The renewable energy industry is taking preemptive steps to ensure that the previously extended wind and solar tax credits stay in place under tax reform in exchange for the end of a 40-year-old crude oil export ban.
Even as Republican leaders promise to scrub the tax code of loopholes, renewable energy groups claim to have been meeting with lawmakers and staffers on both sides of the aisle since the beginning of the year to make sure that the wind production and solar investment tax credits extended in the 2015 omnibus appropriation bill will be unaffected by tax reform.
As recently as August 23, House Ways and Means Committee Chair Kevin Brady, R-Texas, said that many of the “special-interest, industry-sector provisions” in the code exist only because of the high corporate tax rate. He said cutting those provisions could help to lower tax rates, adding that dropping the border-adjustable tax has caused Republicans to scrutinize provisions within the current tax code “that aren’t as pro-growth.”
Christopher Mansour, vice president of federal affairs at the Solar Energy Industries Association, said his group has been active on Capitol Hill and has received “very good responses” from both Republicans and Democrats. “We’ve been obviously doing a lot of face-to-face meetings with members of Congress and their staff throughout this entire year, and we continue to do that. We just remind members of Congress about the importance of the solar investment tax credit,” Mansour told Tax Analysts.
A House tax staffer confirmed that meetings have been held with the energy industry, noting that a large portion of energy policy is driven through the tax code.
“Our pitch to them is that the solar investment tax credit has already undergone tax reform. We like to say it’s already been tax reformed,” Mansour said. “We’ve already kind of had a tax reform done for section 48 and for section 25D as it relates the solar investment tax credit.” The credit is scheduled to be phased down over time, he said, adding that by the end of 2021 it would drop to 10 percent for commercial developers and to zero percent for homeowners.
When Congress accomplished tax reform in 1986, many industries were granted a transition period to allow companies using specific tax provisions to move toward the changes made within tax reform, Mansour said. The solar industry believes “that our transition, in a sense, has already been written into current law with this ramp-down into 2021. So that’s been a very good selling point,” he said.
Mansour added that the point that has been raised in meetings with leadership offices is that the credits were also granted as part of a deal to lift the 40-year-old crude oil export ban. “What we hear from leadership staff and members of the congressional leadership themselves is, ‘We cut that deal, we’re going to honor the deal, and we’re not going to relitigate that particular issue,’” he said.
Other Credits Appear Safe
Maintaining the wind energy production tax credit is also “a done deal,” according to Peter Kelley, vice president of public affairs at the American Wind Energy Association, adding that his organization is frequently on Capitol Hill advocating for U.S. wind power jobs.
“We are confident that strong bipartisan support exists in Congress to see this successful policy continue through the five-year phaseout,” he said.
And there are other energy credits that appear to be safe from the chopping block as lawmakers look toward replacing the revenue lost by dropping the border-adjustable tax.
Ways and Means Committee member Tom Reed, R-N.Y., told Tax Analysts that he is still “committed to making sure renewable energies are on an even playing field.” He said in a statement, “Extending the Investment Tax Credit for these efficient energy sources, as well as incentives for fuel cell, combined heat and power, small wind, and geothermal investments will further advance these technologies and help our country achieve energy security.”
Meanwhile, congressional Democrats have indicated that there is an informal agreement among House and Senate leaders to renew the section 48C credits for geothermal power, fuel cells, combined heat and power systems, and small wind turbines, which were left out of the 2015 tax extenders bill.
Ways and Means member Tom Rice, R-S.C., is also still committed to trying to secure an extension for the House-passed nuclear production tax credit bill (H.R. 1551), but senators have questioned the necessity of it now that a South Carolina power provider has decided to wind down and suspend two nuclear plants.
A Rice spokesperson told Tax Analysts August 25 that “nothing has changed” and “there hasn’t been any discussion on how to treat any energy tax provision as it relates to tax reform.”
“With regard to the nuclear tax credit, there were never any revenue concerns with our bill as it only costs $16 million over 10 years,” the spokesperson added. Rice is also still interested in another bill (H.R. 5440) he introduced in June 2016 that would permit a regulated company to elect out of the public utility property energy investment tax credit limitation for its solar energy property. The spokesperson said Rice is still assessing whether the measure should be reintroduced for the current Congress.
Targeting Fossil Fuel Credits
Though Republicans have made clear that they are prepared to move forward on tax reform with or without their participation, Democrats have begun taking aim at credits for the fossil fuel industry.
Senate Finance Committee member Robert Menendez, D-N.J., introduced a bill August 2 that he said “would put an end to unfair taxpayer handouts” for major integrated oil companies. Along with modifying the foreign tax credit rules applicable for those companies that are dual-capacity taxpayers, the bill would limit the deduction for income attributable to production of oil and natural gas and curb the deduction for intangible drilling and development costs, according to a summary.
Menendez claimed that the resulting $22 billion in savings over the next 10 years could be put toward deficit reduction. “Congressional Republicans say they want to help American taxpayers and cut the deficit. This bill achieves both,” he said in a statement.
Whether Democrats' proposals will be included in Republicans’ tax reform efforts remains unclear.
“Given that Republicans have chosen to go it alone and leave Senate Democrats in the dark on tax reform, it’s too early to speculate on what policies that will or will not be included in a final package,” a spokesperson for Finance Committee Democrats told Tax Analysts.
Senate Democrats released a letter on tax principles that they say should be part of tax reform, which includes ensuring middle-income families do not see a tax increase while high-income earners get tax relief, and using a regular order process to debate legislation rather than the budget reconciliation process.
Follow Asha Glover (@AshaSGlover) on Twitter for real-time updates.