Senate Report Recommends Permanent, Performance-Based Tax Credits
A major issue Congress must address this session is tax reform, and the good news is that the Senate Finance Committee has outlined some options for tax reform in infrastructure, energy and natural resources in their April 25th report.
The Senate Finance Committee notes that energy tax expenditures should be structured so they’re both efficient and effective. The report notes:
To the extent the tax code includes tax expenditures for energy and conservation, the tax code should:
- Provide businesses with greater certainty
- Consolidate and simplify such tax expenditures
- Make such tax expenditures fairer and more efficient
- Encourage energy independence through a comprehensive approach
Two areas of concern noted in the report, and some options to overcome them, are:
1. Neutrality across different technologies. Current laws provide incentives for specific energy technologies (such as solar power and tankless water heaters), but some argue that incentives should be “technology-neutral” in order to encourage technological advances, and avoid favoring some technologies over others.
If a technology-neutral tax credit were in place, the method for increasing efficiency wouldn’t make a difference. For example, if a $2000 retrofit increased home efficiency by 20%, a performance-based tax credit would still apply, regardless of which technology was used to achieve the result.
2. The temporary nature of certain tax expenditures. Some argue that the temporary nature of expiring tax credits creates uncertainty for homeowners, and makes planning difficult for businesses. This can lead to a diminished effectiveness of the incentive in the first place.
The report outlines making the individual tax credit for energy efficient home retrofits permanent, and permanently extending the deductions for energy efficient commercial buildings.
This report, and the conversations it is generating, indicates that the federal government is serious about green energy, conservation and efficiency, and that it continues to take steps to make energy efficiency a green choice – for the planet and for your wallet.