September 17, 2008

Washington, DC, USA: Senate Reaches Tentative Agreement on Tax Legislation

Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Chuck Grassley (R-Iowa) yesterday announced an agreement with the Senate’s Democratic and Republican leadership to move legislation accomplishing the Finance panel’s remaining major objectives for the year: passage of clean energy tax incentives, the protection of millions of Americans from the alternative minimum tax (AMT), and extensions of expiring family and business tax cuts.

Last week, Baucus and Grassley unveiled a $40 billion package of clean energy tax incentives for Senate consideration this month. Yesterday, the Finance leaders combined key objectives of that legislation with an agreement to update alternative minimum tax rules and continue tax cuts for college tuition, state and local sales taxes, and research and development for U.S. businesses.

Senators may vote this week on amendments to replace the current text of H.R. 6049, energy tax legislation approved in the House of Representatives earlier this year. Voting may be delayed until next week.

“This month, the Senate can act to create jobs, break America’s dependence on foreign oil, support working families and help businesses thrive. This agreement will lead America toward clean, homegrown energy and the good-paying jobs that come with it. Protecting families from the alternative minimum tax and extending expiring tax cuts will put real money in the pockets of struggling families, and enable entrepreneurs to invest and innovate,” said Baucus. “We’ve also agreed on ways to pay for much of this good policy, and that’s a significant achievement. The Senate and the House should take up the elements of this agreement and pass them without delay. Americans are ready now for good-paying jobs, tax relief, economic growth, and a brighter energy future.”

The bipartisan Senate agreement includes clean energy tax incentives totaling approximately $17 billion, paid for by freezing the tax deduction for the domestic manufacturing activities of American oil and gas companies, by tightening the rules by which oil and gas companies pay taxes on income earned overseas, by freeing general fund monies with increased payments into the oil spill liability trust fund as new drilling is considered, by a one-year extension of the Federal Unemployment Tax Act surtax at the current level, and by increasing reporting requirements for brokers on sales of stock.

The Baucus and Grassley Energy Independence and Investment Act of 2008 legislation announced on September 11, 2008 would extend the 30% investment tax credit for solar energy property and qualified fuel cell property, as well as the 10% investment tax credit for microturbines, for eight years (through 2016). The bill would increase the $500 per half kilowatt of capacity cap for qualified fuel cells to $1,500 per half kilowatt of capacity, and adds small commercial wind as a category of qualified investment. The bill also provides a new 10% investment tax credit for combined heat and power systems. The bill also adds geothermal heat pumps and allows these credits to be used to offset the alternative minimum tax (AMT). The estimated cost of this proposal is $1.919 billion over ten years.

The bill extends the credit for residential solar property for eight years (through 2016), and increases the annual credit cap (currently $2,000) to $4,000 for solar electric investments. The bill adds residential small wind investment, capped at $4,000, and geothermal heat pumps, capped at $2,000, as qualifying property. The bill also allows the credit to be used to offset the AMT. The estimated cost of this proposal is $907 million over ten years.

It remains to be determined whether these specific terms would be part of any enacted Tax Legislation.

Meanwhile, the U.S. House of Representatives approved an energy bill late Tuesday that includes a one-year renewable tax credit extension for wind power and an eight year extension for solar power.

There is no certainty this legislation will proceed in to law, given past political stalemate in this area. There is also a tight time-table. Congress adjourns on September 26, 2008.