On Thursday, the Senate failed by one vote to agree to consider legislation that would shift tax breaks away from oil and gas companies and towards more sustainable forms of energy. The move to invoke cloture on the energy bill received only 59 votes, one short of the 60-vote threshold needed to consider the bill. The sticking point for many Republicans is the $21 billion tax title, which Senate Majority Leader Harry Reid (D-NV) then removed from the bill to ensure passage. The bill, (H.R. 6) minus the tax title passed the Senate, 86-8, the same day.
The remaining provisions of the energy bill would increase fuel efficiency standards for automobile manufacturers (known as corporate average fuel economy, or CAFE) to 35 miles per gallon by 2020 and would require gasoline to contain a certain level of biofuels by 2022.
The tax provisions stripped from the bill include an extension and expansion of the renewable energy production tax credit (known as the Section 45 credit), which is a tax subsidy for deriving energy from wind, geothermal sources, hydropower or several other specific renewable sources. This provision would have cost $6.2 billion over ten years. Other provisions would encourage cleaner coal facilities, greener commercial buildings, electronic energy meters and the use of electricity from wall sockets to power automobiles, among many other advances.
The tax title included revenue-raising provisions to offset these costs, which the President and the Republicans disingenuously claim are tax increases that would hurt the economy.
The biggest offset would have barred the big oil and gas companies from using the deduction for domestic manufacturing (often called the Section 199 deduction). A legislative slight-of-hand in the tax break law enacted in 2004 redefined manufactured goods to include oil and gas so that energy companies could enjoy this tax break. (The deduction is 6% of the cost of domestic manufacturing activities this year, rising to 9% in 2010.) This tax break should arguably have never applied to oil and gas in the first place.
Other offsets included new basis reporting requirements for securities transactions to prevent avoidance of taxes on capital gains, restrictions on foreign tax credits for oil and gas, and several other provisions.
As we've argued here before, 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 tax title that has been dropped from the energy bill would have merely shifted some tax breaks away from oil and gas towards more sustainable types of energy.