A fresh push by the White House and Republican leaders for slashing the corporate tax rate could jeopardize a range of tax credits and breaks important to the energy industry and environmentalists.
The plan – out yesterday and being turned into legislation by tax-writing panels – would allow immediate expensing of capital investments for “at least five years,” which Republicans say would provide broad economic benefits, including to renewable companies and other energy sectors.
However, the push to lower the corporate rate to 20 percent will depend on “eliminating special interest deductions and loopholes and exclusions,” House Ways and Means Chairman Kevin Brady (R-Texas) told reporters yesterday.
While the framework does not identify which “special interest deductions and loopholes” will be closed, the tax blueprint released by House Speaker Paul Ryan (R-Wis.) last year decried the tax code as “littered with hundreds of preferences and subsidies that pick winners and losers and create complexity.”
That’s reminiscent of the language that conservative critics have used to lambaste the renewable production and investment tax credits for years. Both credits are slated to be phased out under a 2015 deal that extended but reduced their value over several years.
Rep. Earl Blumenauer (D-Ore.), a senior Ways and Means Committee member who has long backed renewable credits, said he’s optimistic there will be bipartisan support for maintaining at least some, specifically citing wind.
He said there’ll likely have to be trade-offs to keep the breaks but said he intends to work with GOP committee members to find them. “I think we have some traction to keep some key things,” he said, referring to the renewable credits.
But Republicans drew limits on what they would be willing to negotiate on. President Trump yesterday told reporters the 20 percent corporate rate is “very much a red line” for his support, noting he wanted to cut it to 15 percent, a level “so low we didn’t take in the revenue.”
“We really had to start there because of the complexity of the numbers, but 20 is a perfect number,” Trump said before flying to Indiana for a tax speech. Brady said setting the corporate rate at 20 percent permanently remains “the goal” of the reform push.
Freedom Partners, part of the conservative network financed in part by the Koch brothers, wants Congress to ditch full and immediate expensing of business investments, which it said could run into opposition in the Senate.
“From experience and well-supported research, we know that the most pro-growth strategy is cutting corporate tax rates,” Nathan Nascimento, vice president of policy for the Freedom Partners Chamber of Commerce, said in a statement yesterday.
“Full and immediate expensing of capital investment, on the other hand, could get in the way of lowering the corporate rates far enough to regain competitiveness in the global economy.”
Uncertainty on incentives
While the future of existing tax breaks for renewables and fossil fuels alike remains cloudy, it’s also a question mark how a number of tweaks and extensions of sector-specific energy incentives fit into the broader tax reform push.
Sen. Shelley Moore Capito (R-W.Va.), who is pushing a tweak to the so-called 45Q tax credit for carbon capture and sequestration technology, said the issue will have to be addressed in the Finance Committee.
“Obviously we’re very committed to 45Q and my initial answer is I’m not sure, but it does not mean that we’re giving up on it so we’ll see,” she told E&E News yesterday.
Major industry groups offered cautious support for the framework but made clear they await further details.
“The proposal makes critical progress on a simpler, pro-growth tax policy and [American Fuel & Petrochemical Manufacturers] looks forward to reviewing further details of the plan as they emerge,” the group said in a statement.
The Edison Electric Institute offered a similar assessment, saying in a statement it is “ready to work with Congress and with the Administration in the coming weeks to advance tax reform solutions that will benefit all customers and encourage important investment in critical energy infrastructure by helping to keep the cost of capital as low as possible.”
American Petroleum Institute President and CEO Jack Gerard noted industry support for “pro-growth tax reform” but said it should include “strong cost-recovery provisions.”
API is wary of “eliminating or lengthening” the intangible drilling cost deduction, an existing break for exploration and activities that precede oil and gas production that Democrats have repeatedly targeted for years.
The group said any changes to international taxation “must be consistent across all businesses and should improve overall competitiveness of all industries operating abroad.”
Interior Secretary Ryan Zinke also argued for a simpler tax system at a clean energy forum earlier this week but said it was important to ensure any reform promotes fairness for an industry’s different players. He cited energy, in particular.
“The challenge is going to be to make it a level playing field and not tip one side or the other, to a particular technology,” the Interior secretary said. Changes to the tax system should not end up disadvantaging “emerging technologies” in energy, for instance, said Zinke.
Energy Secretary Rick Perry, speaking at the same event, agreed the tax code “ought to reward people” for innovative technology and “risking their capital” in advancing it.
One idea that appears to be off the table is a carbon tax, a plan environmentalists have floated as a way to curb emissions.
Rep. Carlos Curbelo (R-Fla.) said yesterday the only time the possibility of a carbon fee was brought up in tax reform discussion was when the White House dismissed the possibility.
As a member of Ways and Means, Curbelo has been involved in drafting the GOP’s tax overhaul proposal. He is also the co-chair of the bipartisan House Climate Solutions Caucus and frequently speaks out about climate change. But he said a carbon fee would not find its way into the tax legislation.
“No, no, no, no, no,” he told E&E News. “The Climate Solutions Caucus will develop organically, from the ground up solutions for climate policy. So for anyone to try to impose an idea from the top down would be very detrimental to the caucus and to the coalition we’re trying to build.”
While the caucus has invited speakers to address the idea of pricing carbon, Curbelo said the members are not yet ready to propose policy solutions, but he hopes to offer some ideas by next year.
Democratic lawmakers thought there might be a glimmer of hope for a carbon fee after Sen. Lindsey Graham (R-S.C.) last week said he would work with Sen. Sheldon Whitehouse (D-R.I.) on similar carbon tax legislation.
Whitehouse told E&E News this week, “Is it a long shot? Yeah, but [there are] some pretty interesting pieces that could come together as this thing develops.”
Perilous political path
Democrats, meanwhile, lambasted the plan outlined yesterday as one that would favor the wealthy and corporations, and add more than $5 trillion to the federal debt.
“Corporations have hired lawyers and lobbyists to exploit every single loophole to avoid paying their share – fair share in taxes. They get their rate cut from 35 all the way to 20 percent,” said Senate Minority Leader Chuck Schumer (D-N.Y.), who expects Senate Democrats to be largely united in opposing the measure.
As a result, the GOP will call for a tax overhaul as part of its fiscal 2018 budget resolution. Legislation written under budget reconciliation instructions can move in the Senate by a simple majority vote. Republicans need only 50 of their 52-member majority to pass such a bill, because Vice President Mike Pence can vote to break a tie.
The Senate Budget Committee is expected to mark up its budget plan next week with tax instructions, while the House’s much-delayed budget also is likely headed to the floor as soon as next week with conservative opponents now on board to support the tax framework.
Trump, for his part, made clear yesterday he’ll call out lawmakers who oppose the tax overhaul.
Speaking at a campaign-style tax rally in Indiana, Trump directly warned the state’s senior Democratic Sen. Joe Donnelly that “we will campaign against [you] like you wouldn’t believe” if he does not back the tax bill. Donnelly, a moderate, is up for re-election next year.
Reporter Kellie Lunney contributed.
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