U.S. energy tax incentives would be cut by more than half under a draft plan released by Senate Finance Committee Chairman Max Baucus.
Baucus’ proposal would consolidate more than 40 breaks into two incentives for cleaner production of electricity and fuel. Today’s proposal would end tax breaks for energy efficiency, electric cars and appliances that benefit companies including Whirlpool Corp. (WHR:US) and Nissan Motor (7201) Co.
“Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale,” Baucus said in a statement. “We need a system of energy incentives that is more predictable, rational and technology-neutral.”
The draft is Baucus’ fourth proposal in the past two months as he seeks to build momentum for the biggest U.S. tax-code changes since 1986. His effort has been stymied by partisan divides over whether the plan should increase taxes and resistance from industries that would lose long-time breaks.
Baucus, a Montana Democrat, is leaving Congress at the end of 2014. He hasn’t set a specific schedule for advancing his entire plan, which would reduce tax rates and limit tax breaks. Baucus has said he wants to reduce the corporate income tax rate to less than 30 percent from the current 35 percent.
The draft on energy is part of a proposed reshuffling of tax breaks that currently cost the U.S. government $150 billion a decade. The plan would reduce the government’s total cost by more than half. Baucus is seeking comments by Jan. 31.
Representative Dave Camp of Michigan, the Republican chairman of the House Ways and Means Committee, also wants to limit breaks and lower the corporate tax rate. He hasn’t been as specific on energy policy as Baucus is in this draft.
The proposal would allow 11 tax breaks to expire or be repealed. Those include a credit for building new energy-efficient homes, a credit for plug-in electric cars and a credit for training equipment for mine rescue teams.
The remainder, including the production tax credit for wind, would remain in place until 2017. They’d then be replaced by the new two-credit system.
The clean electricity credit would be awarded to facilities that are at least 25 percent cleaner than the national average, as measured by the Environmental Protection Agency.
Companies would be able to choose between a production tax credit as large as 2.3 cents per kilowatt-hour or an investment tax credit of as much as 20 percent of the investment.
The credit would be available only to new or expanded facilities and could be claimed for new nuclear reactors. The credit would phase out over four years once the electricity generation system is 25 percent cleaner than it is now.
Companies claiming the fuels credit could receive as much as $1 per gallon for a fuel with no emissions, or a 20 percent investment-tax credit. That credit also phases out once the greenhouse-gas intensity of all fuels has become 25 percent cleaner than gasoline.
Baucus’s proposal doesn’t include a carbon tax.
It’s also silent on several other items that would be addressed in future drafts, such as the gasoline tax and the tax treatment of publicly traded partnerships.
Pipeline companies such as Kinder Morgan Energy Partners (KMP:US) LP don’t pay the corporate income tax and advocates for renewable energy want similar treatment.
Today’s draft doesn’t directly address many of the tax breaks used by oil and gas companies. A separate Baucus draft proposal last month eliminated or curtailed many of those provisions, including expensing of intangible drilling costs and the last-in, first-out accounting method.
Industry groups, including the American Petroleum Institute, opposed those changes.
“While tax policy can indeed be complicated, it has always been a policy objective to support and encourage domestic investment and the jobs such investment creates,” representatives from 14 trade groups wrote to Baucus Dec. 13. “We believe, therefore, that shifting cash from robust private investment conflicts with that objective.”
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