22%. When asked later in the survey, respondents opposed a carbon tax 67%-23%. Read more
As you know, we conducted eight focus groups in February and March (Albuquerque, Billings, Pittsburgh, Philadelphia, Detroit, St. Louis, Cleveland, and Tampa). Additionally, we recently completed a nationwide survey of 1000 likely voters (conducted from 4/6 to 4/13, margin of error is 3.1%). The results of the survey are pretty straightforward, but I wanted to offer a few thoughts about particularly salient or noteworthy responses, as well as include some additional color from the focus groups.
Prices and Production. The production message is strong. Almost three-quarters of respondents (77%) said yes when asked whether increasing U.S. production could help moderate gasoline prices. That attitude is not de minimis either; 4 in 5 said that such an increase in production could help either “some” (32%) or “quite a lot” (57%). Even 52% of moderates and 38% of liberals think that additional production of oil would help moderate gas prices ‘quite a lot’. Additionally, 83% of total respondents agreed that increased U.S. production would reduce our dependence on imported oil.
As a corollary to those attitudes, respondents think that the federal government can do more. When asked (on a scale of one to ten, with ten being “quite a lot”) how much the federal government could do to affect the price of gasoline, the mean response was 6.5 (and the median response was 7). Ominously for the Administration, when asked what the President was actually doing, the mean response was 3.6 (and the median was just 3). That means that voters perceive a fairly significant gap between what can be done and what is being done.
As you know, we conducted eight focus groups in February and March (Albuquerque, Billings, Pittsburgh, Philadelphia, Detroit, St. Louis, Cleveland, and Tampa). Additionally, we recently completed a nationwide survey of 1000 likely voters (conducted from 4/6 to 4/13, margin of error is 3.1%). The results of the survey are pretty straightforward, but I wanted to offer a few thoughts.
The economy remains the primary issue; 61% identified it as either the first or second most important issue facing the United States (the second largest response was “jobs” at 29%). This leads to a thought that is tangential but important. Candidates, especially Republican candidates, at all levels have been inclined to discuss debt and deficit issues. There is no doubt that debt and deficit issues are important (19% of respondents indicated that the issue is either the first or second most important issue facing the United States). At the same time, more than three times as many respondents indicated that the economy was more pressing.
Those who believe that economic growth is essential, that it is imperative, that it is good might want to think about explicitly addressing the importance of economic growth. It sounds obvious, but if you think about the conversation of the campaigns, you will see that in many instances the need for economic growth remains without an advocate.
Given the amount of discussion surrounding a possible lame duck session of Congress, I thought it might be helpful to offer a few thoughts in writing about what issues such a session might address (as well as those it might not address).
The lame duck will be characterized by a intense burst of activity directed at expiring tax rates, automatic budget cuts, the debt ceiling, the payroll tax cut extension, and, possibly, (depending on the vagaries of the Supreme Court) health care. Consequently, it might be helpful to offer some context on each of these puzzle pieces. I apologize in advance for the generous use of numbers; it is unavoidable.
Tax rates. As you probably know, on December 31st our current rates revert to those in effect in 2001. Apart from rate increases (the new top rate would be 39.6%), the AMT fix also expires, and the tax rate on dividends would increase from 20% to 39.6%. In addition, it might be useful to remember that, starting in 2014, dividend rates for the rich (those couples with adjusted gross of $250,000 or more) are also going to be subject to a 3.8% surcharge (not a tax, if you please!) included in the Affordable Care Act.
On a macro level, estimates of how much it would cost to keep the current rates in effect range from 3.3 trillion to 3.7 trillion dollars over 10 years. Perhaps more importantly, there is fairly widespread agreement that about two-thirds of those benefits accrue to the un-rich (those households with adjusted gross of less than $250,000 per year). As a practical matter, that means that if the current rates are allowed to expire, the President could be accused of breaking his promise not to increase taxes on those making less than $250,000 per year. On the other hand, to protect those households from increases in both nominal and effective tax rates would probably cost north of 2 trillion dollars within the budget window. Consequently, it seems likely that the President (if reelected) will try to keep the current rates for the un-rich while allowing the rates to expire for the rich. That will provide him with somewhere between 1.1 and 1.3 trillion dollars in the budget window (for things like deficit reduction or tax reform), while also keeping an important campaign pledge.
Unfortunately for those who care about dividend rates, the math is almost precisely reversed. Best estimates suggest that two-thirds of all the tax advantages of lower dividend rates are realized by taxpayers with more than $250,000 in annual income. It seems very likely that rates for dividends for upper income taxpayers are ultimately going to be equal to rates for regular income (for our purposes, 39.6%).
Today’s vote in the Senate to terminate the 45 cents a gallon refundable tax credit to ethanol blenders was welcomed in some quarters. In others, it was the source of fear and loathing.
The point of contention is whether the elimination of a tax subsidy is tantamount to a tax increase. This is the continuation of a conversation that was started last month when Republican leadership, in an effort to win an argument, offered the thought that reducing certain oil and gas tax advantages were the same as tax increases.
But are they really?
The simple reality is that subsidies, whether administered through the tax code or through spending programs, are wrong. They are wrong because they are instances of theft typically perpetrated by a very small group of taxpayers on all taxpayers. They are also corrosive because they migrate economic and other decisions from individuals to governments.