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Baucus Presents US Energy Tax Reform Proposals

by Mike Godfrey, Tax-News.com, Washington

23 December 2013


Senate Finance Committee Chairman Max Baucus (D – Montana) has issued a fourth United States tax reform discussion draft, containing a package of proposals that focuses on streamlining energy tax incentives so they are "more predictable, rational and technology-neutral."

"It is time to bring our energy tax policy into the 21st century," Baucus said. "Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale. We need a system of energy incentives … to increase our energy security and ensure a clean and healthy environment for future generations."

The discussion draft concentrates on reforming the current set of energy related US tax preferences. Under current law, it is said that there are 42 different energy tax incentives, including more than a dozen preferences for fossil fuels, ten different incentives for renewable fuels and alternative vehicles, and six different credits for clean electricity.

Of the 42 different energy incentives, 25 are temporary and the credits for clean electricity alone have been adjusted 14 times since 1978. If US Congress were to continue to extend all of the current energy incentives, the total revenue cost would be nearly USD150bn over the next 10 years.

To address these issues, Baucus' discussion draft proposes "a smaller number of targeted and simple energy incentives that are flexible enough to accommodate advances among fuels and technologies of any type – whether renewable, fossil, or anything in between. The proposals are intended to promote domestic energy production and reduce pollution."

Specifically, the suggested measures would be to establish two new, technology-neutral tax credits for the domestic production of clean electricity and for the domestic production of clean transportation fuel; and to consolidate almost all of the existing energy tax incentives into these two new credits, with appropriate transition relief.

The tax credit for the domestic production of clean electricity would be based on the principle that "the cleaner the facility, the larger the credit." Any facility producing electricity that is about 25 percent cleaner than the average for all electricity producing facilities would receive a tax credit. It would be open to all types of energy resources and available as either a production tax credit of up to 2.3 cents/kwh or an investment tax credit of up to 20 percent.

The tax credit for the domestic production of clean transportation fuel would again be based on the same principle and be open to all types of energy resources. It would be available either as a production tax credit of up to USD1/gallon or an investment tax credit of up to 20 percent.

Businesses and investors would be provided with more certainty by making the new incentives long enough to be effective, but phasing them out over four years once the greenhouse gas intensity of each market has declined by 25 percent.

As with his other tax reform discussion drafts, Baucus asked for additional feedback from members of Congress, key stakeholders and the general public on the discussion draft, by January 31, 2014.

TAGS: environment | Finance | tax | business | tax incentives | energy | tax credits | United States | tax reform

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