President Bush’s proposed 2006 budget would raise the price of federal electricity from Columbia River dams closer to national market rates, as the Oregonianreports.
We proposed something akin to this in Tax Shift (download pdf, read pages 67-69) in 1998: letting power prices rise and fall with the market but transferring windfall profits to the region’s governments as royalties. This, in essence, is what Alaska and, especially, British Columbia do with their fossil fuels: they sell them at full price but claim what economists call the “rent”-unearned profit-for the treasury. In exchange for higher electric prices, residents of the region would get reductions in other state taxes, along with the more-efficient energy system and more-productive economy that would result.
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Unfortunately, the president’s budget doesn’t propose such a dollar-for-dollar shift. The extra hydropower price would suck hundreds of millions of dollars from Cascadia into the black hole at the US Treasury.
And Cascadia already pays some $9 billion more federal taxes to Washington, DC, each year than it gets back in federal spending, according to the Public Policy Institute of New York. (Idaho received $1.3 billion in 2001, net of its tax payments. Oregon paid $1.4 billion, on net. And Washington paid $9.5 billion, though it won’t pay out as much this year because its sales tax is now tax deductible. Alaska and Montana, like many other red states, also were net beneficiaries, while California was the biggest net contributor.)
The president’s proposal is the first half of a tax shift: a tax.
But some half steps are worse than no step at all.