Taxing Topic: Energy Tax Reform

Every so often, usually at this time of year after citizens have finished sweating over their tax returns, there's a call for junking the tax code and making it simple enough to fit a tax return onto a postcard--which assumes the Postal Service can survive its current existential crisis and continue delivering postcards.

Earlier in the Republican presidential race, Rick Perry took to whipping postcards out of his suit pocket to make the point. In the energy world, there has been similar talk of doing way with all the credits, exemptions, adjustments, exclusions, and deductions energy companies take, cutting corporate rates, and letting the various energy technologies fight for market share on a playing field that is less distorted by tax considerations.

Tax simplification, whether a big bang that scrubs down the whole tax code or focuses only on the energy chapters, would be hard. Not just because lobbyists for this or that interest would swarm congressional offices like angry wasps, but the public itself is not of one mind on the issue. Individuals who would agree that IRS forms would put the patience of Job to the test--subtract line 44 from line 43, subtract line 47 from line 46, multiply line 48 by 15%--might not agree about throwing out energy tax preferences.

A recently released Yale-George Mason University poll found that 54 percent of respondents opposed getting rid of subsidies for fossil fuels, nuclear, or renewables, while 47 percent supported the idea. A majority of 61 percent favored a tax shift: imposing higher taxes on fossil fuels in exchange for reduced taxes on income, but even here, partisan differences were significant. Republicans supported a tax shift by a 51 percent majority, but 71 percent of Democrats thought it would be a good idea. Independents, as they ofen do, split the difference between the parties, with 60 percent backing a tax shift.

Sticky questions would arise in energy tax reform. In addition to wiping away tax loopholes specific to energy--renewable production tax credits or the oil depletion allowance, for example--should tax reform also bar energy companies from taking generic loopholes? Should oil companies, for example, continue to have the manufacturing tax deduction? The American Petroleum Institute says yes. The Center for American Progress says no. That dispute certainly would be a ferocious battle of the bumper sticker slogans; e.g. save our jobs vs. stop coddling Big Oil

Senator Maria Cantwell, a Washington State Democrat, raised another sticky wicket at a recent tax reform hearing held by the Senate Finance Committee. The issue is less susceptible to sloganeering but no less complicated. Publicly owned utilities--bigger ones include the Long Island Power Authority and the Los Angeles Department of Water and Power--can issue tax-exempt bonds to pay for capital upgrades. Take away the tax-exempt status of those bonds and consumer electric rates might go up, Cantwell said.

Tax reform is like the weather. It's easier to talk about it than do something about it.