House Dems propose PTC extension funded by killing oil industry deduction
While there is substantial bipartisan support for extending the wind production tax credit, the effort has struggled to gain traction in a polarized Congress. A broader effort to tie the PTC to eliminating oil company tax breaks fell short in the Senate this year, when S. 2204, a bill from Sen. Robert Menendez (D-N.J.), failed to overcome procedural hurdles.
The House Democrats’ bill, H.R. 6031, takes narrower aim at oil company benefits to pay for its PTC extension, but the bill still likely will face sharp resistance from the oil industry and its allies on Capitol Hill.
The “Wind Powering American Jobs Act” would extend the PTC through the end of 2013, providing a lifeline for wind developers and equipment manufacturers fretting about jobs being lost because of uncertainty over whether the credit will survive past its scheduled expiration at the end of this year. But the cost of extending the credit is covered by eliminating so-called dual capacity taxpayer rules for major integrated oil companies, such as Exxon Mobil Corp. and Chevron Corp.
Extending the PTC would cost about $5.2 billion over the next 10 years, but those costs would be more than offset by an additional $6.4 billion in revenues from eliminating the dual capacity rule for oil companies, according to a preliminary estimate conducted by the Joint Committee on Taxation.
The rules allow oil companies operating in foreign countries to deduct tax payments to those governments from their U.S. tax bill. The oil industry argues that eliminating the dual capacity rules would lead to double taxation of industry earnings.
“This is the biggest issue for our U.S.-based companies,” which would be at a disadvantage when competing against foreign-headquartered firms for drilling leases in other countries, said Brian Johnson, senior tax policy adviser with the American Petroleum Institute.
Oil industry critics say some foreign tax payments are actually disguised royalty payments — which cannot be deducted from U.S. tax bills — such as when a foreign government establishes a higher tax rate on oil companies than on other corporations. Johnson says the distinction between royalties and foreign taxes is intensely monitored by the Internal Revenue Service, which has not found evidence that the system is being abused.
Democrats portrayed their latest bill as an effort to blame congressional Republicans for failing to act on job-creating proposals. The PTC extension was introduced by Democrats on the Ways and Means Committee alongside a separate bill to provide an income tax credit to firms that hire new workers; that measure would be paid for by repealing two additional oil company tax breaks relating to “last in, first out” accounting rules and intangible drilling cost deductions.
“It is far past time for congressional Republicans to stop their obstructionism and get to work to boost job growth,” Rep. Sander Levin (D-Mich.), the committee’s ranking member, said in a statement. “These two measures would do just that. The wind energy tax credit has been both very effective and very popular across both sides of the aisle and there’s no excuse for Republicans to sit on its extension and create further uncertainty for the wind energy industry.”
Rep. Earl Blumenauer (D-Ore.), who is the lead sponsor on the bill introduced today, last year introduced a bipartisan bill with Rep. David Reichert (R-Wash.) to extend the PTC for wind and other renewable energy sources through 2016. H.R. 3307, which has 106 co-sponsors including 20 or so Republicans, did not include any “pay-for” language.
A call to Reichert’s office seeking comment on the latest Democratic bill was not immediately returned this afternoon.
The American Wind Energy Association, which has lobbied furiously for a PTC extension, arguing that tens of thousands of jobs would be lost by the end of this year without an extension, declined to comment on the Democrats’ bill.