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Last week, the House passed an $18 billion renewable energy tax incentive package. The bill pays for the tax incentives by repealing tax breaks granted to oil companies. The measure is controversial and faces an uphill battle as it heads to the Senate. What changes will be made to the bill in order to meet the 60 vote threshold in the Senate? What other options does Congress have to extend these tax credits, other than repealing oil company tax breaks? During today's OnPoint, Clint Stretch, managing principal of tax policy at Deloitte discusses the bill and previews the challenges it faces as the Senate takes it up.
Monica Trauzzi: Welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Clint Stretch, managing principal of tax policy at Deloitte. Clint, thanks for coming on the show.
Clint Stretch: I'm glad to be here.
Monica Trauzzi: Clint, the House passed an $18 billion renewable energy tax incentive package last week. Is this an intelligent bill?
Clint Stretch: It is an intelligent bill in the sense that it extends a number of the most needful energy credits for longer periods of time so that people can rely on them and can do planning and grow their businesses around them.
Monica Trauzzi: But is there another way to get these tax credits extended without going after the oil companies and their tax breaks?
Clint Stretch: Well, that is the controversial part of this. The problem that Congress is facing is that we, under the PAYGO budget rules, have to pay for things like extending energy provisions and once you start to do that, there's a limited list. The oil and gas stuff is very controversial. It's going to cause a train wreck in the Senate or certainly at the president's desk. But there are other things we need to do and people are holding back alternative ways to pay for things, plus they need to address other issues later in the year.
Monica Trauzzi: And the next step, as you mentioned, is this bill will go to the Senate and Senate Majority Leader Harry Reid has said that he's going to try to get it to the floor as soon as he can. What are its chances in the Senate?
Clint Stretch: I think it's going to be a very difficult journey in the Senate. It's going to be hard to pass this bill with the revenue raisers that would impact the oil and gas industry so heavily. The Senate, if you look out what it did last year, has a much bigger appetite for doing energy provisions, so they may be looking at 25 or almost $30 billion. And when you go to paying for that you get more controversial things into the bill like increasing revenue from offshore leasing. So it will turn into a real fight in the Senate and the people who are opposed to revenue will have the backing of the White House. So it will be very difficult.
Monica Trauzzi: What changes could be made to the bill though in order to get those key 60 votes in the Senate?
Clint Stretch: Well, I think they're going to have to find a different set of revenue raisers, not go after the oil and gas industry. They're probably going to put in some stuff for clean coal and carbon sequestration and bring some votes along that way. So it will be a package of really making the revenue cuts or the tax incentives a little bigger, maybe scaling back on the length of some of the extenders. But put a package together and then not go after the oil and gas industry as heavily.
Monica Trauzzi: The day that the House voted the price of oil was $102 per barrel. How much of this bill passing through the House had to do with the price of oil?
Clint Stretch: I don't know. The markets are a very funny thing and one would have to think that the markets had discounted this bill long ago. They discounted it both for knowing that the House was doing it and for knowing that the president would veto these tax increases. So my guess is that what's happening in the oil price markets doesn't have a lot to do with this bill.
Monica Trauzzi: Even if this bill doesn't pass through the Senate or the president vetoes it, are the Democrats still sort of making way because they're putting this big red circle around the oil companies and the tax breaks that they're getting versus the revenue that they're making?
Clint Stretch: Well, certainly they're making a political point with respect to oil and gas, but I think the deeper political point for the Democrats here is that they're demonstrating their commitment to renewable and alternative energy. And they're really putting their green agenda out there in front.
Monica Trauzzi: So, the headline here is the renewable energy tax credits, not necessarily the oil company tax breaks?
Clint Stretch: I think that's right. I think when this whole show is over the thing that Democrats will go and talk about is renewable energy and their efforts to address our dependence on foreign oil and that they won't be talking about what they were trying to do to oil and gas. Now, the Republicans will be talking about the tax increases on oil and gas.
Monica Trauzzi: Some say that extending these tax credits won't really make as much of a difference as we're hearing, others in the renewable energy industries say these are vital in order for renewable energy to continue to expand. What side of the line do you stand on? Do you think these are really necessary?
Clint Stretch: Well. I understand the arguments on both sides. I think it's very important that if you're going to have incentives that you extend them, that you extend them for reasonable periods of time so people can depend on them. If you look at solar for example, we're losing ground globally on solar and so I can understand the argument that this would make a real difference in solar. Now, are these credits going to benefit people for doing things that they would have done otherwise? Certainly some of them would. You know, if my firm pays a signing bonus to an employee, we don't know if that person was going to come to us anyway if we didn't give them the bonus. You do what you need to do. So we need to encourage people to make these investments in the economy. Some people are probably going to make them anyway and so for them it's a windfall, but for the country as a whole it's a very important statement there we're trying to address both our competitiveness globally and our commitment to renewable and alternative energies.
Monica Trauzzi: And those multi-year extensions are key to investors because they give them some certainty.
Clint Stretch: They really are key to investors. You know, I'm not going to go out and try to create a new solar technology or set up a retail system to sell the stuff if the credit is going away in nine months.
Monica Trauzzi: The president has signaled that he won't sign a bill the repeals the oil company tax breaks. But is repealing those tax breaks inevitable? If it doesn't happen this year are the Democrats going to continue to try to do that and maybe with an ex-president be more successful?
Clint Stretch: I don't know that it's inevitable. Next year is next year and who knows where oil prices will be? Who knows where refinery capacity will be? There will be a whole different set of issues. I think the only thing inevitable is in the next couple of years we're going to have to take a very cold, hard look at our entire tax system to avoid the fiscal train wreck we're headed for. And as we take that look there are a lot of people who are going to be surprised with what they win and lose in that debate.
Monica Trauzzi: What does this all mean for the prices at the pump? If these oil tax breaks are repealed, are we going to see higher prices at the pump?
Clint Stretch: You know, if I knew things like that I would not be a tax lawyer. I would be out playing the market.
Monica Trauzzi: OK. And if Congress can't get these renewable energy tax credits extended this way what are its other options?
Clint Stretch: I think the other options are to cut back on the length of these extensions, so to do less for a shorter period of time and then to go find some revenue options other than oil and gas and put together just a smaller package.
Monica Trauzzi: OK, we will end it right there. Thanks for coming on the show.
Clint Stretch: Thanks so much.
Monica Trauzzi: This is OnPoint. I'm Monica Trauzzi. Thanks for watching.
[End of Audio]
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