Conflicting Goals - Global Warming and Standard Mileage Rate

This week the IRS announced that the standard mileage rate for deduction purposes for 2009 will be 55 cents per mile. In 2007, the standard mileage rate was 48.5 cents per mile up from 36 cents per mile in 2003 (and 18.5 cents in 1979).

The standard rate can be used instead of tracking actual costs. So, this rate is to reflect not only fuel costs, but also maintenance.

P.L. 110-343 (10/3/08) added and extended various energy incentives, it also reduced the manufacturing deduction for oil companies and it calls upon the National Academies of Science to "undertake a comprehensive review of the Internal Revenue Code of 1986 to identify the types of and specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects."

To encourage fuel efficiency, the mileage rate should not necessarily go up when oil prices go up. Doing so does not encourage reduced driving and the purchase of more fuel efficient vehicles.

Another disconnect between driving and reducing carbon emissions is the federal gasoline excise tax which has been at 18.4 cents per gallon since 1993 (see CRS 2006 report on the History of the Gas Tax). A higher excise tax would increase the price of gas and encourage people to drive less or use more fuel efficient vehicles.

Of course, businesses and employees will likely not want to see the mileage rate decreased and the gasoline excise tax increased since driving is often a business necessity. But does it need to be done with possible harm to the environment? No. And why not build a "polluter pays" angle into tax provisions dealing with fuels that pollute or generate carbon emissions. For example, the standard mileage rate could be adjusted to assume an auto gets a higher miles per gallon. Some businesses may find that alternatives to driving will reduce business costs. For example, teleconferences can easily be set up where people can see and hear each other real time.

I expect that the carbon auditors of the tax code, if they dig deep and think broadly, will find many examples where tax rules work towards producing carbon emissions or at least not providing any incentive to reduce them.

The report is not due until 10/3/10. Where do you think there are disconnects in the tax law with respect to carbon emissions and tax provisions?