The White House and some members of Congress are reportedly testing the waters to see what energy tax exemptions could be clawed back from President Joe Biden’s multi-trillion-dollar spending program, the Build Back Better Act, which s collapsed last winter.
Democrats work for crop the energy price crisis as an argument for increasing taxpayer spending on wind and solar power, and electric vehicles.
More than 80 House Democrats called the Biden administration to further expand energy tax credits.
It’s just another misdiagnosis of the problem and, therefore, a misguided prescription for the high energy prices Americans are paying.
Worse still, these tax favors have already been tried and failed.
Let’s take two examples.
Carbon capture has long documented be an inefficient and expensive method of reducing carbon dioxide emissions that have already cost federal taxpayers over $1 billion in failed Department of Energy projects.
Despite this, American taxpayers can expect to bear the burden for more than $20 billion in tax credits for carbon capture companies over the next decade.
Also take a look at tax credits for electric vehicles. A 2019 Congressional Research Service report found that half of the tax credits went to corporations.
Of the half that went to US individuals, most of the tax credits (78%) went to people with gross incomes of $100,000 or more.
Even Elon Musk, CEO of the world’s most successful electric vehicle company, said about tax subsidies that “the incentives put us at a relative disadvantage”.
“Tesla succeeded despite prompting, not because of it,” he said.
Whether it’s for carbon capture or electric vehicles, tax credits do little to spur innovation in the sector, but rather save wealthy Americans and corporations billions of dollars on the backs of American workers who foot the virtue signal bill.
Tax credits, by design, support and favor less efficient businesses to encourage investors to divert resources from more efficient and productive businesses.
Channeling tax breaks to politically preferred companies and technologies only raises the barriers to entry for unsubsidized companies to compete for investors and customers, which ultimately does more to hinder the innovation only to take it forward.
But the pain doesn’t end there.
Even if Congress did the right thing today and let all the existing energy tax credits expire, US taxpayers would still bear a heavier tax burden for many years to come.
When the expiration date for receiving energy tax breaks arrives, many of these policies are designed to allow businesses and individuals to access tax breaks for a full decade thereafter. This “expiration” only prevents new recipients from accessing it and does not prevent current users from continuing to use these credits for years to come.
The Treasury Department estimates that the additional tax burden for Americans to cover existing energy tax breaks totals more than $100 billion over the next decade. This is a tax burden that Americans will have to offset elsewhere.
As Americans continue to suffer from historically high energy prices, high inflationand out of control federal spending under the Biden administration, there hardly seems time to expand and increase special tax treatment for politically preferred energy companies.
The elimination of tax credits simplify the tax codeallowing businesses to have a more consistent and predictable roadmap to success.
To avoid increasing the overall amount of tax revenue, the tax credits eliminated should be compensated by tax reductions, be it a reduction in tax rates, an extension of tax provisions pro-growth spending or whatever.
Eliminating all energy subsidies would also allow American businesses to innovate without the “help” from government that so often comes in the form of politicians telling families and businesses what to build and buy.
American companies have innovated without “help” from government for generations and will continue to do so until government intervenes.
There are few opportunities to solve two problems at once. In this case, there is an opportunity for much-needed tax reform while improving energy policy.
Eliminating the narrow tax preferences that make businesses dependent on the government is a win-win situation that any administration or Congress should be eager to implement.
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