The Bottom Line on the New Energy Economy
Tax Policies for Climate Bill

Tax Policies to Help Climate Action, Create Jobs

November 11, 2009
by Craig Severance, CPA

The Senate Finance Committee, Chaired by Senator Max Baucus (D-MT),  held a Hearing Tuesday over the "future of jobs" in the context of the proposed energy and climate bill.   The strange list of witnesses -- including polluter industries who hold few prospects for job creation in a new energy economy -- seemed to only distract the Committee from its primary responsibility, which is to use the powers under its jurisdiction to contribute real solutions.  

Will Finance Committee Senators use the power of their Committee over Federal tax policy to actually do something about climate change, and America's 10.2% and climbing jobless rate? 

Or, will the Committee be pushed to give more breaks to the very polluters who are causing the climate catastrophe?

Tax a Powerful Tool.  The ability to tax --  or to give tax breaks -- is one of the most powerful tools of the Federal government.    It is discouraging the tax committees of Congress-- Baucus' Senate Finance Committee and Rep. Charles Rangel's House Ways & Means Committee -- have done little to examine how the Federal Tax Code is actually encouraging energy waste.  While other Committees have led the way on energy and climate legislation, the tax committees have been sitting on the sidelines for most of this year. 

How could tax laws now help create jobs and curb climate catastrophe?  ''

Building Industry in Crisis.  We can start with the industry most seriously affected with job losses right now -- and which is also responsible for almost half of U.S. energy use: the building industry.

Source: Architecture 2030

Idea: Long Term Extension of Homebuyer Tax Credit --  Targeted for Energy Efficient Homes.    The construction industry has led this recession, and is still suffering from over 20% unemployment.  When the Stimulus Bill passed in February, a separate bill for the housing sector was promised -- yet never materialized.  

The construction industry creates jobs throughout the economy, as it is supported by a multitude of  manufacturing and service industries.   Without the recovery of the construction industry, Americans simply will not be going back to work any time soon. 

One simple idea has caught on with Congress to help the housing industry:  the Homebuyer Tax Credit.   "First-time" homebuyers can now get an $8,000 credit, and some other homebuyers can receive a $6,500 credit, if they buy a home by April 30, 2010. 

Targeted Credit Needed to Actually Create Jobs.  While the Homebuyer Tax Credit has been extremely popular, in ts current form it is questionable how many jobs it has created.  In an article here,  Center for American Progress Senior Fellow David Abromowitz notes that only one in five of those who received the Homebuyer Credit were moved to buy a home because of the Credit.  "In effect," writes Abromowitz, "four out of five buyers were handed $8,000 by other taxpayers for a purchase they would have made anyway."

Another problem with the current Homebuyer Tax Credit is that it is not limited to new homes or even retrofitted homes, so no construction jobs need be created.   Simply transferring ownership doesn't  create many jobs -- "Shuffling the cards doesn't bring any new money to the table".   The Credit has not been effective in stimulating new home sales, which are far more important for creating jobs.

Targeted for Energy Efficient Homes.  A Long Term Extension of the Homebuyer Tax Credit -- tied to purchase of a highly energy efficient home -- should take effect May 1, 2010, when the current untargeted Homebuyer Tax Credit expires..   To qualify, the new home would need to be at least 20% more efficient  (compared to base energy codes) as the energy building energy code in effect.  Example: if the mandatory energy code would require a 30% more efficient home than 2006 standards, then to qualify for the extended Homebuyer Tax Credit, the home would have to be 50% more efficient.   When the energy building code moves to 50% more energy efficient, the Homebuyer Tax Credit would require 70% more efficiency. 

If Congress wants to include existing homes in the Extended Homebuyer Tax Credit, some construction jobs should be assured.  As part of the home purchase, the existing home would for instance have to be retrofitted to save at least 30% energy savings compared to its previous status.

The Long Term Extension of the Homebuyer Tax Credit, targeted to highly energy efficient homes, will put Americans back to work.  

What will it cost the Federal Budget to do such a highly targeted Credit?  Consider that a new home is likely to involve at least $200,000 of new economic activity.  If the Credit succeeds in stimulating activity that would not otherwise have occurred, Income taxes collected on this new economic activity, can pay for the cost of the Credits. 

The Credits for highly efficient homes will also ease the way for the building industry to comply with tighter new energy building codes that pay for themselves in energy savings. The money saved on lower fuel bills, will also circulate in the economy creating jobs at a higher rate than if spent on fuel.

Idea:  Allow Businesses to Write off Fuel Efficient Cars and Light Trucks.  If you've ever wondered why so many business owners drive huge SUV's and heavy pickups, even when they don't need them, just look at the U.S. Tax Code. 

If a business buys a heavy pickup or SUV (over 6,000 lbs. Gross Vehicle Weight), the U.S. Tax Code allows very generous write-offs of the cost of that gas guzzler in the very first year of purchase -- and full write-off over time.

If, however, the business just needs a fuel-efficient car or light pickup, the Tax Code actually penalizes that business.  It cannot write off the full cost of that vehicle in the first year -- and in fact, may never be able to!   An obsolete tax provision deems most fuel efficient vehicles to be a "Luxury Automobile" , subject to arbitrary low limits on deductions. 

This perverse Tax Code provision actually prevents a business from fully expensing a fuel efficient (i.e. lightweight) vehicle. 

To fix this, no tax breaks need be taken away from heavy truck and SUV buyers. Congress can fix this simply by canceling the obsolete "Luxury Automobile" rules and therefore allowing passenger cars and light trucks to be treated the SAME as heavy trucks.  Businesses who buy a heavy truck could still expense it completely -- but now so could the business owner who wants to save fuel and wants to buy a Chevy Volt or a Ford Focus. 

Principle: Don't Give Breaks to Giant, Job-Poor Industries.   
As passage of a climate Bill becomes more certain, the lobbyists in Washington will change their tune. 

Instead of  "global warming isn't proven" and "kill the Bill", the call will quickly change to "save us -- save our workers' jobs", and even "we can help!"
Gigantic, highly proftitable companies -- the nuclear and coal and oil & gas lobbies -- are sure to come begging to Washington for huge subsidies. 

Their arguments are classical "trickle down" economics, from some of the wealthiest corporations on the planet., who already have the sweetest tax breaks in the U.S. Tax Code.  

Most also do not fulfill the promise of creating plentiful jobs, compared to their competitors in the efficiency and clean energy industries which are more labor intensive.  

Fill the QuiverWhile the ideas in this article may or may not make their way into legislation right away, the need for jobs,, and the need for more sane energy policies, are not likely to go away.   As leaders struggle for solutions, they can keep these ideas in their "quiver" of solutions.  

This article was first published on November 11, 2009.

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