Tax credits in play

Tax credits in play

August 01, 2017 | By Keith Martin in Washington, DC

Tax credits may be in play in any tax bill taken up by Congress this fall.

The Trump administration says it wants to have a corporate tax bill on the president’s desk by late November. However, talks among the “big six” — Treasury Secretary Steve Mnuchin, White House economic adviser Gary Cohen, Senate leader Mitch McConnell (R-Kentucky), House Speaker Paul Ryan (R-Wisconsin), and the chairmen of the Senate and House tax committees, Orrin Hatch (R-Utah) and Kevin Brady (R-Texas), aimed at producing a common tax plan that could pass Congress quickly in the fall produced only a five-paragraph statement at the end of July that was short on detail, including where to set the corporate tax rate.

Congress is in recess until early September and, when it returns, it will have to increase the federal debt ceiling and pass a budget and as many as 13 appropriations bills or an omnibus “continuing resolution” allowing the federal government to remain open past September 30 when the federal fiscal year ends.

Various groups are angling to tee up tax credits to be addressed as part of any tax bill.

The House voted in June to allow new nuclear power plants completed after 2020 to qualify for production tax credits on their electricity output and to allow the credits to be more easily transferred. They are $18 a megawatt hour and run for eight years after a project is first put in service. The credits can be claimed on only the first 6,000 megawatts of nuclear capacity built nationwide. Developers must apply for an allocation. The IRS required applications to be submitted by January 2014.

The House bill would require the Internal Revenue Service to allocate all the remaining capacity first to any new nuclear power plants that are put in service by 2020 and then to any such plants built after 2020.

It would also allow any municipal or other government utility or electric cooperative to transfer tax credits to which it is entitled to any partner in the project, equipment vendor, construction contractor or supplier of nuclear fuel rods.

Offshore wind companies want Congress to allow a 30% investment tax credit on offshore wind farms on which construction starts by December 2025. “Offshore” for this purpose includes project in the Great Lakes and other “inland navigable waters.”

Both Democrats and Republicans are thinking about whether there is a way to combine the existing tangle of tax credits for various energy-related activities into a single tax credit. It is unclear whether there will be a meeting of the minds. Democrats have tended to want any combined credit to vary based on the extent to which the energy source contributes to carbon emissions while Republicans have been more interested in neutralirty across fuel types.

At least 25 US Senators have lined up behind a bill to extend and modify an existing tax credit for carbon dioxide sequestration. The current tax credit is $20 per metric ton of CO2 sequestered from power plants and other industrial facilities that produce more than 500,000 tons of CO2 a year. The sequestered CO2 must be put in secure geological storage. The credit drops to $10 a ton for CO2 used for enhanced oil or gas recovery. The credit amounts are adjusted for inflation after 2009. The credits stop after the year in which the US Environmental Protection Agency certifies that 75 million tons of CO2 have been sequestered. The bill would increase the credit amount for carbon capture equipment put in service after enactment and allow credits to be claimed on the CO2 captured for the next 12 years after carbon capture equipment is put in service.

Advocates for energy technologies that were left out when Congress voted in late 2015 to extend tax credits for wind and solar projects hope to see an “orphan” tax credit package enacted. The package would extend a 30% investment tax credit for fuel cells and small wind turbines on which construction starts by the end of 2019, with a two-year phase down of the credit amount for projects on which construction starts in 2020 or 2021. It would extend a 10% investment credit for combined heat and power systems and geothermal heat pumps on which construction starts by 2021.

Finally, energy storage companies want a 30% investment tax credit on all types of energy storage — whether or not they are part of renewable energy facilities — on which construction starts by the end of 2019, with a two-year phase down after that.

Any tax bill Congress passes this year or next is likely to be centered around a cut in the US corporate income tax rate. In general, Congress will be looking for ways to strip tax credits and other tax benefits from the US tax code to help pay for the rate reduction rather than to add to existing tax credits.