Tax Policy:

Former Senate Finance tax counsel Zerbe discusses impact of deal on clean energy

How will last week's fiscal cliff deal affect certainty in the clean energy sector? Can the wind energy industry recover its losses? During today's OnPoint, Dean Zerbe, former senior tax counsel to the Senate Finance Committee and now the national manager of alliantgroup, a provider of specialty tax services, gives recommendations to the clean energy sector on how to take advantage of the incentives provided in the fiscal cliff deal. He also explains why he believes the negotiations marked a shift in tone on the government's role in subsidizing clean energy industries.

Transcript

Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Dean Zerbe, former senior tax counsel to the Senate Finance Committee and now the national manager of Alliantgoup, a provider of specialty tax services. Dean, thanks for coming on the show.

Dean Zerbe: Thanks so much, I appreciate it.

Monica Trauzzi: Dean, last week's fiscal cliff negotiations yielded a law that's largely seen as positive for the clean energy sector. 2013 though is still expected to be a tough year for the wind industry. When could the industry see a turnaround resulting from this new law and these incentives?

Dean Zerbe: That's a good question. I think the one positive for business overall is that there was certainty in a lot of it. Not in the wind provisions, they have a one year extension, but I do think that's going to help the economy and I think directly encourage energy production and hopefully translate into benefiting the wind folks.

But I think one of the big things that'll really benefit is that the 2013 says you just need to break ground for that wind credit, and I think they need to recognize and be made aware of it, and that should hopefully put a little giddy-up into them in terms of taking advantage of this benefit.

Monica Trauzzi: Is there irreversible damage done to some of these industries that were sort of hanging on by a thread waiting for these negotiations to happen?

Dean Zerbe: I think you raise a good question. I think that's why the breaking ground provision part of it is so important. In other words, they don't have to be all the way through, they can at least be comfortable knowing I'm going to get some kind of a break. But you're right, Monica, they need to have eyes open. This clearly was a very contentious issue, really thanks to Senator Grassley, Senator Barkus really pulling a lot of weight to kind of make this happen, that it finally did happen. I don't know if they're going to always be able to recreate that. We're going into tough times, as you know, with the budget, so I think they need to take advantage of it, kind of cook while the cooking's good and take advantage of it. I can't really say past 2013 what's going to happen. We're going to go into tax reform. It's a big ticket item, it's $12 billion dollars, so in some ways it's a tremendous benefit they need to take advantage of. But I would say that it certainly also gets a lot of focus in terms of that dollar amount.

Monica Trauzzi: So do these negotiations mark a shift in tone towards how reliant industry should be on the government for subsidies, especially in the clean energy sector?

Dean Zerbe: I think it does. I think they need to look harder at other incentives that are out there, like the RND tax credit is something that they may be able to take advantage of. Senator Coons from Delaware has been talking about incentives for start-up businesses and maybe looking at that for wind as well too. Because I agree with you, it feels like this may be the high water mark for when, we'll see, but I think it was very difficult for them to get this. The House was kind of jammed, if you will, in terms of the provisions coming over, and even in the Senate there was a lot of unhappiness with this provision. It was kind of a perfect storm for the folks who like it. I don't know if they'll get that again, so you're right, they need to be cautious going forward.

Monica Trauzzi: So then the overall takeaway, is this a win for corporate incentives?

Dean Zerbe: Well, it certainly is a win, you're right about that. All the business incentives were extended, all the energy incentives were extended. That was great news for business, there was no question about that. So it certainly was a success for business and for energy and certainly for clean and for wind. I'm a little worried it won't be an easy road to replicate that.

Monica Trauzzi: So as someone who was involved in the highest levels of these types of discussions when you were with the Senate Finance Committee, what's your read on why these talks were so screwed up essentially?

Dean Zerbe: I just think you had folks poles apart. And I actually, it was interesting, right out of the box thought they would get a deal fairly easily when the speaker came out and said, "Well, yes, we recognize we need to raise taxes, we saw the elections," and he put that out there. I guess I didn't count on there being such a difficulty on the spending side. I thought, okay, well, the president had commented about, well, $2.50 of spending cuts for every dollar of taxes. So I thought there was going to be a deal fairly easily. But that obviously turned out not to be the case and they ended up with the deal that they did on taxes, which was kind of a half of a deal. In other words, we didn't get really the spending, and I'm afraid they'll have to come back to that and look at it. So nothing's ever final here in Washington and I think you're going to have to look at those issues again. And it's been interesting to see Camp talking about wanting to do tax reform as well too. So that still plays very much in effect. And I think energy and clean energy will be a big part of that. And I think one of the things I really see is the Republicans moving more towards energy neutral. In other words, saying, "Well, we're happy to encourage energy incentives and energy efficiency and clean energy, but we want to be neutral as to how we get it." And I'm not saying that's good, bad or indifferent, but where I see them. And then the Democrats, and this is perhaps a little bit over sweeping, I'm not say every one of then thinks so - but in a general way, the Democrats being maybe more towards, "Well, we like this provision, we like the wind, we like more specific provisions." And again, not to say every Democrat thinks that. But it seems that's going to be kind of the battle lines in a lot of ways.

Monica Trauzzi: So then do you take this as a green light for energy policy for other forms of energy legislation in the 113th Congress?

Dean Zerbe: Yes, I think so. I think it's unfortunate they lose Senator Bingaman who's obviously a big leader in this area, but others always will step up, and Barkus is certainly active in this area. And so I do expect energy - you've got a lot of important provisions expiring, obviously all these but plus others, like 179-D for energy efficient commercial buildings. A lot of provisions expiring. I think it will be natural to say as we're looking at tax reform, as we're looking at business tax reform, let's have a good review of where we are on the energy policies as well too.

Monica Trauzzi: So moving forward, the next big issue on the agenda will be the debt ceiling. How are you expecting that to be used as leverage for policy and specifically what pieces of policy might be worked into this.

Dean Zerbe: You know, that's a good question. I see that as more of a spending journey. I think the Republicans in particular will be pretty loathe to say, "We're going to go back to taxes again," since they feel they just kind of gave at the office on that. So I think it might be more on the spending side of it. I do think in general for folks on tax issues and energy issues, it's clear that the tax code's proven to be in some ways an easier journey for them as opposed to spending, and I don't want to bring up bad news, but Solyndra. Things like that have just kind of left a bad taste in a lot of people's mouths. So I think the tax code is going to probably remain the primary way to encourage energy activity. So I think that might be in tax reform. I could be wrong. You raise a good point about the debt ceiling. It doesn't feel like they're going to have a big discussion on tax issues though. It'll be more, "Well, what are we going to do about entitlements? What are we going to be doing about social security?" I think more of a focus on those things and less on specific items here. But I think paying attention to what Camp is saying matters a lot. But I think the big thing really as a takeaway, Monica, is for the associations and industry listening to you, is there are these great benefits out there, there are these great incentives out there with the wind energy, with the RND extended and concluded, and they need to take advantage. What we find is that so many businesses don't even take advantage of what's out there already. So that's the big thing I'd really encourage associations and industry to look at, to say, "Are we really taking full advantage?"

Monica Trauzzi: All right, we're going to end it right there. Thank you for coming on the show.

Dean Zerbe: My pleasure, thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]