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End All Green Corporate Handouts in ‘Tax Extenders’ Bill

Here's our opportunity to end corporate cronyism, eco-socialism, and market distortions in the energy sector

It’s that time of year again.  The clock is ticking toward December 31, and green energy special interests are discreetly lobbying for the extension of their choice handouts, credits, and grants.  We must remain vigilant against these powerful interests.

At the end of every calendar year, Congress passes a ‘tax extenders’ bill to temporarily reauthorize specific tax breaks that have not been permanently written into law.  These bills have traditionally dealt with issues like the AMT patch, the R&D business credits, and universal deductions for depreciation, as well as state and local taxes.

In recent years, tax extenders have been magnets for non-universal carve-outs for green energy.  The 2010 tax extenders bill also included extension of the Bush tax cuts, the annual Medicare ‘doc fix,’ a payroll tax cut, and an unprecedented extension of unemployment benefits.  Most of these provisions are set to expire next month, and will consume the lion’s share of the debate and media coverage.  This will give the green industry the opportunity to surreptitiously slip in their handouts as part of a grand bargain revolving around the bigger issues and legitimate, universal tax deductions.  They must be stopped.

By far, the most pernicious of the green tax extenders is the 45-cent per gallon Volumetric Ethanol Excise Tax Credit (VEETC).  This credit, along with the accompanying mandate and tariff, is nothing more than a pure handout to an industry that would otherwise produce no profit.  In fact, this egregious market distortion has helped raise the cost of food and fuel, reduce gas mileage, harm automobile engines, and hurt the poor.  This credit may even be refundable for those blenders that lack any excise tax liability.  It costs $5.7 billion per year, and must be eliminated.  Additionally, there are several other credits for cellulosic ethanol producers and the biofuels industry set to expire that should be eliminated.

The other major subsidies up for extension are the 30% Investment Tax Credit (ITC) and the 2.2 cent/per kilowatt-hour Production Tax Credit (PTC) for wind, geothermal, solar, hydropower, and biomass (PTC expires next year).  Most of these industries, particularly Big Wind, make little or no profit, offer the public no investments, and pay no taxes, yet their productivity is almost completely subsidized.  The Heritage Foundation estimates that if the oil industry received a commensurate subsidy, they would get a $30 dollar check for every barrel produced.

According to CRS, green energy investors may even “carry unused tax credits forward to offset future tax liability, or, alternatively, partner with a third-party tax-equity investor capable of providing cash in exchange for tax benefits.”  Hence, these are not tax breaks; they are subsidies.  You might consider them the earned income credits for corporations.  Talk about handouts for the rich!

Another major green energy tax extender slated to expire is the “Section 1603” solar and wind grant that was enacted as part of the stimulus.  Over the years, wind and solar has turned out to be such impotent and unprofitable sources of energy that even refundable tax credits were insufficient means of “stimulating” green energy projects.  To that end, Section 1603 of the stimulus offered renewable energy project developers an immediate cash payment in order to recover up to 30% of eligible project capital cost expenditures.  This program cost about $8.6 billion in less than three years, with wind receiving 84% of the grant award value and solar electric representing 75% of entities that have received grant awards.

In addition, there are over a dozen more credits that are slated to expire, such as those for alcohol fuels, biodiesels, renewable diesels, hydrogen, plug-in electric vehicles, alternative motor vehicles, and alternative vehicle refueling infrastructure.  There are also a number of personal credits for energy efficient homes and appliances.  They all distort the markets and help politically-connected industries.

After all of the subsidies, grants, and credits are factored in, solar is being subsidized by over 1200 times more than fossil fuels, while wind enjoys over 80 times more in taxpayer cash:

Source: Institute for Energy Research

And what are the results of all these subsidies?  In 2010, wind accounted for 0.9% of our energy supply, geothermal 0.2%, and solar 0.1%.

Don’t let anyone convince you of the moral equivalence between these market-distorting, targeted handouts and universal deductions and credits such as those for depreciation and R&D.  As long as corporations are still paying the 35% marginal tax rate, all universal deductions should be maintained.  These green companies, on the other hand, can barely turn a profit, much less pay anything in taxes.

While Republicans are rightfully investigating Solyndra and other crony venture-socialist activities, their work will be rendered immaterial if they continue to extend these ‘tax breaks.’  As a means of preempting these tax extenders, Congressman Mike Pompeo (R-KS) has introduced legislation (HR 3308) to sunset all of the aforementioned non-universal energy tax credits and grants, including those for fossil fuels and nuclear power.  The bill would use the savings from the repeal of these credits (roughly $90 billion over ten years) to lower the corporate tax rate on everyone, including green energy companies (to the extent that they pay taxes at all). HR 3308 has 12 co-sponsors, including Paul Ryan.  It should garner the support of the entire caucus.

We already know that the occupy Wall Street crowd will be missing in action during this fight against crony capitalism and venture socialism.  Hopefully, Republicans will take up the cause, as it reflects prudent policy and good politics as well.

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