A U.S. House subcommittee of the Ways & Means Committee heard June 8 that it can be tough to wean industry off of a tax credit once it becomes customary.
This is particularly relevant to the wind industry, which needs an extension of a popular subsidy while facing increased opposition to its extension beyond this year.
Several provisions for targeted economic growth, including the wind-favoring production tax credit (PTC) need to be extended for construction to continue beyond this year, industry advocates insist. Several projects have been cancelled and order books for construction next year are empty. The industry’s supply chain has started to feel the effects.
The so-called “tax extenders” are various provisions or incentives that are enacted by Congress with an expiration date, usually requiring an annual or semi-annual extension. As members and experts pointed out, once added to the tax code, these provisions are rarely eliminated, but repeatedly need action that creates enough uncertainty that hurts business planning.
Rep. Kenny Marchant, R-Texas, asked pointedly about the renewable energy tax credits. “In discussing the merits, it was indicated these taxpayer’s support would only be required for the amount of time necessary for these industries to mature,” he said.
Alex M. Brill, a research fellow at the American Enterprise Institute, said that was one of the hardest issue Congress faces, in determining the rate of technical progress, or how long a credit is needed.
“The ability to wean an industry off of these credits has proven to be very difficult,” he added.
He said no tax policy should be intentionally temporary and that any tax extenders deemed appropriate should be made permanent and the rest should be allowed to expire.
“In the absence of externalities, a tax credit or other subsidy for a given activity will generally lead to a misallocation of resources in the economy — more of the subsidized activity, but less of everything else. A provision that simply leads to more of a particular activity does not necessarily promote overall economic growth,” he said in his testimony.
An April hearing before the same subcommittee showed wide, bipartisan support for a renewal of the PTC. That fact was continuously referenced at the recent American Wind Energy Association conference in Atlanta
Rep. Pat Tiberi, Republican of Ohio, a PTC supporter and chair of the Subcommittee on Select Revenue Measures, said supporters in both parties are looking for an extension while addressing the long-term objections
“We have a lot of bipartisan support for phasing out this tax credit over the next several years,” he said.
“Like decisions about spending, deciding whether to extend an expiring tax expenditure involves considering whether the benefit of the intended outcome is worth the effect on other programs or tax rates,” said James R. White, director of strategic issues for the U.S. Government Accountability Office.
Those decisions are coming due as AWEA has said it is looking for legislative vehicles in which to extend the PTC this summer.