With the nation facing a serious energy problem, it may seem a truism to say that every little bit helps. Sure, the government needs major new policy initiatives to deal with the situation. But the average American has to do his part as well.
So it was no real surprise that law makers have latched onto the idea of offering homeowners a tax credit to install insulation and other energy-saving equipment. After all, what better place to start than at home? And shouldn't consumers get a break?
With just this rationale in mind, both the House and the Senate have passed provisions in the energy tax bill that would allow homeowners to reduce their taxes each year by up to 20 per cent of the first $2,000 they spend on such refurbishing with a maximum of $400.
The difficulty is, rather than helping to provide a solution, the measure may be creating new problems. For one thing, critics say it could seriously exacerbate existing shortages and send prices skyrocketing. For another, it may be wasting billions on an unnecessary move.
The dilemma stems from the economics of the insulation business these days. Admittedly, in earlier years, you really had to scramble to sell insulation and storm windows. They aren't very glamorous products, and sellers had to offer "bonuses" - free gifts for phoning in.
But with fuel costs soaring as they are, homeowners don't have to be pushed anymore to look into buying insulation.The sayings on gas and oil bills provide enough of an incentive. Making a hrome fuel-efficient could save hundreds of dollars a year.
In 1976, some 2.6 million American homeowners bought insulation without any federal producing. In the first half of this year, Commerce Department projections show another 3 million homes were refurbished. The insulation industry is in a boom.
As might be expected, this newfound demand has sapped supplies well beyond the capacity of the home insulation industry to produce them, sending prices soaring. Massachusetts authorities reported last autumn that prices there jumped 20 per cent in three weeks.
According to economists, adding new tax incentives to an already shortage-plagued market will only exacerbate this situation, leading to even greater shortages and possible blackmarket operations. Eventually, some say, insulation materials may have to be rationed.
In fact, industry representatives told a congressional subcommittee last November the major manufacturers already are "allocating" their supplies to long-time customers in colder regions of the country, and don't expect supplies to be adequate for another three years.
W. R. Werner, an official of CertainTeed, a major insulation makers, said his firm, among others, is opposed to the tax credit idea. Soaring fuel costs already "provide a strong incentive for homeowners to properly insulate their homes," he said. No new aid is needed.
(The bill itself distorts this further by giving the same size credit to everyone. As a result, those whose homes already are 90 per cent fuel-efficient are encouraged to compete for goods against those whose houses really need major renvations.)
Finally, tax experts point out it would be difficult to administer the new provision. Most insulation is bought in relatively small amounts, too small to be worth, policing. And who's to say if a dealer buries the tab for routine furnace repairs into a bill for new equipment?
Congressional staffers admit that no one can estimate accurately how much more energy, if any, the nation would save if the tax break is enacted than if it were not there at all. The odds are, it wouldn't be worth counting - even as a little bit that helps.
But one thing is certain: The tax credit wouldn't stop revenues from seeping through the Treasury door. The House version of the measure would cost $608 million a year by 1984, when the credit to everyone. As a result, Senate bill $1.29 billion. All for a dubious cause.
The disparities stem from differences in coverages. The House bill would allow the credit for windows, caulking, furnace burner replacement, flue modifications, electric ignition devices and clock thermostast.
The Senate bill would broaden that to cover replacement of an entire furnace or boiler, and installation of all automatic thermostats, heat pumps, meters that display energy use, fluorescent lighting, evaporational cooling devices and other items.
There's no telling precisely how the insulation credit will emerge in the final version of the energy bill. The package still is in conference committee. The law makers have accepted the provision in principle, however, and there's little doubt it will pass intact.
But the proposal seems to qualify as a good example of how the most high-minded and appealing pieces of tax legislation often are the most counterproductive. It's giveaways such as this that make the budget dedicit overheat: