There is a highly controversial natural gas bill floating around the House of Representatives, with over 180 cosponsors, written about here (also here and here).

The Daily Caller’s Chris Moody summarizes the debate:

The measure has 180 bipartisan co-sponsors, including many of the chamber’s most conservative Republican members. But some are crying foul over the special treatment that the government would be providing to the natural gas industry, arguing that it is not Washington’s role to “choose winners and losers” by offering tax credits to promote one energy industry over another. The bill’s proponents, however, say promoting natural gas — a plentiful resource in the United States — will help wean the country off foreign oil, provide resources to alternative energy sources and increase the nation’s energy security.

A coalition of nearly two dozen free-market and conservative groups sent a letter to members of Congress in March urging them to avoid new subsidies and tax credits, and they plan to blast anyone — especially Republicans — who do.

The divide is so deep in fact, that it has even split the libertarian advocacy group Campaign For Liberty, a co-signer of the March letter, with its founder, Texas Republican Rep. Ron Paul, who is co-sponsoring the tax credit bill. Paul discussed his support for tax credits during a recent interview with MSNBC, arguing that they are not subsidies, as his critics would call them, but rather another form of tax reductions.

Republicans in the House of Representatives are flocking to support a bill to extend and create a number of taxpayer-funded subsidies for manufacturers and buyers of vehicles powered by natural gas.   Nearly eighty House Republicans (and a hundred Democrats) have signed up as sponsors of H. R. 1380, the New Alternative Transportation to Give Americans Solutions Act (or NAT GAS Act).  Just call it the T. Boone Pickens Earmark Bill.

Many conservative Republicans in the House, particularly a number of new Members with Tea Party connections, have sworn that the fiscal and economic crisis confronting America requires a radical change in federal policies.  Out-of-control spending must be stopped; spending earmarks must be abolished; crony capitalists on the prowl for corporate welfare must be sent packing; subsidies for special interests must be abolished; government must stop interfering in the economy and let free markets work.

That big talk doesn’t seem to apply when the spending is being earmarked for a crony capitalist who is one of the biggest contributors to Republican candidates in history–billionaire T. Boone Pickens.  Apparently, some subsidies are good if they benefit the right special interests.  And government interference in the economy is wonderful if it is done in the name of reducing oil imports.

H. R. 1380 would extend the tax credit of 50 cents per gallon of liquid natural gas (or its equivalent of compressed natural gas) when used for fueling vehicles and provide purchasers of natural gas vehicles with credits ranging from $7,500 to $64,000.  The lower end is for passenger cars and the upper end for big trucks.  There are also credits for natural gas vehicle manufacturers and for installing natural gas fueling stations.

Why are billions of dollars of taxpayer-funded subsidies needed?  According to T. Boone Pickens’s web site, it’s because natural gas vehicles are cheaper to operate than gasoline or diesel vehicles:  “Even with higher initial costs (which will disappear as manufacturing ramps up) the life-cycle costs of NGVs [natural gas vehicles] are significantly lower.  Fuel costs are at least 15 percent less using natural gas rather than gasoline or diesel.”

So people need to be paid in order to make them want to buy vehicles that will save them money.  Yes, that makes sense: I always prefer the more expensive product unless there is a government rebate for the cheaper one.  Call it the Boonedoggle bill.

As for getting us off foreign oil, this claim is trotted out to support every payoff to special interests in the energy sector.  It’s a claim for which little evidence is ever produced.  What will reduce our dependence on foreign oil is producing more of it in this country.  What the bill will do is increase demand for natural gas, which will tend to increase prices for natural gas, which means a big payoff for T. Boone Pickens, who has invested heavily in–you’ll never guess–natural gas.

It’s sad to look at the list of conservatives who claim to be principled who have signed up to support the Boonedoggle.  Here’s the complete list of Republican sponsors as of today.  The chief sponsor is Rep. John Sullivan of Oklahoma.  Most surprising and perhaps most disappointing is Rep. Ron Paul of Texas, who claims that he votes against everything that isn’t in the Constitution.  I seemed to have missed the section of the Constitution that allows taking billions of dollars from taxpayers to give to fatcat billionaires and corporate welfare queens.  Call it the Pickens-Your-Pocket bill.

This stampede by conservatives, including several freshmen who identify with the Tea Party, to support the T. Boone Pickens Earmark Bill makes a mockery of their claims to want to cut federal spending, eliminate subsidies to special interests, and get government out of people’s lives.  We’re very close to returning to business as usual in Washington.

With the current partisan fighting over oil subsidies (and energy policy more generally), its worthwhile to look at energy legislation that has found bipartisan support: the New Alternative Transportation to Give Americans Solutions Act of 2011 (the NAT GAS Act, often called the Boone Pickens bill). It currently has 180 cosponsors, split roughly even between Republicans and Democrats. Joe Nocera likes it.

True fiscal/small government conservatives understand the danger of using the tax code to steer the economy. It has brought us ethanol, subsidized home ownership for the wealthy, etc. Populist conservatives-in-name-only don’t actually care about applying consistent principles, or often let their concern be overshadowed by campaign donations.

Which is why I was surprised to see Representative Ron Paul, principled libertarian/free-market extraordinaire, as a cosponsor. I spoke to someone in Ron Paul’s office, and they explained (roughly) that support for tax credits (i.e., industries paying less in income tax relative to the status quo) is consistent with Ron Paul’s support for lower taxes.

This YouTube clip seems to explain Paul’s position (he was asked about a bill to end tax credits for the oil industry):

PAUL: Well, how do you define a subsidy? I don’t consider any tax break as a subsidy. That was not a spending bill, that was not a grant.

…

I never vote to increase any taxes. I vote to always give tax credits, and I always cut spending. I’ve never voted for a real spending bill, so, I don’t think that is in the category of something I’d consider a spending bill.

Essentially, Paul’s position appears to be that any move to lower taxes is a good move. This position isn’t unique to Ron Paul. This post examines a similar fight over whether or not repealing the ethanol tax credit amounts to a tax increase that would violate a pledge to oppose tax increases endorsed by many conservatives. However, I think that supporting selective tax credits for industry is bad policy, and has the effect of steering the economy, something Paul doesn’t support:

Government cannot invest, it can only redistribute resources. Just look at the mess government created with ethanol. Congress decided that we needed more biofuels, and the best choice was ethanol from corn. So we subsidized corn farmers at the expense of others, and investment in other types of renewables was crowded out.

Now it turns out that corn ethanol is inefficient, and it actually takes more energy to produce the fuel than you get when you burn it. The most efficient ethanol may come from hemp, but hemp production is illegal and there has been little progress on hemp ethanol. And on top of that, corn is now going into our gas tanks instead of onto our tables or feeding our livestock or dairy cows; so food prices have been driven up. This is what happens when we allow government to make choices instead of the market; I hope we avoid those mistakes moving forward.

Flex-fuel vehicles, capable of running on 85% ethanol blends, mostly exist because of government policy (note, not technically due to a tax credit), and are largely considered to be a government-science-experiment gone wrong. Electric vehicles largely only exist because of enormous tax credits. This natural gas legislation will result in increased production of natural gas vehicles.

Paul wants to get rid of the income tax. Great. But is it a good idea to lower taxes (often at the behest of industry who come begging to Washington) in a piecemeal fashion? Given the constraints of a corporate tax rate already in place, lowering taxes for specific industries would seem to do more harm than good.

(Curiously, Paul has voted against tax credits for renewable power before. Note that these bill summaries don’t always explain the entirety of the bill, and Paul often will vote against bills for small provisions on principle, so this might not be inconsistent.)

Imagine two pizza companies competing against one another. Now allow one company to pay zero dollars in corporate taxes. They now have an unfair advantage and can potentially force the other company out of business via lower prices. Now phase that up into enormous industries like the natural gas, coal, or oil industry. Allowing these industries to pay lower taxes relative to one another distorts the most efficient use of our energy resources.

Cheers to Ron Paul for opposing subsidies. And I understand the difference between a “subsidy” where the government gives you money, and a “tax credit”, where you get to keep more of your own hard earned money. However, in the macroeconomic sense, the destructive outcome of either a tax credit/subsidy is often the same. Aim for overall corporate tax reform, not more individual deductions or credits that further distort economic activity.

And shame on all of the cosponsors on those bills who pretend to ideologically oppose picking winners, or who consistently vote against the same type of energy tax credits for industries that are less popular with their constituents.

Your hosts Richard Morrison and Jeremy Lott team up with special guest co-host Tim Carney to bring you Episode 73 of the LibertyWeek podcast. We start with happenings at COP-15 in Copenhagen and the suppression of Phelim McAleer’s Climategate questions (segment runs 0:45-7:00). We end with an interview with Tim Carney, author of the new book Obamanomics: How Barack Obama Is Bankrupting You and Enriching His Wall Street Friends, Corporate Lobbyists, and Union Bosses (available online and at fine booksellers everywhere).