This document originally appeared in the September 24, 2012 edition of Tax Notes.
The wind energy tax credit is one of the many tax provisions set to expire at the end of the year. The federal government gives wind energy companies a 2.2-cent tax credit for every kilowatt hour of energy they produce. It costs about $5 billion a year. But if you listen to proponents of the credit, wind energy will save the planet.
Let's think about wind. Wind is renewable, which means we do not have to wait for dead dinosaurs to turn into crude oil. It also means we do not have to wait for peat to turn into coal, which takes even longer. Wind is cleaner than oil and coal. Miners and roughnecks are always covered in grime and soot. Wind is good for the planet. Oil and coal make the planet hot, and that gives rise to insufferable speeches against people driving cars with V-8 engines. Wind energy is safe. Except for tornadoes and extreme halitosis, wind does not kill people. It produces no emphysema. It produces no cancer. It's safe -- if you are human. Apparently 500,000 birds and many more bats are sliced up every year by wind turbines. Worse, 500 American eagles are smashed to bits so that Americans can have safe, clean energy. Birders and patriots should be outraged. Finally, wind energy will help us end our dependence on foreign oil. Foreigners scare us. And the number one oil exporter to the United States is the very scary Canada.
There is a chorus of interests calling for extension of the credits. The Biotechnology Industry Organization says, "Tax policies should focus on driving innovation." The Center for Climate and Energy Solutions says the credit has "played a critical role in . . . positioning U.S. manufacturers for a growing global market." The Pew Clean Energy Program says the credit "is an effective tool to keep electricity prices low and encourage the development of proven clean energy." The president of the League of Conservation Voters says that allowing the credit to expire amounts to "extremism." House Ways and Means Committee member Earl Blumenauer, D-Ore., says the credit is "highly effective." Environmental groups, wind energy companies, banks that finance wind energy companies, turbine manufacturers, and electricity brokers all insist that Americans want clean, home-grown energy. And they're willing to spend your money to get it.
This wind energy idea sounds too good to be true. If only Americans really wanted to use it. Wind produces only 2 percent of U.S. electricity. Yet we spend about $5 billion a year encouraging it. I realize that is not a lot of money in the grand scheme of things -- probably no more than lunch money for the contractors at the Pentagon. But it doesn't seem like a lot of bang for the buck.
Proponents of wind energy invariably claim that you can't expect much right now because wind is a new source of energy using new technology. Forget for a moment that windmills were producing electricity in Great Britain in the 1880s and that the Department of Energy has been funding wind technology since the early 1970s. The tax credits at issue have been around since 1992! The government has been pumping money into wind energy companies for 20 years. During that time, conventional fossil fuels have experienced seemingly endless shortages and dramatic price increases. Also during that time, conventional fossil fuels have purportedly caused global warming -- not to mention global warfare. Yet wind still accounts for only 2 percent of electricity production. Tax credits obviously are not terribly successful in helping wind fulfill the dream of saving the planet.
Proponents, including President Obama, are backing off the argument that wind energy tax credits are all about saving the planet. Now it's about jobs. The administration claims that 37,000 jobs will be lost if the tax credits expire. But at $5 billion a year, we are spending about $137,000 per job. The nation's taxpayers would be better off if we just wrote 37,000 people a check for $50,000 and told them to stay home. Yet Colorado Sen. Mark Udall, a Democrat, said that the "credit equals jobs. We should pass it as soon as possible."
Wind energy tax credits, like all government-sponsored tax incentives, don't work. They violate every principle of sound tax policy. The wind tax incentives place the risks on the public and promise the rewards to a chosen few. As the insurance company ad said, even a caveman could see that. Nevertheless, there is a bipartisan crescendo building to ensure the wind energy suppliers continue to receive their credits.
There are far more Republicans in Congress supporting the extension of wind energy credits than their small-government philosophy would suggest. There is nothing small government about wind energy or any other kind of tax incentive. Indeed, tax incentives smack of Soviet-style central planning. Republicans like Senate Finance Committee member Chuck Grassley of Iowa check their limited-government platitudes at the door when it comes to helping out the poor embattled wind farmers in their states. Archconservative lawmakers are all too happy to dole out taxpayer money to their cronies. In this case, the members of Congress want to help the owners of bird-killing wind turbines make a profit. What good is being in power if you can't help your friends?
To be sure, not all Republicans are on board with handing out welfare checks to energy companies. Texas has a lot of wind energy investment, but Republican Finance Committee member John Cornyn and senatorial candidate Ted Cruz have recently come out against further subsidies. Even Gov. Rick Perry (R) is opposed to subsidizing the industry. But most Republican members of Congress are committed to extending the credit. Even Karl Rove has said it will save jobs and reduce dependence on foreign oil.
When it comes to tax credits, the Democrats in Congress usually don't even pretend they oppose Soviet-style central planning of the economy. Oh, they're sometimes motivated by the same cronyism that plagues the GOP. But more often Democrats are smugly convinced that they know what's best for the nation, and they are willing to spend the taxpayer's money to see it to fruition. In this case, the members of Congress are cocksure that replacing fossil fuel with clean renewable energy is the right thing to do. And they don't care how much of your money they spend doing it. What good is being in power if you can't make people do the right thing?
The wind energy tax credit is bad tax policy, bad energy policy, and bad government policy. It should be allowed to fall off the proverbial cliff at the end of the year. Maybe we'll save a few sparrows along the way.