An Industrial Policy to End Stagnation & Deficits, 09/27/10

Congress is obsessed with deficits, but raising taxes and cutting spending will not stimulate the economy or create jobs. There is a third way: develop an industrial policy for alternative energy to grow the tax base, produce jobs, and generate tax revenues plus reduce the trade deficit from imported oil.

The last two industry bubbles that made our economy soar have come and gone. There was the internet bubble followed by the housing boom and bust. Tectonic shifts in the economy are normal. Decades ago, it was widely accepted that economic growth was tied to the success of the automobile industry. Remember the phrase: As Detroit goes, so goes the nation?

Lately, many have suggested that alternative energy manufacturing would become the industry to provide the needed growth. However, the production we seek in solar panels and wind turbines is already being out-sourced and flowing here from other countries. But, it is not too late to intercept this trend and challenge. The U.S. should pursue a grand “moon shot” industrial policy for in-sourced alternative energy that will produce economic growth with manufacturing and installation jobs and needed tax revenues while cutting our dependence on imported oil.

A 5-Point Plan of Structural Incentives to Grow the Alternative Energy Industry:

(a) Federal subsidy of a Feed-In Tariff, the price at which green-generated electricity is sold back to the grid. The FIT has proven productive in other countries, and most recently in Canada (which has a high solar FIT but less annual light-fall than the U.S.);
(b) Federal adoption of a Value Added Tax that is a revenue-neutral replacement for the Corporate Income Tax, a VAT that is broad-based with zero preferences. The VAT will make imported energy systems (and all imports) carry an equal burden of taxation as domestic production, and will make exports cheaper. VAT credits for renewable energy investments should be considered;
(c) The VAT would facilitate the accounting and labeling of American Value Added (AVA); to receive federal subsidies, a high threshold for AVA should be required for the manufacture of alternative energy equipment, e.g., 80% AVA, to receive VAT credits;
(d) Restrict U.S. Patent protection to alternative energy systems that are at least 80% AVA in manufacturing;
(e) Federal backing for PACE municipal bonds (Property Assessed Clean Energy Bonds) with the implementation affording personal income tax deductions for both principal and interest to finance residential solar investment. Municipalities issuing PACE bonds should be mandated to purchase, for their own needs, domestically produced alternative energy systems and equipment.