Congressman Ron Paul, who campaigned as a champion of the free market, is proposing an energy “solution” that involves massive government interference with market forces:
In the wake of record gasoline prices, area congressman Ron Paul has introduced legislation in the House of Representatives that he says will lower both pollution and the cost of gasoline.
The bill, HR 6441, is called “The Energy Efficient and Environmentally Friendly Automobile Tax Credit Act of 2008.” Paul said the bill would, which will help Americans reduce pollution and the amount they pay for gas by trading in older, less fuel-efficient cars for newer models.
Under provisions of the bill, Americans would receive a tax credit of up to $2,000 when they sell or trade in a car and purchase a vehicle that has at least a 20 percent higher average fuel economy than the one they sold or traded in. The bill also creates a federal tax deduction for any state or local taxes paid on the purchase of the more fuel-efficient automobile and makes interest on loans to purchase the more fuel-efficient automobile tax deductible.
While this proposal is better than some of the more interventionist ideas we have seen coming out of the Bush Administration, Congress, or either of the Presidential candidates, it still falls far short of the “free market” solution that Paul claims it to be.
In effect, Paul’s proposal would increase the demand for new cars by, in effect, subsidizing the purchase of those cars. And what happens when demand goes up ?
As Adam Smith taught us long ago, and as the Austrian economists that Paul admires have also said, increased demand inevitably leads to increases in price, and when that increased demand is created not by market forces, but by government subsidies — whether in the form of outright cash payments or tax credits like the ones Paul proposes — they essentially create an artificial increase in demand that distorts the market.
The net result of the tax credit plan that Paul proposes, assuming that it would even work, would be to artifically increase the price of the very fuel efficient cars that his plan claims to make more affordable.
For a guy who talked a lot about free markets and getting the government out of the economy while he ran for President, this proposal is certainly surprising and entirely inconsistent.
H/T: Donklephant
July 10th, 2008 at 5:57 pm
Well, seeing that I have been looking forward to paying off the sodding truck note and not having my transportation mortgaged out another four years I don’t think I will have much use for this bill.
July 10th, 2008 at 6:02 pm
Raymond,
Not to mention the fact that proposals like this make replacing that truck with something else a more expensive proposition.
The most dangerous sentence in the English language is “I’m from the government, and I’m here to help.”
You wanna help us ? Leave us alone.
July 10th, 2008 at 11:13 pm
You said, “Paul’s proposal would increase the demand for new cars . . . ” You misunderstand the nature of a tax credit.
It doesn’t do anything except give money back and restore the market closer to what it’s supposed to be–free. It’s the definition of a tax credit.
July 10th, 2008 at 11:21 pm
Doug,
You strick again! Folks this guy also posts at the liberty papers. He lied to supporters by telling them he was a Ron Paul supporter yet the FEC filling shows no support from Doug. He did everything he could to undermine Paul’s run for office.
Doug, is nothing more then a beltway lawyer and is the problem with our nation and not the solution.
As far as Paul’s Bill he sure doesn’t understand the value of the bill.
I don’t agree with everything that Paul presents but I sure can’t stand people like Doug who are nothing but full of lies and dishonest actions.
July 11th, 2008 at 3:58 am
Spot on, Doug.
It’s a never-ending source of amusement to me how the Paulites claim to be for “free markets” without seeming to understand what the hell they actually are.
July 11th, 2008 at 6:03 am
Darel,
The only value I see in the bill is that it will force Ron Paul’s supporters to choose between supporting the man and supporting free markets.
Because this bill makes clear, you can’t do both.
July 11th, 2008 at 7:14 am
Brutus,
You comment would have merit if Paul’s idea was to simply give everyone a $ 2,000 tax credit regardless of whether they bought a new car or not and regardless of whether or not that car qualified as “fuel efficient”
(Question for the Paul supporters who like this idea — where in the Constitution is the Federal Government authorized to encourage the purchase of cars of any type or define what “fuel efficient” means ?)
But that’s not what Paul’s proposal is, it’s clearly meant to subsidize the purchase of new cars and its clear impact would be to artificially inflate the demand for said cars.
As a follower of Austrian economics, one would think Congressman Paul would see this for the bad idea that it is.
July 11th, 2008 at 8:28 am
Ron Paul has introduced bills before that he would vote against if brought before the House. He does this to appease his constituents, but he always votes in-line with the Constitution. It’s his way of balancing the two I suppose. Not sure if this is one of those cases.
http://www.house.gov/paul/congrec/congrec2008/cr070808h.htm
July 11th, 2008 at 8:32 am
Cara,
Then doesn’t that make him just another pandering politician ?
July 11th, 2008 at 9:12 am
I think all politicians (with no exceptions) are pandering to some extent, and some more than others. Personally, I have issues with his approach. He has received criticism for it - look up his interview with Tim Russert I think. Realistically, it would be very difficult for him to get re-elected if he didn’t have this type of legislation to show his constituents. Unfortunately, most people don’t care whether or not something is constitutional or not, whether it’s in-line with some economic philosophy or not, they just want life to be easier. More and more people are seeing the government as the most obvious vehicle to an easier life. You could say that he gives his constituents what they want, but sort of washes his hands of the matter by voting against it. Practically, I sympathize with his situation. However, from a principled standpoint, I disagree wholeheartedly. The question remains: how can politicians remain principled when faced with a largely ignorant, irrational constituent on the issues of economics and history?
July 11th, 2008 at 9:27 am
I’m a Paul follower and I agree this interferes with free market. Its still better than govts endorsing a specific technology, say subsidizing fuel-cell or hybrid. But still, this bill does not pass the standards set by Dr. Paul himself
July 11th, 2008 at 10:32 am
Doug,
Havent’t you heard the Paulistian rules?
1) Ron Paul is never wrong.
2) If you disagree with Ron Paul, see rule 1.
I went through the same nonsense when he endorsed de facto price controls for prescription drugs.
July 11th, 2008 at 10:35 am
DJ,
You forgot one
Rule 3: Anyone who disagrees with Rule 1 is a member of the Bilderberg/Tri-Lateral/Rockefeller conspiracy who, based solely on the fact that they don’t agree with Saint Ron of Lake Jackson, are clearly taking instructions from Karl Rove, David Rockefeller, and the Federal Reserve Board.
July 11th, 2008 at 11:02 am
The way I see it, we have to start somewhere. There isn’t no silver bullet that’s going to fix everything instantly. We’re going to have to go a little at a time back to where we should be. I think this bill will help. It would certainly help at tax time.
July 11th, 2008 at 4:32 pm
Yes, this “interferes” with a free market, but my guess is that this is a way to get popular support for returning stolen money back to taxpayers; i.e. more taxes bad, fewer taxes good………regardless of the mechanism. He justified it by saying it would reduce pollution and gas prices? My guess is that if someone put forth a tax credit bill for pizza or lawnmowers, RP would support it as well, because it simply lowers taxes. Nothing more, nothing less.
July 12th, 2008 at 10:16 am
“…and the problem with the nation…”
The trouble with a loose cannon is that not being bolted to the deck, it ends up shooting at everything but the target.
July 20th, 2008 at 8:15 am
“The net result of the tax credit plan that Paul proposes,”
Reducing and eliminating the personal income tax is a great idea. If we have to start removing the personal income tax item by item, then let’s get started today with this proposal by Ron Paul. This is not a subsidy, this is a tax reduction.
July 20th, 2008 at 8:17 am
Proposals like Paul’s do nothing to eliminate the income tax and in fact serve to perpetuate it.