Assessing Obama and Romney Energy Economics
When it comes to re-generating the economy, who has the better plan? Is it President Obama, who is using government’s levers to increase consumer demand and consumer confidence? Or, is it GOP-hopeful Mitt Romney, who would reduce taxes across the board?
Both candidates, in fact, say that they support a simpler tax system whereby a plethora of corporate and personal loopholes would be closed in exchange for reduced overall rates. But, generally, the agreement ends there.
President Obama asserts that the Bush-era tax cuts caused federal revenues to drop off while his hands-off approach to regulating big business helped create the Great Recession. His prescription: Funneling nearly $1 trillion in stimulus monies to keep the economy liquid and commerce flowing -- billions of which went to green energy and smart grid enterprises.
The fairest tax system, he adds, is one in which the top corporate tax rate is reduced from 35 percent to 28 percent -- to be paid in part by cutting or eliminating the breaks and subsidies given to the fossil fuel industry. Repealing those tax preferences, he says, would not jeopardize the incentive to produce oil or gas.
In its most elementary form, the president’s proposals would eliminate specific tax breaks given to oil, gas and coal to the tune of about $41 billion over 10 years. Some of that money would be shifted over to help out renewable energy, including making permanent the production tax credit for wind that will expire in December.
“The tax code currently subsidizes oil and gas production through tax expenditures that provide preferences for these industries over others,” reads the president’s 2013 corporate tax reform plan. “The Framework would repeal tax preferences available for fossil fuels.” Such breaks, it adds, distort markets and serve to play down the strengths of green energy.
Romney responds to such policies by saying that his business background makes him exceptionally well-qualified to lead a recovery. He would reduce the tax rates for all Americans and offset those federal revenues by closing tax breaks given to both business and consumers -- loopholes that he has yet to define. By giving people more money to spend, they would then pump that back into the economy.
A Romney administration would propose reducing the top income tax rate from 35 to 28 percent while also cutting that of the lowest earners from 10 percent to 8 percent, all for individuals. For corporations, it would drop from a high of 35 percent to 25 percent. Now that he has selected Rep. Paul Ryan from Wisconsin as his running mate, he would likely incorporate some of the details from his proposed 2013 budget into his economic plan.
That plan passed the Republican-led U.S. House of Representatives in the spring. That blueprint is critical of what Ryan calls “crony capitalism” while also demanding a cut back in “corporate welfare.” And while that budget would target the tax breaks given to green energy and it specifically list such things as the wind energy’s production tax credit, it is less vocal about those breaks long-awarded to the fossil fuel sector.
The running mates’ economic visions could be blended. Romney says that his plan is “revenue neutral.” However, because he does not say which loopholes would be closed -- it could be those affecting oil companies or it could be those impacting mortgage interest deductions -- critics are skeptical. For years, analysts have been talking about shutting down these things. But in practice, the clamor is too loud.
Finally, Romney would eliminate the capital gains and dividend tax paid on stock-oriented investments for those married couples making less than $200,000 a year. Obama, meanwhile, would raise such taxes for those earning more than $1 million annually. Utilities, of course, attract those investors seeking stable dividend payments and would be opposed to any increase in those taxes, especially at a time when they will be required to make investments in new infrastructure.
The Brookings Institution’s and Urban Institute's Tax Policy Center dissected the Romney plan. Its analysts included two former economic advisors to both Bush 11 and Obama. They concluded that the tax cuts provided to high-income individuals would result in higher taxes on those in both the middle and lower brackets -- unless the campaign specifies its offsets, or where it intends to close off existing loopholes.
The presidential debate centers on the economy and jobs. President Obama and Mitt Romney have different visions, with one using government’s resources to induce confidence and to create a larger green economy and the other adjusting the tax code to spur growth and reduce deficits.
EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been named one of the Top Economics Journalists by Wall Street Economists.