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Wednesday, 25 July 2007 00:00

A new tax by any other name

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By John Hood • Guest Columnist

The North Carolina General Assembly seems poised to enact a new $300 million tax increase on North Carolinians this year, even though the tax burden has risen nearly every year since 2001.

Let me hasten to add that I’m not referring to the very real possibility that the House and Senate will choose to re-impose a sales-tax hike first enacted in 2001. That would cost North Carolinians more than $200 million. But it wouldn’t be new.

What would be new is the passage of Senate Bill 3. It’s an energy bill that would establish a Renewable Energy and Energy Efficiency Portfolio Standard, or REPS. That’s the technical term for forcing you to buy more-expensive electric power and charging you even more if you don’t run your household the way they want.

The REPS would come to 12.5 percent. This standard is a combination of two goals: that utilities would derive 7.5 percent of their total power production from “renewable” sources such as windmills and solar panels, and that consumers would reduce total energy use by 5 percent through conservation measures to be identified and subsidized under the law.

By itself, the renewable-energy standard will cost North Carolinians at least $310 million, according to an analysis by the N.C. Utilities Commission. In economics terms, this is a new tax. Consumers will pay $310 million more for their energy costs than would otherwise be true, and the cause is a government action.

Unfortunately, the $310 million cost figure isn’t the end of it. The other part of the bill, on energy conservation, has a host of complexities and potential effects. You might think if utilities give special incentives to consumers to purchase new appliances or implement other conservation measures, and then recoup the cost of those incentives by charging other consumers more, that there would be no net cost to consumers, only a change in who pays what. But it’s not that easy to assess.

Consumers already have an incentive to conserve energy — it’s called a price per kilowatt hour. To assume that future consumers will conserve only because of the provision of Senate Bill 3 is fallacious. Some would have conserved anyway, to save money for other uses, and if the bill passes they will simply be pocketing the proceeds of other consumers’ surcharges. That’s called a dead-weight loss, and is indeed another formation of state taxation of economic transactions.

Moreover, it’s far from clear that the specific conservation measures Senate Bill 3 would favor are the best-possible means of accomplishing its stated objectives (which are themselves of dubious value, I must observe). Changes in technology and other factors could make Option A, seemingly sensible today, not at all sensible a year or two or 10 from now.

Again, because households and businesses already have a straightforward incentive to learn about and implement conservation techniques — because they pocket any price savings they realize — it’s worthwhile to consider that there may be good reasons why they have yet to do so. Instead, Senate Bill 3 assumes that the government knows better how to operate businesses than their owners and managers do. Ditto for families and households. From such assumptions flow bad public policies.

For those keeping score at home, here’s the tally so far, then: 1) North Carolina has worsened significantly in the national tax-burden rankings since 2001, and now ranks first in the Southeast and among the top half of states nationwide in cost of government; 2) the General Assembly seems likely to re-impose more than $200 million in state sales taxes slated to disappear this month; 3) there is a serious effort underfoot to raise the state’s tax on automobile transactions; 4) there remains a lot of pressure on lawmakers to approve new taxing authority for local governments, which would further boost the tax burden; and 5) many senators and at least some representatives seem poised to enact a new $300 million tax hike on North Carolina consumers, via their electric bills, if not more.

Really earning their keep in Raleigh, huh?

Hood is president of the John Locke Foundation, a conservative think tank based in Raleigh, and publisher of CarolinaJournal.com.)

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