The Senate’s top tax writer on Wednesday proposed dumping dozens of energy tax breaks, taking another step towards a rewrite of the tax code.
Finance Committee Chairman Max Baucus (D-Mont.) says his proposed changes would streamline dozens of current energy preferences, many of which are short-term incentives that regularly expire and are then extended retroactively.
In their place, Baucus proposes a pair of tax credits that he said would prioritize clean energy without picking sides between renewable sources and fossil fuels.
“It’s time to bring our energy tax policy into the 21st century,” Baucus said in a statement. “Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale.”
Baucus’s newest discussion draft is his latest attempt to lay out some of the trade-offs that the business world would have to accept to reduce the top corporate tax rate, which now stands at 35 percent.
The Finance chairman released three other tax reform drafts in November, dealing with issues from how corporations’ offshore profits are taxed to how businesses recover costs.
He is asking for comments on the energy draft by the end of January – including about the possibility of a carbon tax, an idea not explored in the proposal.
In all, Finance aides say the latest proposal and Baucus’s previous effort on cost recovery would significantly reduce the almost $150 billion the government spends on energy tax incentives – probably by more than half.
Those savings could then be poured into reducing the corporate rate, which Baucus has said he wants to get lower than 30 percent.
House Ways and Means Committee Chairman Dave Camp (R-Mich.) wants to get the corporate rate all the way down to 25 percent. Both Camp and Baucus, who have made rewriting the tax code their overriding goal, have been frustrated in their efforts to move tax reform forward this year.
Still, the new proposal could also stir some backlash from both industry groups and lawmakers. The oil-and-gas industry has already blasted Baucus’s cost recovery plan, which slices prized key incentives that allow the sector to quickly write off expenses.
Republicans have previously said that they did not want Baucus to go ahead with his drafts during the negotiations over the budget deal. But GOP senators have also raised questions about the policies that Baucus is pursuing.
In all, the 42 tax credits for fossil fuels, offshore wind investments and cleaner vehicles would be rolled into two new credits – one for the domestic production of clean electricity, and another for clean transportation fuel.
To help companies transition to the new system, current preferences would stay on the books until 2017, when the new credits would go into place. Baucus also proposes to wipe out 11 incentives completely, including breaks for energy efficient homes and appliances, electric plug-in cars and oil recovery costs.
The new tax credits themselves would phase out, over four years, after a plant’s greenhouse gas intensity becomes 25 percent cleaner than it was this year.
In a twist, the new credits are technology-neutral, meaning advanced technology combating pollution would not warrant a tax credit being awarded to an owner of a power facility. In order to get the new credit, clean energy facilities like wind power farms would have to be 25 percent cleaner than the average of all electricity producing facilities – essentially meaning that the cleaner the facility, the larger the credit.
Facilities will be judged by the ratio of greenhouse gases created to energy produced.
The new system would give larger tax credits for facilities on a moving scale starting at the 25 percent cleaner than average mark and go up to 100 percent cleanliness, an aide to Baucus told The Hill.
Baucus’s new plan is also moving on a parallel track to the so-called tax extenders, the collection of temporary and targeted tax breaks that are frequently extended retroactively.
The Finance chairman and Camp have said repeatedly that they will deal with the preferences that expire at the end of 2013 – which include several key tax breaks for energy – as part of their efforts to overhaul the tax code.
But with Dec. 31 fast approaching, lawmakers from both parties and both chambers have started getting antsy about extenders.
A majority of Republicans called on Baucus to let the credits expire, calling credits for the wind industry “wasteful.” Senate Democrats, on the other hand, have said that the incentives will help consumers save on energy bills and reduce “harmful pollution.”
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