McClaughry: The latest big idea — taxing heating fuels

By John McClaughry

Last week the House passed a bill that raised taxes on the wrong people to support a worthy cause for, in large measure, the wrong reasons.

Back in the 1970s, Vermont’s community action agencies, created to wage the war against poverty, hit upon the idea of weatherizing drafty homes of low-income families. This didn’t defeat poverty, but it improved living conditions. It produced, hopefully, energy savings that the weatherized families could spend on other things. It also allowed the community action agencies to offer low-skill jobs and thus incomes to mostly marginally employed young men with time on their hands.

John McClaughry

John McClaughry is vice president of the Ethan Allen Institute.

In 1990, federal anti-poverty funds for weatherization were declining, and Gov. Madeleine Kunin wanted to find some new money to keep the program alive. The result was an act that laid a gross receipts tax on all heating fuel.

When the Senate debated this bill, the advocates said that free weatherization would lower the fuel bills of the poor, and the money they saved would end up in their pockets. The critics observed that a decade of savings (recently estimated at 30 percent of annual fuel costs) could easily finance the weatherization without imposing higher fuel costs on other households and businesses. The advocates prevailed 18-12.

The critics back then presciently observed that tapping a new tax base would inevitably invite partisans of the program to push to increase rates whenever their program felt it needed more money. Of course they were right. In 2016 the tax on heating oil and propane was switched to 2 cents per gallon; the gross receipts base was retained for natural gas (.75 percent) and coal (1.0 percent.)

Now, after three years, the House wants to double the 2 cents per gallon tax rate for heating oil and propane to 4 cents per gallon, bringing in an additional $4.6 million. That would, the program manager says, enable weatherizing 400 more homes, and make the LIHEAP heating assistance funds go further.

Let’s agree that weatherizing drafty homes is a sensible thing to do. After a raggedy beginning in the 1970s, the local agencies have considerably improved the quality of their services. The question is, who should pay for it? All taxpayers? All heating fuel users? Or the people who benefit, paying over time out of their ongoing fuel savings?

The economically sensible solution is to finance weatherization at least in part out of the savings it produces. The VA, FHA and commercial lenders offer Energy Efficient Mortgages that allow homebuyers or refinancers to pay for weatherization out of the resulting energy savings. But the fuel tax advocates want to tax all homeowners and businesses to pay for other people’s energy savings, and let those other people pocket the dollars saved.

The businesses that use lots of natural gas — like OMYA in Florence — rightly see the fuel tax as making them less competitive. Many legislators opposed the fuel tax increase because it’s regressive. Gov. Scott said “It hurts the people we’re trying to help.” Speaker Johnson, though, sidetracked Rep. Cynthia Browning’s, D-Arlington, amendment to put the burden on high income earners — not a good solution, but at least not regressive. The House approved the fuel tax bill 81-60, suggesting that a Scott veto could be sustained.

Lurking behind the fuel tax bill is the compulsion of many legislators to show the world that Vermonters are bravely taxing carbon fuels to combat climate change. Rep John Bartholomew, D-Hartford, told the House that “this is an important bill that begins to address the challenges presented by climate change. … The time to find easy and inexpensive solutions to climate change passed long ago.”

Perhaps the most pungent analysis came from Statehouse Headliner journalist Guy Page: “Many climate-minded legislators seem fixed on remedies that most impact older, rural and low-income Vermonters: fossil fuel divestment of the state’s already challenged pension funds; direct carbon taxation that would fall most heavily on poorer rural Vermonters; subsidizing solar power and electric vehicle infrastructure favored by the wealthier; and now, doubling what fuel dealer Shane Cota calls ‘the warmth tax.’”

Instead of doubling the fuel tax on heating oil and propane and increasing by a third the tax on natural gas, legislators should shelve the fuel tax, leave the menace of climate change at the door, go back to drawing board, and work out something economically sensible that asks the beneficiaries to pay at least part of the cost, and is not a regressive tax on everybody else.

John McClaughry is vice president of the Ethan Allen Institute.

Images courtesy of Flickr/ and John McClaughry

12 thoughts on “McClaughry: The latest big idea — taxing heating fuels

  1. We can all agree that this is a carbon tax. At least most reasonable folks can. But here is the bigger issue and one that I find it hard to fathom that the part of the “poor” is willing to support. Unless of course they aren’t the part of the poor. Which I think the argument can be made for. But here is the bigger issue:

    I think the folks who still live in VT can agree. Heating fuel is a necessity.

    Why isn’t there a sales tax on food in VT? A tax on clothing items under $100, RX drugs, and soon to be no tax on feminine hygiene products. These are are all considered vital items of necessity. They jumped ship on fruit juices with 50% or less fruit juice in it to curb consumption. By the way how is that working out for you? Has consumption gone down or was this just another money grab too?

    Back on subject. How is it these folks are willing to DOUBLE the current tax on heating fuels when it’s considered a necessity? It’s double speak. The progs most certainly, and many of the dems are NOT the party of the poor. They are the party of the CARBON TAX, and will use any slide of the hand to get it passed. These guys won’t stop till there is nothing but cob webs in your wallets.

  2. Mr. McClaughry champions “economically sensible solutions,” for a legislature that has largely abandoned common sense. The tax is indeed regressive, though Vermont’s “sensible” Democrats have become quite adept at wrapping noisome legislation in visceral plastic to keep down the smell — it is Ok to have a regressive tax if “poor people’s homes are being insulated.” It’s ok to have a regressive and addiction-fostering lottery program because “the regressive money goes to education.” (This latter is a particular fraud, because offsetting education costs directly benefits the general budget bottom line — “tracing” this money is a fiction). This legislation employs similar fiction — the Legislature can reinsulate homes without a new tax: they can issue a new tax without reinsulating homes. They wrap it up in emotional tissue, and tie it with a heart-tugging bow. Yet it remains regressive, and very far from sensible. Perhaps they will raise the sales tax next year to provide free abortions for women made too poor (by fuel, sales, and other taxes) to raise children.

  3. We have had at least 35 years of weatherization programs. Vermont is a small place, and its time to analyze what has been accomplished with these programs. Going further, a couple of years ago, the Public utility Commission paid people a $100 to survey their house for energy use and losses. No one has yet to see the report, thus we lack any real knowledge of the condition of the housing stock, but here we are going to tax and throw more money at the undefined problem. My house was inspected and I can’t even find out what they found.

    Its gets even dumber when you think about the real problem, which isn’t drafts. They are easily fixed with better windows and door, but the real loss is with inadequate insulation. For most older homes the fix is to tear out wallboard, put in better insulation, replace the wallboard and paint the rooms again. — There is nothing in this plan to help people do that.

    If the state wants to help, let them set up interest free loans for this work, make the people getting the benefit pay it back. Otherwise this plan is just a socialism give a way by the progressives.

  4. What has the Governor been doing? Haven’t heard a word from him about all the mess that’s coming out of Montpelier. He wanted that position / job so bad to get re-elected, then nothing. On gun control, he sided with the opposition and his publicized position that he reversed. Out side money speaking? Another Jimmy Carter.

  5. All this carbon taxes is just for starters, because during legislative debate, it was stated “we can always grow it”
    That seems to be SOP in the socialist legislature.

    The Vermont Comprehensive Energy Plan, CEP, goal aims to “transform” the Vermont economy. It would require investments of about $33.3 billion, about $1 billion per year for 33 years, during the 2017 – 2050 period, per Vermont Energy Action Network 2015 Annual Report. The CEP could not be implemented without a very high carbon tax and other taxes, surcharges and fees of at least $970 million per year for 33 years.

    Any tax, including a carbon tax, passing through the hands of government suffers from “the sticky fingers syndrome”, 2 dollars go in about 1.5 dollars come out. The difference stays to feed the growing government bureaucracy.

    The key word missing in most discussions is UNILATERAL. VT’s government imposing on Vermonters a unilateral carbon tax is like shooting them in the feet.

    If the carbon tax were nationwide, I would support it.

    The carbon tax would:

    – Impose a $10/ton tax of carbon emitted in 2017, increasing to $100/ton in 2027.
    – Generate about $100 million in state revenue in 2019, about $520 million in 2027.
    – Be added to the fuel prices at gas stations and fuel oil/propane dealers.
    – Drivers should expect a tax increase of 9 c/gal of gasoline in 2018, increasing to about 89 cents in 2027.
    – Homeowners, schools, hospitals, businesses, etc., should expect a tax increase of 58 c/gal of propane and $1.02/gal of heating oil and diesel fuel in 2027.
    – A typical household (two wage earners, two cars, in a free-standing house) would pay additional taxes in 2027 of about:
    – Some of the carbon tax extortion would be at the pump, some when the monthly fuel bills arrive, and some as higher prices of OTHER goods and services.

    Driving = $0.89/gal x 2 x 12000 miles/y x 1/(30 miles/gal) = $712/y
    Heating = $1.02/gal x 800 gal/y = $816/y
    Total carbon tax in 2027 = $1528/y
    Sales tax reduction 5/6 x 1400 = $233/y
    Net tax increase = $1295/y

    – The hypocritical sop of reducing the sales tax from 6 to 5 percent would save that household about $233 in sales taxes, for a net loss of $1295 in 2027. That means such households, the backbone of the Vermont economy, would have about $1300/y less to make ends meet.
    – Many of these households have had stagnant or declining, spendable real incomes (after taxes, fees, surcharges; other recurring expenses, etc.), plus dealing with a near-zero, real-growth Vermont economy, since 2000.
    – With less real income, and higher real prices for goods and services, they also would have to make their own energy efficiency improvements.

  6. These socialists in Montpelier are elitists, or think they are, and care little whether people can afford more taxes for questionable results. Check and see how many are trust babies….. money seems to be a non issue to them.

    These same hypocrites are proposing a waiting period on purchasing a firearm. In 2018, 41559 firearms were purchased. A waiting period would have required an additional 41,550 trips across the state to purchase, then return home and then return another day to take possession of the single firearm. Instead of the 41550 trips to buy a gun it would have caused 81,100 trips to have bought a single firearm based on the 2018 data.

    How does that square with their fervent ideology of reducing the carbon footprint? It doesn’t, but they consider that acceptable as it is another ideological goal to reduce private gun ownership by enacting as many onerous firearm restrictions as humanly possible. Firearm data shows our gun laws (pre 2018) were working the best in the United States by FBI statistics, but that doesn’t fit their skewed and selfish agenda.

    Until we get these slugs out of Montpelier, people will continue leaving Vermont. Gun ownership will become a thing of the past. The ability to get to work, heat your home, etc. will become unattainable goals for survival.

    Because of Phil Scott’s hatred for Donald Trump, parroted by our lawmakers to go against his initiatives at every possible point (Health care, reducing governmental restrictions, etc.) Vermont has fallen as low as 50th out of all states in economic growth. Businesses are leaving, citizens are leaving, we are offering $10,000 for people to come here, etc. But again, belittling Trumps successes is part of their political agenda, even if it hurts the average working Joe.

    For whatever reason voters keep electing these out of state transplants that want to change VT to look like NY, MA, CA NJ and the like. Real Vermonters better wake up. You are losing your state.

  7. Question. How do the folks using electric heat get to participate in this wonderful fuel tax program? After all, it is my understanding that discrimination is against the law and I’m absolutely sure that the law abiding folks in Montpelier would never overlook an opportunity to obey the law and tax everyone.

  8. Tax, Tax, Tax………….. that’s the Liberal Legislators in Montpelier’s fix for everything including an
    agenda, now they want to show again that’s it’s only $.04 per gallon and will help 400 homes that
    will be upgraded for better efficiency ??…… who picks what homes receive this benefit ?? The
    same ones selling the upgrades ??

    How do they know there are 400 homes? maybe it’s 500, 600 or 1000 but then again maybe
    legislators will need $.05, $.06 or $.10 or…more per gallon !!…………. Shameful !!

    This is just a back door attempt for the agenda driven ” carbon tax ” if you’re a homeowner or
    vehicle owner things needed to survive every day they want your money and they know you’ll
    pay……………… If Legislators really cared about Vermonters they would be lowering ” Taxes ”
    instead of raising them

    The Sky is falling……Again !!

  9. Perhaps the eventual goal is to drive everybody out of any carbon fuels, and into all electric – with new miracle electric from some unknown source to power it all. First kill nuclear – then go everything Electric??

    My indoor fuel tank and everything else was “Red tagged” at the demand of the State, and all but the furnace must be replaced. Cost so far is likely $2500 to replace something working perfectly. AND, I quickly got a letter from State Gov’t urging me to convert to mechanized wood pellet heat – and listing the dealers from whom I might buy the bulk pellets, AND offerring a $6000 rebate ( money from heaven?) to “Help me decide)
    War on carbon anything.

    Heard anything about the “Ozone Hole” lately. Oh, just an earlier fraud ?!?

    • Pushing wood pellet heating units is a conflict of interest by the Fascist Taliban in control of Montpelier. They are controlling the means by which the home owner desires to heat the house. The wood pellet industry (lobbyists) must be handing out gratuities to the elite to get legislation to pad their (lobbyist) pockets. This has to be the only reason for this “red tag” legislation.

      List of dealers selling wood pellets—really? Take a truck to NH and save taxes.

      Not bad being a legislator, get salary, per diem, and have a lobbyist in the pocket.
      Follow the money. A dairy barn smells better than the Montpelier stench.

  10. I don’t think this should be done to my grandchildren who work so hard to support their own families to not be in low income but with healthcare ins which has puts a real strain on their budgets. You are taxing local real Vermonter’s out of the state.

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