U.S. Senate Finance Committee Releases Report on Options with Energy Tax Incentives

U.S. Senate Finance Committee Releases Report on Options with Energy Tax Incentives – Recommends Performance Based Tax Credit for Improving Efficiency of Existing Homes  

 

A key issue Congress will be facing this session is tax reform. The Senate Finance Committee has released a report on the options for reform of the federal tax incentives for energy, “Infrastructure, Energy and Natural Resource: Senate Finance Committee Staff Tax Reform Options for Discussion.” 

The Energy and Natural Resources section of the report identifies the following principles for reform in the energy sector: 

1. To the extent the tax code includes tax expenditures for energy and conservation, the tax code should: 

>Provide businesses with greater certainty

>Consolidate and simplify such tax expenditures

>Make such tax expenditures fairer and more efficient

>Encourage energy independence through a comprehensive approach

2. Carefully consider whether and how to address any positive or negative externalities

The report also identified the following as concerns: 

1. Neutrality across different technologies – “Current law provides a variety of incentives for specific energy technologies." Some believe that it would be more efficient to structure these incentives, to the extent they are retained, on a technology-neutral basis.  They argue that such an approach would be more effective at accommodating and encouraging technological advances and would avoid picking winners and losers among competing technologies.  

2. Temporary nature of certain tax expenditures – “Some are concerned that the temporary nature of expiring tax expenditures creates uncertainty for taxpayers, makes it difficult for businesses to plan and may diminish their effectiveness.”

One of the options considered in the report was to replace existing energy tax expenditures with technology neutral tax expenditures.  It recommended, “Establish a new, performance-based tax credit for residential energy efficient retrofits of, for example, $2,000 if the retrofit makes the home 20% more efficient, regardless of what technology is used (Cut Energy Bills at Home Act, sponsored by Sens. Bingaman, Snowe and Feinstein)”. 

The report also presented the option of making permanent the individual tax credit for energy efficient home retrofits (Home Energy Savings Act of 2012) and permanently extend the deduction for energy efficient commercial buildings. 

This report provides a foundation for members of the tax code writing Senate Finance Committee to consider in its deliberations on tax reform.  It is exciting that the performance based credit for existing homes is in the mix.  This will prove very useful in the advocacy of performance based tax credits for improving the energy efficiency of existing home. 

The report is posted at Senate Finance Committee Report on Tax Reform The section on energy tax incentives begins on page 9 of the report. Click here to see applicable areas in the report highlighted.