Herman Cain’s plan is all fine and good, but a national sales tax won’t wash. So what will replace that component?
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Output —- Tax Levy —- Current Price —- Total Revenue
Coal: —- 1 billion tons $165/ton
—- $70/ton —-
Oil: —- 6.6 billion barrels $23/bbl —- $85/bbl —- $150 billion
Gas —- 2.2 trillion cubic ft $3/mcf —- $5/mcf —- $65 billion
TOTAL: $380 billion
The big impact is on coal, where the price would more than triple. About 92 percent of our coal is used for electricity, meaning that’s where it would be felt. Fuel makes up 77 percent of the costs of coal generation and we get 45 of our electricity from coal. That means the overall impact would be a 130 percent rise in electrical rates across the country. Now that may seem ridiculously unbearable to households and industry but don’t forget this is being coupled with a reduction of both personal and corporate taxes to less than one-third their present level.
The impacts on oil and gas would not be as severe. The tax would raise today’s oil prices from $85 a barrel to $108, but that’s where they were six months ago. There are 42 gallons to a barrel, which means the increase at the pump would be 55 cents a gallon. For natural gas the price would only rise from $5 to $8 per thousand cubic feet. It was $11 a few years ago. Consumers would hardly notice the difference.
The result would be to move us rapidly out of coal and into other means of generating electricity. But this is what we’re doing anyway, only under the ham-handed direction of the EPA. Solar, nuclear, and wind generation of electricity would suddenly become very economical and Solyndra subsidies could become a thing of the past. Gas prices would nudge people into fuel-efficient and electric cars while the government just sat back and watched. Foreign oil dependency would decline. Of course tax revenues would diminish as all these changes took place, but by that time Congress may have discovered some success in reducing spending. At least this would dispel MIchele Bachmann’s concern that tapping another area of taxation would be a new way of expanding the government.
There is one more thing. A carbon tax, coupled with 9 percent personal and corporate income tax rates, could possibly win the support of liberals and Democrats. This is important. Even if Republicans score a resounding victory in 2012, they’re not going to have a filibuster-proof Senate majority. Any effort to reduce or level tax rates will be met by a wall of opposition and we’ll be back to the same old stalemate. But if Democrats are willing to sign on to a carbon tax — after all, they’ve been crying for it for the past four years — then we might achieve a bi-partisan success.
Well, this is all highly speculative. But it’s something to keep in mind as Herman Cain’s 9-9-9 proposal gains ground in the public debate.
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