Greening the Federal Budget—and Saving a Bundle
Policy + Politics

Greening the Federal Budget—and Saving a Bundle

iStockphot/The Fiscal Times

A leading environmental group, a centrist taxpayer watchdog and a libertarian small-government think tank on Tuesday jointly published their annual hit list of federal programs whose elimination, they say, would improve the environment.

With over a trillion dollars in sequestered budget cuts looming, is there any chance that this may be the year when somebody in Washington finally pays attention to the Green Scissors campaign, now in its 19th year?

Their latest report documented programs and tax expenditures that will drain the federal treasury of nearly $700 billion over the next decade while doing more harm than good for the environment. They range from the $90 billion for agricultural crop insurance to the $37 billion in loan guarantees to energy companies, more than half of which benefit nuclear power plants. The $4.5 billion in loan guarantees earmarked for alternative energy producers like Solyndra were also on the “do not fund” list.

Despite the inclusion of some green-friendly programs in the report, Friends of the Earth joined with Taxpayers for Common Sense and R Street, a free market-oriented think tank, to generate this year’s Green Scissors hit list. Sometimes a few babies have to get thrown out when the goal is draining a bathtub filled with dirty subsidies.

“We strongly believe subsidies are necessary to get us to the clean energy future we need,” said Benjamin Schreiber, a tax analyst with Friends of the Earth. “But we can’t continue wasting money on unproven technologies like carbon sequestration.”

By far the biggest subsidies under attack go to the fossil fuel extraction industries. Eliminating the oil and gas industries’ use of tax credits aimed at domestic manufacturers, their depletion allowance and royalty deduction would save $40 billion over the next ten years.

One of the largest programs called into question was last-in, first-out accounting for oil production, which is common to all U.S. companies. However, the U.S. is out of step with the rest of the world. When oil prices are rising, LIFO accounting allows oil companies to claim their productions costs are equal to the most recent and usually most expensive barrel of oil put into their pipeline.

“These tax breaks are utterly indefensible on free market grounds,” said Eli Lehrer, president of R Street, the two-year-old libertarian think tank that joined in the Green Scissors campaign for the first time. “They should be repealed in the context of broader tax reform that lowers rates for all businesses.”

The single largest savings targeted by the three groups was the $126 billion the government will transfer to the highway trust fund over the next ten years to make up for shortfalls in the federal gasoline excise tax. The levy has been stuck at 18.4 cents a gallon since 1993, when gasoline prices were a quarter to a third of what they are today.

Eliminating that subsidy would require higher prices at the pump to maintain the nation’s roads and bridges. Free-market libertarians back the move because it imposes the full cost of the public service – the nation’s highway network – on those who use it. Environmentalists support eliminating the subsidy because the ensuing gas tax hike would make transportation alternatives like bus and rail mass transit and electric and hybrid vehicles more cost-competitive.

The groups expressed hope that this year’s Green Scissors report will gain more traction on Capitol Hill than previous reports, even though it includes mostly programs that have been highlighted for elimination before. The only subsidy voted out by Congress  this past year was $39 billion in ethanol subsidies.

Yet there is still over $50 billion in crop subsidies in the latest farm bill. “The Senate is trying to expand” farm subsidies, said Ryan Alexander, president of Taxpayers for Common Sense, “while whining about sequestration and how hard it is to make cuts.”