John F. Wasik: New treasury chief should make tax code go "green"

Posted by the Asbury Park Press on 07/9/06
HENRY PAULSON MAY BE just the man needed to "green" the U.S. tax code, permanently.

As chairman of the board of the Arlington, Va.-based Nature Conservancy and a donor to environmental groups, Paulson already has an abiding interest and expertise in land preservation and green causes.

What could be more fiscally patriotic than environmental tax policy? The new Treasury secretary could create jobs and expand the U.S. economy if he advances credits and deductions that support alternative energy, reduction of greenhouse gases and moving the U.S. bottom line toward sustainability.

The first order of business in crafting a more environmentally friendly tax code is to lobby for the extension of a raft of existing tax credits that favor everything from energy-efficient appliances to hybrid cars.

Consumer-energy credits cut your federal tax bill for qualifying heating and cooling systems, insulation, doors and windows, solar appliances and vehicles.

While Paulson is at it, he should extend these credits for 10 years and make them even more generous. Or he can support a bill called the Securing America's Energy Independence Act, which has similar provisions.

Buying a flexible-fuel vehicle or one that's powered by fuel cells? Get a flat-tax credit for 20 percent of the cost of the vehicle. Adding a solar water heater to your home? Obtain a rebate for 20 percent of the cost of the unit. Building a zero-energy home near public transportation? Get double the deduction on mortgage interest.

As it stands now, most of the major consumer tax credits offered in the last round of energy legislation expire at the end of this year, so it's a short-sighted "get 'em while they last" approach to energy independence.

The tax code also can be instrumental in providing carrot-and-stick incentives to inventors and manufacturers. It's a fierce global ballgame in environmental technology, and the U.S. isn't necessarily leading the way.

Realizing the economic importance of climate protection, Germany, for example, has 19 percent of its exports represented by green technology, according to its Environment Ministry. Its green sector employs 1.5 million workers and it has numerous incentives to support renewable energy.

In contrast, the U.S. once had an 80 percent market share in photovoltaic equipment. Today, it's about 25 percent, according to the Apollo Alliance, a Washington, D.C.-based clean-energy coalition of labor, economic and environmental groups.

Promoting green technology has many economic and social dividends.

Environmental tax breaks can create jobs and could help replace the estimated 3 million manufacturing positions that have been lost since 2001.

For every megawatt of alternative power produced, the alliance estimates seven jobs are created in the photovoltaic industry, six in geothermal and three in wind power. At present, the U.S. alternative-energy business employs only 116,000 workers, according to the Union of Concerned Scientists. Tax incentives could fuel the expansion of solar, fuel-cell, biomass, wind and geothermal industries.

Tax breaks can translate into energy independence down the road. Here's a triple-play combination: Paulson could claim he's improving U.S. energy security, aid an export industry that can sell to countries such as China and India, and reduce trade deficits. As a result, such a policy may even bolster the value of the U.S. dollar.

Say you were funding a project to convert coal into gas cleanly, a badly needed technology that would benefit coal-rich countries such as China, Germany, Poland and the U.S. Keep in mind that coal-fired power-plant emissions circle the globe, so we're all breathing that pollution and suffering from it.

Why not rebate federal income taxes or offer tax credits to companies committing capital to this research and development? That policy also could extend to fuel-cell, battery, solar/silicon technology and any legitimate research to save or produce energy that doesn't create pollution or greenhouse gases.

Other ideas include expanded tax credits for home builders who construct zero-energy homes that produce their own power; for commercial office-building owners and managers who conserve and create energy; and for homeowners who save power during peak electricity-consumption periods.

Should he make environmental tax breaks the hallmark of his tenure as Treasury secretary, Paulson may not be greeted with open arms by Congress. At a time of record budget deficits, lawmakers will want to hear Paulson talk about revenue sources to replace the tax dollars lost from the green incentives.

Here's a hot potato that will cause some wincing in Washington: an increased tax on gasoline. That would create an incentive to reduce consumption and create a revenue stream for a national energy trust fund.

It's not such a far-fetched idea, though Paulson has already said in Senate testimony that raising taxes to close the federal budget deficit "would be a mistake." There's growing support for the tax from some unexpected quarters. Former Texas oilman and hedge-fund manager T. Boone Pickens recently endorsed this levy, for example.

Like the trust fund that collects taxes for future airport improvements and repairs, this money could be used for energy research and development through the existing U.S. Energy Department research labs.

Alas, a gasoline levy will probably be as popular as a direct tax on sport-utility vehicles or apple pie. Remember, though, that the current president's father, George H.W. Bush, supported tax increases to reduce the budget deficit during his term. Paulson, along with President George W. Bush, doesn't have to fret about re-election. They could do the right thing now and help the nation's economy — and the world's environment — far into the future.