The Anti-Energy Tax Incentives Caucus of the GOP

by King & Spalding
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[author: Michael A. Andrews]

A growing number of Republican members of Congress, fueled by the Tea Party and conservative groups like the Club for Growth, are renouncing energy tax incentives for the fossil fuel and the renewable energy industries. Last year, Rep. Mike Pompeo (R-KS) introduced legislation that would eliminate all of the energy tax incentives from the Tax Code. Thirty-four members of the House are listed as co-sponsors. Last week, Senator Mike Lee (R-ID) introduced the identical bill in the Senate. If enacted, the legislation will dramatically change the nature of American energy policy, and could have a dramatic impact on domestic energy production.

While the support for this approach in the Congress has been limited to the very conservative wing of the GOP, the Tea Party is not alone in opposing tax incentives for the oil and gas industry. President Obama in his last two State of the Union addresses has called for eliminating all of them.

A number of these incentives, such as intangible drilling costs for the oil and gas industry have been a fundamental part of energy tax policy for almost 100 years. The production tax credit (PTC) for the renewable energy industry was first enacted in 1992. It has been considered essential to the development of alternative energy resources. Recent history has shown that with the PTC, projects are developed; without it, renewable energy development grinds to a halt.

The opposition to using the tax code to drive energy policy is not a new debate, and it should not be dismissed. Twenty-five years ago the generous tax incentive for the production of ethanol was considered untouchable. The opposition was narrow, discounted and always defeated, largely because of the strong support of members of Congress from the Midwest, and the fact that the first presidential primary occurs in Iowa. Overtime that perception changed.

Respected conservative Chairman of the House Budget Committee Paul Ryan (R-WI) has said, "We shouldn't be giving corporate farms, these large agribusiness companies, subsidies. I strongly believe that." The congressman may well become the next chairman of the powerful House Ways and Means Committee. His view reflected the growing lack of congressional support for federal tax subsidies for corn ethanol. The recipients of the subsidy saw the writing on the wall; the industry acquiesced; and the tax break ended without a fight. One important reason was that after 30 years, the industry was highly competitive, and the tax credit was hard to justify. The Tea Party claimed a victory; one they deserved.

While the differences between fossil fuel exploration and development and renewable energy production are distinct and broad, the battle to maintain and justify their tax breaks has greatly intensified, largely because of the growing number of the most conservative members of Congress.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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