WASHINGTON (Nov. 2, 2017) – As congressional leaders roll out the first serious push for comprehensive tax reform in a generation, they should pay particular attention to the litany of energy-related credits, deductions and tax-advantaged bonding schemes that serve to distort the market for electricity, a new R Street Institute policy study argues.
Laying out a rubric for sound energy tax policy, authors Josiah Neeley and William Murray conduct an audit of dozens of energy-related provisions embedded in the code and identify those that should be excised or significantly curtailed. As general best practices, they recommend that the tax code should not seek to influence energy markets unduly; that it should be neutral as to specific energy technologies; and that it should not advantage or disadvantage the energy sector as a whole over other sectors.
“The benefits of any particular tax policy tend to flow to a distinct group, which will often mobilize its members to lobby in its support,” Neeley and Murray write. “Meanwhile, the costs—whether explicit (as in the case of outright subsidies) or implicit (as in the case of market distortions)—are borne by the American public as a whole. After playing out hundreds of times over the course of decades, the result is a tax code that looks less like a ‘level playing field’ and more like a mountain range.”
Should this year’s tax-reform effort prove successfully in rooting out virtually all energy tax provisions except those designed for cost-recovery measures and that would be expanded to all industries, the results would be hugely impactful, the authors note. At the very least, they write, it is incumbent upon policymakers is to craft policy that ensures there is no differential treatment.
“By eliminating distorting tax preferences, Congress can make huge strides toward the more level energy playing field for which all sides strive,” Neeley and Murray write. “Toward this end, with the rubric laid out in this paper, policymakers can ensure that they do not throw out the baby with the bathwater as they embark upon this difficult task.”