Balancing the Accounts

As part of his efforts to comprehensively reform the tax code, Senate Finance Committee Chairman Max Baucus (D-MT) released a staff discussion draft on December 18, 2013 that proposed a dramatically simpler set of energy tax incentives that are technology-neutral, more predictable, and promote cleaner energy that is made in the United States.

Policymakers have included tax breaks for energy in the tax code for nearly one hundred years. These incentives were created with good intentions to create jobs, promote energy security, and help reduce air pollution and environmental damage. But over the years, the number of provisions has ballooned into 42 different energy tax incentives, including more than a dozen for fossil fuels, ten for renewable fuels and alternative vehicles, and six for clean electricity. Twenty five of these incentives are temporary. This patchwork of incentives is overly complex and far less effective than it could be. It’s also expensive. Were we to continue extending the current collection of incentives, it would cost nearly $150 billion over ten years.

Tax reform presents an opportunity to reevaluate these tax breaks. The United States needs a tax code that promotes clean and domestically-produced energy in a way that is clear, predictable, and neutral between different sources of clean energy. To that end, the discussion draft streamlines the existing system by replacing the current 42 incentives with two performance-based, technology-neutral, long-term incentives for the production of clean electricity and clean transportation fuels.

The discussion draft can be found here and includes a staff summary, technical explanation and legislative language. At the end of the staff summary, there are specific questions as well as a general request for comment. Please review the proposal. What are your thoughts on this discussion draft for energy tax reform?