The apparent collapse last week of wide-ranging tax discussions just as congressional negotiators were on the cusp of a deal leaves hanging in the balance a framework that would have phased out a key energy incentive over the next several years.
Bipartisan negotiators believed yesterday they were about to solidify a nearly $450 billion deal to make permanent 10 tax breaks for businesses and individuals, temporarily extend dozens of additional incentives through next year, and phase out the production tax credit (PTC) through at least 2017 (E&ENews PM, Nov. 25). But the Obama administration objected to the package’s tilt toward business credits and lack of permanent incentives for low-income workers and parents, issuing an eleventh-hour veto threat that largely scuttled the negotiations, sources familiar with the process said today.
Furthermore, Republican leaders’ willingness to include a longer lifeline for the PTC than Democrats had even requested in the first place has rankled conservative activists, who have been lobbying aggressively against a credit they deride as a costly giveaway to a well-connected wind industry that no longer needs it.
“House leadership has put themselves in a bit of a box. The right is going to hate this deal, and the left (the President) has already announced he dislikes it,” Mike McKenna, an Republican lobbyist who has been fighting the PTC, said in an email. “Tough to move it towards him anymore without initiating a revolt in the ranks. Difficult to believe that grown men who make a living in politics didn’t ask the Administration what they wanted beforehand.”
Doubt is quickly rising over whether Congress will be able to reach a deal on the dozens of expired breaks collectively known as “tax extenders” before the end of this year to allow taxpayers to claim the credits and deductions on this year’s filings.
A likely fallback option is enacting a one-year extension retroactive to when the credit expired Dec. 31. That would only cover activity in 2014 and do little to spur the type of business activity the credits are meant to promote, but it is generally seen as preferable to doing nothing. Wind industry lobbyists have said that approach would do their industry no good because there would be too little time to start new projects by the end of this year.
The PTC phaseout included in the package does not appear to have influenced the White House’s veto threat and would have been a relatively small piece of the overall package. It would have provided the credit’s full value, $23 per megawatt-hour, through 2015, then an 80 percent credit in 2016 and a 60 percent credit in 2017, after which the credit would have dropped to zero. Facilities providing power from wind, geothermal, biomass and other qualified sources are eligible to claim the credit for the first 10 years they are placed in service.
The approach broadly mirrored a framework floated two years ago by the American Wind Energy Association, which would have phased out the credit by 2019 as part of a broader tax reform package, as well as ideas floated more recently by companies including General Electric Co., a leading turbine maker, and Sen. John Thune (R-S.D.), a member of his party’s leadership who sits on the Finance Committee.
The phaseout is broader in scope than a two-year PTC extension included in an earlier Senate proposal to just temporarily reinstate all of the credits, and while its costs were not immediately clear, it still would have constituted a relatively minor piece of the $450 billion package. The two-year extension was estimated to cost $13 billion over a decade.
It remains to be seen whether the broader extenders negotiations can be revived, but optimism was in short supply this morning. Once Congress returns next week, there will be just two weeks before the House has said it plans to adjourn for the year, and the government also needs to be funded past the Dec. 11 expiration of the current continuing resolution. That left next week to move an extenders bill and the following week to focus on enacting omnibus appropriations legislation to clear the decks of this year’s unfinished business. Now both items threaten to linger past the new year, at which point Republicans will have a stronger negotiating position with control over both the House and Senate.
“The president talks bipartisanship, and when an actual bipartisan deal is being made, he undermines the process,” said a conservative tax lobbyist supporting the deal. “I’d guess a retroactive one-year extenders package to cover 2014 and a CR through April.”
The fate of the PTC also grows more perilous if an extension beyond this year cannot be inked before January. The credit will still be able to count on support from windy-state Republicans and almost all Democrats, but it has become a top target of influential activist groups like Americans for Prosperity and the American Energy Alliance (AEA), which have targeted dozens of Republican members to urge resistance to the PTC.
Both groups have been linked to the political network of billionaire industrialists Charles and David Koch and are influential among tea party supporters. Among their top arguments against the PTC is that it is a key component of President Obama’s broader climate policy, which includes U.S. EPA regulations that will help facilitate a shift away from coal-fired electricity generation toward a heavier reliance on nuclear, natural gas and renewable power.
Still, the overall extenders package enjoys strong support from the business community, which benefits from several other tax breaks that would be made permanent, providing momentum for the PTC.
“This is going to get messy next week when Members return,” said McKenna, whose clients include utilities and a Koch Industries affiliate, among others. “House leadership has either lost its mind or … is so beholden to the business community that it is happy to push the conservatives off the sled in broad daylight.”
McKenna and other PTC opponents also point out that the wind industry and its allies were more heavily aligned with Democrats in the run-up to the election earlier this month that put Republicans in control of the Senate (Greenwire, Aug. 12).
“Extending the PTC would benefit AWEA and their friends, who spent millions of dollars against Republicans during the midterm elections,” Chris Warren, an AEA spokesman, said in an email today. “Why would Republicans turn around and give them a sweetheart deal? It just doesn’t make sense.”
Wind industry supporters argue the tax credit helps the still-maturing industry compete against fossil fuels that have received various forms of government support for a century or more and that the credit supports tens of thousands of manufacturing and construction jobs. AWEA yesterday released a poll showing more than 70 percent of voters support keeping the credit in place (Greenwire, Nov. 25).
Negotiations over the tax package still could resume when Congress returns next week.
The broader package contains numerous elements that continue to have strong support from both parties, such as a permanent research and development tax credit, as well as Republican priorities like permanent bonus depreciation for businesses and Democratic priorities like a permanent tax benefit for workers who use public transportation for their commutes.
Supporters of comprehensive tax reform also back the extenders agreement because making some of the deductions permanent now would reduce the amount of revenue that would have to be raised to offset additional tax deductions expected to be pursued as part of that effort.
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