Tax season comes in April for most of us, but Congress has the peculiar habit of doing its tax business every December. Each year (sometimes ahead of a tax year, and sometimes after the fact) policymakers consider a so-called “extenders package” of tax provisions that expire on a regular basis. The reason for such an arrangement is to generate a “must-pass” legislative tax vehicle ahead of the Christmas break. An extenders package is a mixture of tax relief for businesses and for families, with priorities for Republicans and Democrats alike. Tax extenders are loathed by tax experts of all stripes, but Congress likes it for both lawmaking and political fundraising purposes.
Back in 2015, Congress passed what it vowed was the last tax extender package. Most of that was just talk, but there was some truth to it. The big-ticket extender items were made permanent, taking a lot of air out of the extenders balloon ever since. In addition, the solar power industry (as well as some other “green” tax credit beneficiaries) committed to a glidepath to wean themselves off of the need for tax benefit support.
The tax code has contained a solar tax credit since 2005. Meant to give a boost to a startup industry, the solar tax break gives a 30% tax credit for solar panels and systems installed by both homeowners and businesses. In 2015, the solar industry committed to a glidepath that both reduced and restricted the credit amount. The idea was that this industry was no longer in the cradle, and could stand on its own two feet.
That turns out to have been the case. The Energy Information Administration reports that nearly 3% of our electricity grid is powered by solar energy. It’s growing by leaps and bounds, too—solar generation of electricity jumped by 30% in 2018 alone. It’s a successful and profitable business sector and enjoys the support of many state and local tax and energy benefits. Mission accomplished!
Now that it’s time for the phaseout of the solar energy tax credit to happen, it turns out the no-longer-nascent solar industry would like to renege on the deal. Sen. Catherine Cortez Masto of Nevada, and Rep. Mike Thompson of California have introduced the “Renewable Energy Extension Act of 2019,” which would push off the day of reckoning on the phaseout by five years. Of course, once that later time arrives, the industry will look for another “temporary” extension of the solar tax credit.
Let’s get real — we’re talking about making the tax credit permanent for all intents and purposes.
What types of taxpayers claim these credits? Not surprisingly, a solar tax credit is mostly used by limousine liberal families in blue states such as California. According to a study by scholars at the University of California, Berkeley, $1.8 billion in solar credits were claimed between 2006 and 2012, with the average tax credit totaling just over $5,300, which comes out to about 350,000 homes. These are not modest houses based on the income of their owners. The top income quintile has received 60% of the tax credit amount, compared to just 10% for the bottom three quintiles combined.
Why should Congress go back on a deal they made with the solar power industry as recently as 2015 in order to give a virtue-signaling green tax credit to wealthy liberals in California? Is that what Rep. Alexandria Ocasio-Cortez’s “Green New Deal” is really all about — crony capitalist tax credits that accrue benefits to the richest people in America?
This is the opposite of sound tax policy. The whole idea behind tax reform is to get rid of these special interest tax credits (where big business and big government collude for mutual self-enrichment) and use the money instead to lower tax rates and enact a consumption tax base. That was the idea behind much of the Tax Cuts and Jobs Act, which lowered both taxes and tax rates for businesses and families alike while liberating millions from the “shoebox on top of the refrigerator” pile of tax receipts. The solar tax credit is the antithesis of that.
Here’s the good news. All Congress has to do is not take any action at all. Let the deal they made stand, meaning the solar tax credit will fade away.
If Congress caves and extends the solar tax credit, they will send a horrible signal to corporate lobbyists that they should make fake promises everyone knows aren’t true, and that Congress can then be plucked like a goose when it’s time to welsh. For the sake of good tax policy, good energy policy, sound politics, and the integrity of a handshake deal, Congress should do here what it does best: nothing.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.
