On Thursday, the Senate fell three votes short of the 60 needed to end debate and pass a $32 billion dollar energy tax package that was intended to be attached to a broader energy bill. The broader bill includes changes in Corporate Average Fuel Economy standards, fuel price gouging, ethanol and other related matters, and was passed with 65 votes. The tax package, which the Finance Committee approved on Tuesday, could be revived in the days to come. Meanwhile, the House Ways and Means Committee marked up its own energy tax package on Wednesday which, at $16 billion, costs about half as much as the Senate's version. The two packages create and expand several tax breaks that purportedly encourage energy efficiency and the production of energy from alternative sources and both include revenue-raising provisions to offset the costs.
Experts can certainly debate whether or not energy policy should be implemented through the tax code, but perhaps the more important point is that Congress has already showered oil and gas companies with numerous tax breaks that CTJ has criticized in the past. The energy tax legislation being debated now would generally shift some tax breaks away from oil and gas towards more sustainable types of energy. Lobbyists from the oil and automotive industries convinced many Senators that the tax package would "raise taxes" on oil and gas companies, but most of the provisions would really close loopholes for these companies that have no justification.
Tax Breaks to Encourage Energy Efficiency and Independence
According to the Congressional Joint Committee on Taxation, the biggest item in both versions is the expansion of the tax credit for electricity production from renewable resources, which costs $6.6 billion over ten years in the House version and $10.1 billion over ten years in the Senate version. This credit is currently available for the production of wind, geothermal, solar and many other types of energy. The Senate version would allow more energy sources to qualify (such as tidal energy) and would extend the credit for a longer period of time.
Some noteworthy provisions appear in the Senate package but not in the House package. One is a $3.8 billion expansion and modification of the tax credit for coal gasification, a process by which coal is broken down into a gas which can be burned. The CO2 that results can be more easily separated from the gas and stored, thereby reducing CO2 emissions. Groups like Environmental Defense support coal gasification, particularly since the use of coal in the US and the world is projected to rise a great deal over the next few decades.
Other provisions that appear only in the Senate version include about $1.5 billion in tax breaks for "carbon mitigation," including a credit for capturing and storing CO2 resulting from industrial processes, at a cost of just over $1 billion. The Senate extends certain credits for longer periods and in some cases offers larger credits, such as a tax credit for production of cellulosic alcohol, which is basically alcohol produced from parts of plants that are not edible, at a cost of $828 million over ten years in the Senate version but only $24 million in the House version.
Both versions include incentives to purchase hybrid vehicles, including a provision for "plug-in" hybrids, which are said to use even less gasoline than the hybrids currently in use because plug-in hybrids can be charged up from an electrical socket. This provision would cost $706 million in the Senate version and $1.2 billion in the House version. Both versions also include several billions of dollars to encourage the use of energy-efficient buildings and energy-saving devices and appliances.
One of the offsets included in both tax packages is the elimination of the "section 199" domestic manufacturing tax deduction for oil and gas companies. (The House included the elimination of this deduction in the energy bill it passed earlier this year.) The deduction was made available to energy companies in 2004 when Congress redefined manufactured goods to include oil and gas. (The deduction is 6% of the cost of domestic manufacturing activities this year, rising to 9% in 2010.) The House version would eliminate this deduction for all oil and gas companies and raise $11.4 billion over ten years. The Senate would eliminate it only for large oil and gas companies and would raise $9.4 billion over ten years.
The Senate package has more offsets since it includes more tax breaks. Among them are a 13 percent tax on the production of oil and gas in the Gulf of Mexico, projected to raise $10.6 billion over ten years. While criticism of this provision from some Republican Senators was fierce, it is designed merely to obtain payments from those oil companies who are drilling on public lands without paying royalties, which can be used as a credit against the tax. Other offsets include restrictions on foreign tax credits for oil and gas and an increase and extension of the excise tax on oil for the Oil Spill Liability Fund, among other provisions.
Amendment Adopted Includes Controversial Offsets
While marking up the Senate tax package, the Finance Committee adopted an amendment introduced by Ron Wyden (D-OR) that would fund the Secure Rural Schools and Community Self-Determination Act, which provides what are often called "county payments," at a cost of $3.6 billion. The amendment included two revenue-raising provisions to fully offset this cost. One takes aim at tax shelters known as sale-in, lease-out (SILOs). These arrangements, which can involve an American bank buying something like a subway or sewer system in another country and "leasing" it back to the foreign government for tax advantages, were already banned starting in 2004 but that ban would retroactively apply to deals made before 2004 under this provision. Some members of Congress oppose any such retroactive changes in tax laws, but the Senate Finance Committee earlier this year tried to include this change in the tax provisions that were attached to the minimum wage legislation.