Democrats and many Republicans are pushing to preserve a pair of recently revived renewable tax credits in a potential comprehensive overhaul of the tax code, lawmakers told Bloomberg BNA.
An energy specialist, however, said those tax credits would have to be on the chopping block in a full overhaul. And Senate Majority Whip John Cornyn (R-Texas) told Bloomberg BNA all options are available to free up revenue offsets that would pave the way for a paid-for overhaul.
The situation involving the tax credits is among the many indications that overhauling the tax code will be an extremely formidable task. The 2.3-cent-per-kilowatt-hour wind production tax credit will begin a phaseout in 2017 with a 2020 expiration, while a 30 percent tax credit for the solar industry will phase out from 2020 through 2022.
Because of the policy certainty provided by the wind phaseout, according to the American Wind Energy Association, 8 gigawatts of wind power capacity are now under construction or in advanced development. And the roughly 27 gigawatts of solar energy cumulatively installed in the U.S. at the end of 2015 are expected to reach nearly 100 gigawatts by the end of 2020, the Solar Energy Industries Association says.
‘Stating the Reality’
The last extensive overhaul of the tax code came in 1986, when President Ronald Reagan teamed up with Congress to pass a law to simplify the code. Revisions have since rolled back much of that effort, according to tax observers. Lawmakers are able to cut short tax breaks in order to bump up savings.
“Looking forward, we’d have to say everything is on the table,” Cornyn, a member of the tax-writing Finance Committee, said, adding that a 20 percent corporate tax rate is the current objective. “I don’t want to cause any panic in the industry, but I think stating the reality that if you do 1986-style tax reform that in order to get the rates down we’re going to have to make some significant changes.”
Currently, a roughly 20 percent chance exists for the 115th Congress to deliver a similarly fundamental overhaul, Christi Tezak, an energy analyst with ClearView Energy Partners LLC, told Bloomberg BNA. “If we get true tax reform, then yes, those credits will wind up being eliminated before projected expiration,” she said.
A 40 percent chance exists that a overhaul will fail, while a 40 percent chance also exists for tax cuts akin to the 2001 rollback under President George W. Bush, Tezak said, citing ClearView analysis.
Safeguarding the Credits
A concerted effort underway to deregulate environmental protection and boost fossil-fuel production makes the preservation of the tax credits even more important, Democrats told Bloomberg BNA.
“There’s immense drive to sustain them,” former Ways and Means Committee ranking member Sandy Levin (D-Mich.) told Bloomberg BNA. “The answer is the only way tax reform works is if it’s bipartisan, and there’s strong commitments from Democrats to support the renewable tax credits.”
Rep. Ron Kind (D-Wis.), another Ways and Means member, echoed that pledge. “The incentive has really helped spark that whole industry right now. I would hate to see it suddenly go away and lapse,” he said. “I think what the president announced just yesterday certainly gives more weight to the renewable credits that we have today unless he wants to just completely abandon the progress we’ve made in the last 10-15 years as a country.”
President Donald Trump signed an executive order March 28 to scale back Obama administration climate initiatives, including the Clean Power Plan.
Wind power surpassed hydroelectric dams as the largest source of renewable energy in 2016 with more than 8,700 megawatts of new capacity online that year, the Energy Information Association recently said.
Environmental groups praise that growth. “Tax credits have been a key driver for the recent growth for the wind and solar industries, spurring innovation and creating new jobs, innovation and tax revenue for state and local economies,” Steve Clemmer, energy director at the Union of Concerned Scientists, told a House committee March 29. “They’ve also been very effective in driving down the cost of wind and solar power, making renewable energy more affordable for consumers.”
Meanwhile, Sen. Charles Grassley (R-Iowa), who represents a top wind-producing state, said Treasury Secretary Steve Mnuchin assured him the wind credit will stay in place through its current sunset. The solar credit should be handled the same way, said Grassley, another Finance Committee member.
Other Republicans joined that call. “I’m for letting the wind sunset according to agreement. We have an agreement for them to sunset anyway. I’m for leaving that one alone,” Rep. Kenny Marchant (R-Texas) told Bloomberg BNA.
Impact of Legislative Failures?
The $1 trillion in projected savings linked to health care legislation, as well as an embattled plan to institute a border adjustment tax on goods imported from Mexico, put a range of tax provisions, including the renewable credits, in more jeopardy, lawmakers and Tezak indicated.
“Obviously it has an impact on our ability to do tax reform,” Rep. Mike Bishop (R-Mich.), another Ways and Means member, told Bloomberg BNA. “We had so much savings built into that. [Health care overhaul] was almost a trillion dollars in savings. So it’s going to have an impact.”
On the heels of the health care failure, the White House has vowed to lead the charge on tax reform. Those priorities, however, haven’t yet been delineated.
“President Trump has made tax reform a key part of his agenda,” a White House spokeswoman said. “Now that it is also at the top of the legislative agenda, the president’s team of experts—which has been hearing from stakeholders on all sides of the issue since the campaign and throughout the transition—is carefully considering what the president’s tax reform plan will ultimately look like and how best to roll it out.”