Last week, with the help of Senator Orrin Hatch, the Senate Finance Committee voted to extend dozens of special interest tax preferences for green energy – preferences that are nothing more than subsidies and market distorters.  Included in the $205 billion package is the Production Tax Credit, which subsidizes up to 80% of wind energy production.  Score one for Big Wind!

Other special interest handouts include the following:

• A credit for energy efficient upgrades to homes.  It covers 10% of the costs of qualified home efficiency upgrades.
• A credit to cover 30% of the costs for installing refueling stations for alternative-fuel vehicles at a home or business.
• A cellulosic biofuel producer credit of $1.01 per gallon, which would be expanded to include fuel produced from cultivated algae, cyanobacteria or lemna.  Yes, this is Obama’s algae energy pipe dream.  There’s also a special depreciation allowance for cellulosic biofuel plants, which would be extended through the end of next year.   As we’ve noted before, cellulosic biofuels are non-existent on the commercial market, yet these subsidies will help strengthen the mandate to use this phantom fuel.  Oil and gas companies that decline to blend in this phantom fuel must incur penalties.
• A credit of $1 per gallon for biodiesel, which would be extended through 2013, retroactive to the end of last year.
• A credit for construction of new energy-efficient homes that provides contractors $1,000 to $2,000 per home. The credit would be extended through 2013, retroactive to the end of last year.  Talk about distorting the housing market.
• Energy-efficient appliance credits that range from $25 to $250 per appliance for the production of energy-efficient clothes washers, dishwashers and refrigerators.
• A 50-cent per gallon credit for alternative fuel mixtures, which apply to liquefied petroleum gas, compressed or liquefied natural gas, and coal-to-liquids fuels.
• An individual income tax credit for plug-in motorcycles.

Who needs capitalism when the federal government engineers the private economy through cloddish manipulation of the tax system?

This bill also extends a provision that ensures that funds from the refundable components of the EITC and the Child Tax Credit are not counted as income for recipients.  This allows those recipients to collect other welfare programs.  It’s provisions like this that help grow the welfare state.  There are also a number of business tax preferences in the draft legislation, such as an American Samoa development credit, a motorsports entertainment complexes, and credits “to leverage federal tax credits to encourage significant private investment in businesses in low-income communities.”

The amendment process to the bill was quite tepid, as only a few modest reforms were proposed.  Senator Coburn’s amendment to eliminate the credit for production of energy-efficient household appliances was rebuffed 9-15.  Another Coburn amendment to cut the Production Tax Credit by 20% was also defeated 9-15.  Even an effort by Coburn to include a list of tax preference recipients on USAspending.gov was shot down.  On the flip side, an amendment offered by Maria Cantwell to allow additional low-income housing projects in the process of securing financing to be eligible for a tax credit through 2013 was adopted by voice vote.

The final bill passed 19-5 with just 5 no votes from Republicans.  For all the talk of the acerbic partisan bickering in Washington, most of the committee action is a bipartisan lovefest. Click here to download the voting report on the committee markup.

If this is the Senate’s idea of moving towards a flatter tax system, color me skeptical of the final product.

Cross-posted from The Madison Project