The Senate Finance Committee met yesterday to discuss the need for reforming the nation’s outdated energy tax laws as part of the larger tax reform debate. “It is past time to replace today’s crazy quilt of more than 40 energy tax incentives,” said Chairman Ron Wyden (D-OR), noting Congress’s long-standing habit of “passing temporary extensions of those incentives, shaking hands, and then heading home.”

Witnesses present at the hearing included:

• Former Sen. Don Nickles (R-OK), Chairman and CEO of the Nickles Group;
• Norman Augustine, retired Chairman and CEO of Lockheed Martin;
• Dr. Gilbert Metcalf, Professor of Economics at Tufts University;
• Ethan Zindler, Head of Policy Analysis for Bloomberg New Energy Finance; and
• Dr. David Kreutzer, Research Fellow in Energy Economics and Climate Change at the Heritage Foundation.

Despite the broad consensus on the need for a simpler, fairer, permanent energy tax policy expressed among both the Committee members and witnesses present, little detail on how actual reform would be accomplished was provided.

Former Sen. Nickles and Dr. Kreutzer focused their testimony on defending existing tax subsidies, in particular, the intangible drilling cost deduction for the oil and gas industry. Altogether though, the hearing mostly focused on the creation of a “level playing field” for all energy technologies in the tax code. Some Committee members asserted that this could be achieved by expanding incentives already available to the oil and gas industry to the clean energy sector, like the ability to form Master Limited Partnerships (MLPs).  Dr. Metcalf argued to the contrary that a carbon tax might achieve the same end without creating new tax benefits for renewable energy companies. 

In addition to debating the intangible drilling cost deduction, some of the existing tax preferences for the oil and gas industry were mentioned, including the domestic manufacturing deduction, the special percentage depletion allowance, and amortization for geological and geophysical costs. But there was little discussion of the need to repeal such provisions.  

In contrast, the need to pass the most-recent tax extenders package, which would continue several costly energy tax provisions, including those to the coal, biofuels, and wind industry was emphasized by both Chairman Wyden and Ranking Member Orrin Hatch (R-UT). 

Currently, the tax code is a complex web consisting of a litany of energy-related provisions that pad industry pockets. Rather than serving as a platform for continuing the status quo, the discussion on energy tax reform is an opportunity for Congress to expose and eliminate the many giveaways and special interest provisions which cost taxpayers billions each year.

Taxpayers for Common Sense urges the Finance Committee to continue its efforts to move forward with tax reform, especially the repeal and reform of outdated, costly energy provisions – even in the absence of comprehensive tax reform.