A compilation of suggestions the Senate Finance Committee has received for reforming taxes on the energy sector can be boiled down to three basic ideas: modify the tax code, replace it, or eliminate it outright.
A whitepaper released by the Finance Committee Thursday recounts many of the tax reform options recommended by witnesses at previous committee hearings, including suggestions to eliminate some or all existing energy sector tax expenditures, including those for wind and solar. Among those would be oil- and gas-specific tax expenditures, such as expensing of intanglible drilling costs.
Also included in the report is a recommendation to replace most or all existing taxes on the energy sector with “a new federal excise tax on the sale or importation of fossil fuels.” Implementing such a tax would involve a myriad of decisions by lawmakers, including whether to impose the tax upstream or downstream, how to set the price, and how to deal with cross-border issues, according to the report.
Academics believe there may never be a better time for the United States to adopt a carbon tax, but the chances of Congress wrapping its arms around such legislation seem slim (see Daily GPI, Nov. 21, 2012).
The taxing regime would require some give and take, according to the Congressional Budget Office (CBO). In a working paper published last year, CBO noted that taxing carbon dioxide emissions would reduce the damage from climate change but “would also impose a larger burden, relative to income, on low-income households than on high-income households.” The carbon tax “would cause the negative effects of emissions to be priced into products.”
Other suggestions heard by the committee have included replacing existing energy tax expenditures for targeted industries or technologies with one or more technology-neutral tax incentives; modify existing energy tax expenditures to reduce the total number and cost of tax expenditures while making them permanent; and equalizing tax treatment of master limited partnerships in the energy sector.
Also included in the report were suggestions to address taxes that are used to fund infrastructure projects, including the possibility of instituting a vehicle-miles-traveled tax. Such a tax would replace or supplement current taxes on gasoline with tax revenue levied on electric-, natural gas- and other non gasoline-fueled vehicles. Other infrastructure tax reform ideas in the report include setting new fees on hybrid and other non gasoline vehicles, and replacing current taxes and fees that support infrastructure with a carbon tax on transportation fuels.
The CBO has estimated that energy-related tax expenditures will cost $16 billion in foregone revenue in fiscal year 2013, while federal spending on energy will be $3 billion. “Among energy-related tax expenditures, 45% will go to renewable energy, 29% to energy efficiency, 20% to fossil fuels, and 7% to nuclear energy,” according to the report.
The whitepaper, a joint product of the majority and minority staffs of the Finance Committee with input from members’ staffs, is the fourth in a series.
Finance Committee members may consider reccomendations included in the whitepapers as they work towards reforming the tax system, but the options offered “are not necessarily endorsed by either the Chairmain or Ranking Member,” according to the report.
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