Taxation Policy

Two layers of taxation analysis are provided here.  First: Should the IRS tax solar-power generated, excess-electricity payments from utilities to solar array owners?  Here's a hypothetical question based on a real life example:

A erects a 10KW solar array on his roof and it generates more power than his home will ever need.  He uses a bi-directional meter and his utility sends him a check every year for the excess electricity that his array feeds into the utility's grid.

A then erects a second, 10KW array in his backyard and feeds 100% of that power into the same grid.  The utility pays him and issues him a 1099 each year to reflect the payments, suggesting that A must pay taxes on that gain.

A's home-array properly gets no 1099 because the check he receives is a rebate, not gain. 

Reasoning: A home power system is tied to a power bill that can be debited and credited, where most solar power system owners install only enough solar panels to net-zero their power bills.  Months of cloudy weather can result in the homeowner paying his utility money, while months of sunshine can flow the money back, as a rebate.  Over time, little or no net energy income is contemplated, and the accounting costs can be prohibitive.

In contrast, a separate solar array's sole purpose is to generate income.  There is no back and forth, no net billing process.  The separate array is not tied to a home power bill, and thus no see-saw money flow is contemplated.  That is why A will receive a 1099 for 2013 for the power purchased from that additional array.

For tax accountants: The litmus test is whether a bi-directional meter has been installed.  The solar home most often will have one (or, two separate meters, each tracking power in and power out so that net billing can be effectuated), while the standalone array will not (no need, since the array will never, ever, need to draw power from the utility's grid, so there is no need to net out electricity draws versus feeds).

Second, let's talk about Carbon Taxes.  All subsidization of solar power requires taxation to pay for it.  And subsidization is just another form of spending while “[o]ur national debt, at $15.8 [trillion], would form a stack of $100 bills 10,712 miles high.” (Source).

At the same time, history proves that if energy is cheap people will waste it. Also, a healthy free market economy needs unimpeded risk taking and that, in turn, requires a profit incentive not quashed by taxation.

So why not tax wasteful, environmentally harmful behavior (we already did, on a small scale, with gas guzzler and cigarette taxes) and not tax productive (green, job-creating) behavior?  Thus tax brown power (coal, gas, nukes) while exempting all forms of green power like solar.  This is (like California is going to do) carbon taxation by any other name.  By making brown power more costly, we would make green power more competitive. As David Frum writes in his "Let's Tax Carbon" column:

A tax of $20 a ton [of carbon-based energy], rising at a rate of 4% per year, would over the next decade raise $1.5 trillion, according to an important new study from the Massachusetts Institute of Technology. That $1.5 trillion is almost twice as much as would be recouped to the Treasury by allowing the expiration of all Bush-era tax cuts for upper-income taxpayers.

And "[a]ccording to a September 2012 study by the Congressional Research Service, a small carbon tax of $20 per ton — escalating by 5.6 percent annually — could cut the projected 10-year deficit by roughly 50 percent (from $2.3 trillion down to $1.1 trillion)."  (Source).  That's the better way to foster green power than allowing Politicians and their bureaucrats (the Pol-Crats) to squander our money picking winners and losers within a specific (solar, etc.) market sector.  After all, the whole point of subsidizing solar is to foster its growth to the point where it can price-compete on its own.  Taxing brown gets us there and brings in the revenue needed to address our $16 Trillion debt.

What would you rather do to help solve our fiscal problem: Give up your home mortgage deduction and wait two more years for Social Security and Medicare, or pay a little extra for gasoline and electricity? These will be our choices. I’d rather pay the little carbon tax, especially since it would clean up the air for our kids, drive innovation and make us less dependent on the most unstable region in the world: the Middle East.


To save tax-collection costs, government could tax at brown power's source -- every coal train leaving the mines, every barrel of oil sand extract, and every supertanker of oil arriving in port, plus every barrel of oil leaving domestic well heads.  It'd be like a value-added-tax and could displace an outrageously counterproductive, political-sausage-generated, crazy-quilted tax code that produces ridiculous results like this.

On the broader taxation issue, Charles Krauthammer got it right in summarizing Obama's 2012 State of the Union address, and his description also applies to America's federal/state mix of tax incentives (hence, solar subsidies): "a pudding without a theme: a jumble of disconnected initiatives, a gaggle of intrusive new agencies and a new generation of loopholes to further corrupt a tax code that screams out for reform."

We should tax not only brown power (yes, that will raise electricity rates and transportation costs, life's full of painful choices), but also resource-consumptive, completely discretionary goods and activities (yachts and recreational boats, heated pools, CO2-producing tourist travelgas-guzzling vehicles) while not taxing (hence, encouraging) conservational activities (green power profits, etc.) along with all forms of productivity, savings and investment.

I'd thus eliminate corporate taxes (like driving a car with the brakes on), estate taxes (don't tax twice) and income and interest/dividend taxes (never tax hard work and thrift!) but make up for it with "bad behavior" taxes on energy-consumptive/wasteful activities (again, gas guzzlers, tourist travel, non-commercial boating,  junk food, etc.), along with, if necessary, all brown-power sources (this will also make green power more price-competitive).

My point is this: “Environmentalism,” as well as taxation (a necessary evil) is all about choices.  Social and ultimately political choices.  The core choice is simple: Either roll with feel-good, band-aids (“Gee, why don’t we bring our own re-usable cloth bags to Kroger?”) or roll with altering mass lifestyle choices at the granular level, which brings a double-win: improved health for individuals and the environment plus a more efficient tax-collection system.

Granular-level change means re-examining the daily lifestyle patterns of “the masses” and deciding to change them wholesale. Example: I never, ever thought that within my lifetime smoking indoors would be eliminated.  It started with “cranks” like my physician friend in NY, who’d badger people in theaters to not smoke (he was ridiculed, dismissed as an A-hole, etc.).  It ended with pretty much every last city and town banning indoor smoking, some even banning “outdoor” smoking (street cafes, etc.).  The national anti-litter campaign in the 1960s also worked pretty well, too.  Civil rights laws also have dramatically diminished much of the overt discrimination that I witnessed in my youth. And cigarette smoking is down in the U.S., too.

Those mass-level changes were fomented in no small part by movements, then laws (affirmative, restrictive and taxational) that forced “the masses” to re-examine core behavior, then alter it.  A few “fringers” started a drumbeat.  Others slowly joined in.  It took decades to eliminate smoke in my face. But now it’s gone and I’m happy.

Mass-level lifestyle change is the only level that’s worth investing in.  Because band-aids at best are feel-goodisms feeding mass delusion/denial.  We want results, right?  I ask this of solar-electricity fans: How many fewer coal-burning plants will solar panels on every rooftop produce?  Few have thought that deeply.  I address it here, where I advocate a Free Market Solar Power emphasis and subsidies way second, and at most Feed-In-Tariffs.

Environmentalism is too often trivialized by feel-good, band-aid approaches.  And I view arguments about jobs creation/destruction as intellectually challenged.  Example: Any solar’s good solar, no matter how hair-brained the cost, “because it creates jobs.”  That’s like paying 10,000 men to move a hill of dirt with tablespoons rather than bid it out to the most efficient man with a bulldozer.  10,000 jobs were created, but was that the better way to go?

My “environmentalism” begins with a simple premise: Whether one believes in global warming or not, it can’t hurt to cut back on the low-hanging fruit -- the stuff we all do but could most easily live without and, if jettisoned on the mass level, would have a substantial environmental impact benefitting all of us.  Why not deter "bad consumption" and thus metaphorically grab that low-hanging-fruit environmental and mass-health benefit by taxing junk foods and cheap but dirty energy sources?  Why not price-manipulate bad behavior away and entice good behavior in the process?  Private employers, by the way, are already starting to do this by manipulating employee health-care contributions tied to negative and positive behaviors.  Taxation should do the same, though it can require some sophistication its implementation.

And just as my path-cutting physician friend did in the 1970s, I say start a drumbeat that ultimately leads to granular, mass-level change.  Fifty years after man ended whale-killing for lamp and heating oil, folks asked: “Do you really mean to tell me that you killed whales just for heat and light?”  Fifty years from now folks will look back with similar disgust and ask: “Do you really mean to tell me that you’d burn oil, coal and natural gas -- and suffer all those environmental consequences --  just for heat and light?”  

We know that two principle forms of governmental power alter mass behavior: laws and taxation.

Governmental regulation of junk foods (NYC’s limit on the size of soda pop bottles) is a waste of time and an erosion of personal liberty.  Taxing it works because it prices bad behavior.  Rich pigs will hold-out, sure, but Joe Six Pack will not.  The Hummers went to China; fuel-efficient cars now lead U.S. sales.  If only “the 1%" pollutes it’s inconsequential.  If the 99% pollute it’s fatal, which is why I project that China and Japan together will spend over $1 Trillion on Solar and Wind power by 2020 (they have no choice, they’re choking on their own air pollution and the US model of spending trillions on a military to secure cheap energy costs even more). 

Pricing bad behavior (junk food taxes, environmentally costly stuff you don’t need) is the better practice.  Taxing good behavior (job-creation, investments, savings, etc.) is counterproductive.  

That is why, whatever political banner one my fly under (Dems, Repubs, they’re all interchangeable retail politicians to me), it all dials down to using the power of the state to guide the masses toward a positive end.  My approach acknowledges our $16 Trillion dollar deficit.  Since we must pay off the national credit card and thus take some pain, why not deter “bad” behavior in the process by taxing it? 

This dials into the mindset of small-government fans like me.  We often prefer market (pricing) force over governmental force.  Bikers don’t want to wear helmets?  Fine, but you don’t get to transfer your (long-term-care from accidents) risk to us.  Hence, no motorcycle license may issue without documentation showing $2 a million personal injury protection policy.  You want to pollute our waterways with gasoline-spewing 2-cycle engines so you can pleasure-boat around on weekends?  Fine, but you’re going to pay a premium that not only covers clean-up costs but also offloads some of the taxes from the good-ecologic-behavior citizens (again, renewables like Solar PV are never taxed, while brown-power sources are).

But I say go further than that.  Take all that pollutes and stratify it based on what is and what is not necessary for basic living.  Basic living should be tax-free (fruits, veggies, whole grains), and “junk food” living should be taxed at a premium. That’s the core dynamic that I advocate here.

More on carbon taxes here.

Here's a comment to a wind-subsidy opinion piece that nicely sums up my feelings in this area:

All federal tax, insurance, and loan subsidies to energy resources should be killed including insurance guarantees for nuclear power plants, limits on the liability of offshore oil and gas producers, ethanol blending mandates, alternative energy tax credits, etc. Washington should focus its resources on high risk R&D investment, and let the private sector and state utility commissions make cost effective choices between competing energy resources. A Carbon tax that is fully offset by a reduction in federal corporate and individual tax rates, and incorporated into tariffs on imported goods would be the most economically efficient means of promoting higher energy efficiency, energy independence, and a cleaner environment.

Tax rates in Europe, where one country (France) is currently validating the maxim that wealth flows to where it's welcome and flees from where it's not:  

Sweden – the government takes 56.6 percent of earnings above $320,000
Denmark – has a similar figure but the rate kicks in far lower at $74,000
Spain – wealthy citizens have to hand over 52 percent of earnings above $390,000
Belgium – the top rate is capped at 50 percent but starts at an income of just $47,000
The UK – the top rate of 50 percent kicks in for earnings of more than $243,000 but that will drop to 45 percent in April
Russia – in contrast to all the above, it has a flat rate of 13 percent across the board.