Did President Obama mean it when he promised, in his State of the Union address, “no more handouts”? Do congressional Democrats really oppose corporate welfare?
The next few weeks will tell, as Congress debates tax legislation and a proposal by a handful of conservative lawmakers to end energy subsidies — for both oil and renewable energy — that take the form of tax credits.
Freshmen Rep. Mike Pompeo of Kansas has proposed the loftily titled “Energy Freedom and Economic Prosperity Act,” while the Senate’s Tea Party heroes, Jim DeMint (S.C.) and Mike Lee (Utah), have introduced the companion bill in the upper chamber.
The bill, which Pompeo hopes to insert into legislation extending the payroll-tax credit, would take a huge bite out of energy subsidies by eliminating tax credits for everything from solar panels and wind turbines to oil drilling and nuclear power generation. At the same time, the measure would cut tax rates.
This hits the sweet spot of the GOP’s stated policy goals, but that doesn’t mean the Republican-controlled House will pass it. Some influential lobbies are opposing it, as you would expect from any bill that kills subsidies.
Last year, the ethanol lobby made the strategic decision to let their traditional tax credit (the Volumetric Ethanol Excise Tax Credit or VEETC) expire while fighting to protect and expand other tax credits, such as those for building alternative-fuel infrastructure. Pompeo’s bill would kill these tax credits.
Despite their odes to free markets, Republicans have traditionally sided with the ethanol industry, whose top lobbyists include former GOP Rep. Jim Nussle.
But Pompeo says the biggest resistance to his bill is the wind industry, fighting to defend its “Production Tax Credit.” This credit has regularly won temporary renewals, and will expire at the end of 2012 if Congress doesn’t extend it. Pompeo’s bill would officially kill the tax credit.
The bill doesn’t single out green energy, though. It also would kill two oil subsidies: the enhanced oil recovery tax credit and the marginal well tax credit. Both of these credits subsidize the extraction of oil that would otherwise cost more than the value of the oil. With oil prices so high, these credits are basically inoperative today, because even the difficult-to-reach oil pays for itself at $100 a barrel.
As a result, Big Oil isn’t opposing Pompeo’s bill. A lower corporate rate would save the Exxons of the world more money than these two tax credits. It’s the smaller producers who value these credits. The Independent Petroleum Association of America didn’t directly answer my queries about the bill, but did generally express support for the tax credits that Pompeo would kill.