Is a Fuel Rods Tax Such a Bad Idea?
The German government is seriously considering imposing a significant tax on nuclear fuel rods that is expected to provide the government with approximately 9.2 billion euros of additional revenue over a four year period. This new tax might initially make nuclear reactors less economically competitive compared to fossil fuel alternatives, but it could very well open the door for additional operating life and perhaps even new reactor construction.
Some of my fiscally conservative friends think this is a terrible idea that should not be emulated by any government – their theory is that if a government actually wants to encourage a beneficial technology, it should ease the tax burden and perhaps even offer subsidies to make the investment more attractive.
I have a rather convoluted thought to offer. If the tax is approved and the revenues start flowing into government coffers, much of the official opposition to nuclear energy will be silenced by the cash flow. When representatives stand up in future sessions to offer legislation that would force reactors to shut down before their end of life or that would severely restrict new development, other representatives will remind them that they will need to replace the revenues coming from the fuel tax. They will also mention all of the wonderful things that they are accomplishing for their people as the fuel tax revenues increase because more fuel rods are being sold to more and more nuclear power plants.
If nuclear energy is destined to grow its market share, everyone outside of the industry will want to know – “what’s in it for me?” They will want a clear benefit to them from the act of changing from active opposition to support for nuclear energy.
A significant source of the success of the opposition to nuclear energy in the US was that every time a new nuclear plant came on line, the local utility applied for an immediate rate increase. The general population complained bitterly to their elected officials for allowing companies to build facilities that produced more expensive electricity. If there is a well understood tax being collected on the output of the new facilities, perhaps the elected officials will help the population understand why their bills will go up a little as the clean new power sources are added to the grid.
Please understand that I am not advocating the imposition of a tax burden so high that nuclear no longer makes any economic sense, but just think – here in the US a tiny 0.1 cent per kilowatt hour fee collected on the output of reactors that were mostly completed 20-30 years ago raises nearly $800 million per year. A rapidly expanding nuclear industry could provide a substantial increase in revenues that might help to balance the very out of balance federal, state and local government budgets.
Standing by for the blasts of opposition.
“…much of the official opposition to nuclear energy will be silenced by the cash flow…”
Nuclear power is already providing lots of benefits for the government even without an additional tax. Lower electricity costs mean more money in citizens and businesses’ pockets, stimulating the economy, leading to lower unemployment and more tax revenues.
But these people don’t think logically: Germany has been forcing utilities to buy solar electricity for 57 Euro-cent per kWh, and now 39 Euro-cent, andl it will cost the ratepayers the fantastic sum of 100 billion Euros in the next 10 years just to subsidize solar/wind – that contribute nothing to the economy except a little less coal being or gas burned at the old power plants.
http://www.reuters.com/article/idUSTRE60E31Z20100115
http://www.bloomberg.com/news/2010-06-06/renewable-energy-subsidies-will-cost-germans-120-billion-wiwo-reports.html
Been reading for awhile, first time caller.
While I don’t think your idea is a *bad* one exactly, what bothers me on some sort of instinctual philosophical level is that you’ve basically described an institutionalized system of government bribes. We scratch their backs and in return some obstinate bureaucrat who wants bread-and-circuses for their district rubber-stamps our activities or at least agrees not to interfere too much.
But for better or worse that’s just how the game is played. Yes, I know. That’s exactly the problem, isn’t it?
Guest makes a good point: voters have many times in the past bitten the hand that feeds them, so their support for such a cash cow might not be automatic. But I still think it’s a good idea. The key is to frame it properly.
Robert Shiller, in his book The New Financial Order, suggests the reason for FICA’s longevity is the “C”: contribution. If it had been called FITA — federal insurance tax act — it probably would have been repealed years ago. Using the word Contribution softens opposition to it.
Similarly, if a nuclear-power-related tax were called something like Climate Change Contribution, I wonder how strongly people would oppose it. I bet not strongly at all.
I have informally focus-tested this idea on friends and acquaintances who are mildly to strongly anti-nuclear, and have been pleasantly surprised by their responses. Almost all of them say something like “well, you’d have to be able to really prove the carbon reductions.” To which I answer, “no problem.”
It matters little what sort of spin the Germans put on it, this scheme is nothing more than a negative carbon tax levied against non-polluters.
Let’s make this the Nuclear Jobs bill. All of the tax will go to grants that reduce the cost of building new nuclear plants! These would be construction grants not loan guarantees! Since nuclear provides more and better paying jobs than other forms of electrical generation, the tax would create more jobs per tax dollar.
Since the largest real problem with nuclear is up front cost, the tax would attack nuclear’s biggest biggest problem. This is a reverse of “a problem for one plant is a problem for all plants”. This tax would be “a tax for all plants is a solution for a new plant”.
I have another thought to offer along similar lines.
Let’s consider imposing a significant tax on carbon emissions that is expected to provide tens (perhaps hundreds) of billions of dollars of additional revenue each year. The entire tax could be returned to the public, equal shares on a per capita basis (half shares for children up to a maximum of two child-shares per family), which would be deposited monthly in bank accounts. We could call this plan something like “tax and dividend.”
This new tax might initially make carbon-intensive sources of energy less economically competitive compared to the alternatives, but it could very well open the door for additional operating life for existing facilities and perhaps even new coal plant construction.
If the tax is approved and the revenues start flowing into people’s pockets, much of public opposition to coal plants will be silenced by the cash flow. When representatives stand up in future sessions to offer legislation that would force coal mines, coal plants, etc., to shut down before their end of life or that would severely restrict new development, other representatives will remind them that they will need to replace the revenues coming from the carbon tax. They will also mention all of the wonderful things that they are accomplishing for their people (after all, who doesn’t like free money?) as the carbon tax revenues increase because more coal is being sold to more and more carbon-spewing power plants.
@Brian Mays – interesting allusions to previous Atomic Insights posts. Though I get your sarcasm, please think for just a minute about our current energy situation and the rather significant flows of money into government coffers from royalties and taxes. Don’t you think that at least some of the strength of the fossil fuel addiction and the enthusiasm for building coal plants in the 1970s and 1980s was partially due to a situation very close to the one that you describe?
Government bodies – like those that run Texas, Louisiana, West Virginia, Alaska, and even California – have always been pretty solid in their support of the fossil fuel industry because it represented both jobs and a direct source of government revenue. My point is that the nuclear industry should say that it, too, is a grown up industry that has a lot to offer to all of the rest of us. Clean, low cost, reliable energy, the ability to pay significant sums of money to the government, and the ability to provide numerous careers that pay family wages.
Unlike the other fossil fuel alternatives, nuclear energy is not a ward of the state. We do not need handouts to flourish; we just need permission to grow and compete for market share.
Rod, in my opinion, the system just doesn’t work this way. The state of Vermont is deeply in the hole, Vermont Yankee’s tax contributions are about ten million a year (lots of studies with different numbers) and the Senate voted to shut the plant down anyway.
Politicians and bureaucrats are not “rational” economic beings. As a private person, money motivates me. I am economically “rational” (at least partly)! In contrast, politicians and bureaucrats are motivated by getting and retaining power. At some very deep level, they don’t give a hoot where money comes from. (With the exception of their campaign money, of course.)
Rod,
I argue for my legislators to give up the heroin; not the opposite. We are taxed enough already. The proposal to tax fuel rods is just more heroin. This “habit” is what has driven California into the ground, and is now being fully embraced in D.C.
@Arcs_n_Sparks – though we might pay more than most people would like in taxes, apparently we keep asking our government to provide more and more services. Until we can agree on where spending should be cut, I guess I prefer a “tax and spend” government to a “borrow and spend”. That seems more fiscally responsible to me than our current path of partying like it is 1999 and passing the bill to our off-spring.
California used to be a wonderful place to live with a school system that was the envy of the rest of the country and a vibrant economy that was larger than most independent countries. Then some folks decided that taxes were too high and started initiatives like Proposition 13 to whittle down the tax burden. They also attacked businesses that paid high taxes and paid a lot of salaries.
I think that a lot of people that want more services are not paying much (or any) taxes, especially at the federal level, where we are approaching 49% of households not paying any federal income tax. That is what happens when you get on the heroin of other people’s money.
In California, something like 17,000 taxpayers carry > 70% of general revenue. This is in a state with 36 million people. The heroin is especially tasty. California is 50th in credit worthiness, and D.C. is following this failed model at a frightening pace.
@Arcs_n_Sparks – since FICA taxes have been used as part of the general revenue for decades, it is hard to find anyone that does not pay any taxes on their earned income. Those taxes start at 15.2% on the very first dollar earned. Of course, they also stop after you have paid them on your first $120,000 or so of earned income. They are not charged for all earned income above that level, not charged on bonuses, and not charged on unearned income from investments.
In the city where I have worked for the past 9 years, there are a large number of wealthy corporations that pay excellent salaries, often for make work projects. Most of them collect every dime of their revenue from the federal government.
If 17,000 taxpayers are carrying 70% of the general revenue of California, I wonder how many of those taxpayers wonder how to pay their next mortgage payment after being laid off when their job got exported or if they worry about where to find their next meal or if they worry about how they will send their children to the same quality of college that they were able to attend on instate tuition rates in the 1950s-1990s.
” it is hard to find anyone that does not pay any taxes on their earned income.”
Not that hard, since the Earned Income Tax Credit exceeds the FICA tax for lots of low-income families, leaving them paying less than zero net tax.
@Bill – are you jealous of someone in that circumstance?
I used to withhold the FICA taxes for the people who worked at the factory where I was the GM. I also helped some of them fill out their EITC paperwork. Few, if any received larger refunds than they paid in taxes and each one of the people who worked full time for a full year paid some income tax as well.
Where does this meme come from?
On the other hand, how many wealthy people do not pay income taxes due to the efforts of numerous lawyers and CPA’s. Why are the services of a plumber subjected to sales tax in many locales where the services of lawyers, accountants, and investment advisors are not?
Work for a tax preparer for a seaqson and you will change your opinion. My wife works for H&R Block in the lower income section of town (more returns means more income). More than 50% of here clients earn within $100 of the maximum amount that starts reducing the EIC payment. They know if they earn more they get less EIC. They then collect unemployment for the next 6+ months. She sees at least 100+ each and every year – always the same people. They walk out of the office with a check for $4000 (average) after paying for the preperation and getting a “Rapid Anticipation Loan” that costs them another $200-300. They then walk next door and pay 10% to cash the check. (last year they started giving “Emerald” cards which saves them a little money – but they realy dont care – they want the CASH.) Multiply that by 5-10 for her office and again four for the other four offices in that section of the city.
Yes, it is a true help for those trying, but at least half are gaming the system.
Technically, FICA is not a tax, it is a fee in exchange for future benefits (although is was originally, and incorrectly, called a tax to survive a constitutional challenge). Taxes are used to fund current-year expenditures by government and, increasingly, servicing the interest on crushing debt. Everyone needs to have skin the game; we cannot have half the country depending on the military and not paying for it.
There are good reasons why there is no aerospace left in Southern California, and Silicon Valley has not built a fab here in a long time: government hostile to business. Even the farmers are getting tired of the nonsense. Fortunately, many of those firms remain in the U.S. and move to more favorable states. Taken to the next level, government hostility will drive firms outside our borders, and the current administration seems to be doing a good job of that.
Hi Rod,
Well, I disagree. This tax looks much more like the tax on tobacco products than the FICA taxes. Tobacco taxes have been funding various programs and the programs are struggling now because the use of tobacco is declining. The tobacco tax is used to discourage use! I view the German tax on Fuel rods in exactly the same way. It is the kind of tax you apply when you are hoping to eliminate something.
Asking for politicians to impose a special discriminatory tax on nuclear power plants is kind of like asking the Somali pirates if they would like a special “protection fee” or perhaps a “pre-paid ransom” from American ships sailing by the Somali coast.
George Washington found himself in a similar situation with Barbary corsairs. When tribute was demanded from America for “protection” for America’s shipping, I believe he remarked “Millions for defense, not one cent in tribute!”
Of course this is an idealistic position; nuclear power plants don’t have the Marines to storm the shores of Tripoli in response to corsair depredations. Just because we might idealistically not want to negotiate with hostage takers in Third World countries, doesn’t mean that traveler’s insurance doesn’t contain kidnap and ransom coverage. Sometimes protecting what you have is more important than abstract principles.
Were, for instance, a plant to be faced with threats of closure due to political force majeure and all else had failed aside from a very risky court case, it might make sense to offer contributions to the state budget, especially if the contributions were to something that benefited the plant, directly or indirectly. Offering contributions to voc-tech schools might help develop a pipeline of personnel. Local aid might develop support amongst local opinion leaders.
You get the best overall result by just directly driving down the cost of energy and widening the access to cheap energy to a greater number of citizens. Energy is used to make almost all products built in the USA and is used to transport most products to market. Pricing up energy, including a fuel rod tax on the most cost effective energy sector delivering the cheapest electrical power, tends to make American products more expensive to foreign purchasers and tends to ship jobs and manufacture off shore to places where tax policy is more enlightened.
If you concentrate on just using improved forms of nuclear to drive down energy costs you will sustainably stimulate the economy and create jobs in the private sector.
“I have a rather convoluted thought to offer. If the tax is approved and the revenues start flowing into government coffers, much of the official opposition to nuclear energy will be silenced by the cash flow.”
I’m not so sure about this. Traditional wisdom is that politicians like spending money and therefore having an inflow of money for them to spend will be something they’ll be all over.
Unfortunately, it now appears our politicians don’t actually care about whether or not there is money coming in for them to spend or if the money for them to spend even exists. They’ll spend money that they don’t have, so why bother worrying about where the money is coming from?
As far as most politicians are concerned, there’s an unlimited supply of money called “The Federal Reserve’s Publicly Held Dept.”
Taxes and spending are no longer related. Taxes are now simply leveled on those the politicians don’t like and spending on anything and everything they can think of continues.
It will hit the fan eventually, and for that matter, it already has in many ways, but that won’t stop them.