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With Senate planning partisan push on tax reform, renewables depend on GOP


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With Senate planning partisan push on tax reform, renewables depend on GOP

Senate Majority Leader Mitch McConnell on Dec. 12 said his chamber will pursue tax reform through budget reconciliation, an expedited process that carries heightened risks for the renewable energy industry.

With Republicans only guaranteed control of the executive and legislative branches for the next two years, the GOP is expected to push for a quick overhaul of the country's tax code. Reconciliation would eliminate the threat of filibuster, allowing Senate Republicans to approve changes without having to win over Democrats, who traditionally have been bigger supporters of clean energy incentives.

The fear is that Republican lawmakers would do away with the production and investment tax credits for wind and solar development as part of a broader effort to lower the corporate tax rate and eliminate what the House Ways and Means Committee has described as "special interest carve-outs."

However, the approach, which is an alternative to regular order, is not a perfect one for Republicans. Under a provision known as the Byrd rule, bills passed through reconciliation cannot raise the deficit for fiscal years outside of the 10-year budget window. "You don't get much behavior change when people assume that the tax rate" sunsets in a decade, said John Gimigliano, principal in charge of federal legislative and regulatory services at KPMG LLP's Washington National Tax practice.

House Republicans say their tax-reform plan would generate enough new revenue from economic growth that rate cuts and other provisions would not have to be temporary, Donna Steele Flynn, executive director of Washington Council Ernst & Young, said Dec. 7 at a solar conference in Washington, D.C.

Taking a strictly partisan approach would also make a Republican rewrite vulnerable to attack. "[When] everybody has a vested interest in the outcome, they're less willing to go back and try and change it right away," Flynn said.

Even in reconciliation, there is no guarantee that renewable energy incentives would be cut short. Lobbyists have been spending more time wooing Republican lawmakers, and the wind and solar industries now employ about 300,000 Americans, according to industry statistics.

"If reconciliation is the way that it's done, there are 52 Republican votes in the Senate. That means that they can afford to lose essentially one senator. They can't afford to lose ... Dean Heller," Flynn said of the Nevada Republican. "And Dean Heller is going to basically make solar the issue that he dies upon. He's in cycle in 2018, and he doesn't want to have to go home to Nevada and say, 'Well, they got rid of my solar credit that I was able to get.'"

The wind industry also has had a staunch defender in Sen. Charles Grassley, R-Iowa, who has said individual energy policies should only be changed in comprehensive tax reform, when all "special-interest provisions" are up for consideration.

How far House Republicans intend to go in eliminating "special interest carve-outs" is unclear. Some worry the fossil energy industry would be spared from any cuts. "The case we make is that our companies compete directly head-to-head against technologies that have permanent benefits. Now they may not be tax credits, but they're permanent tax benefits that they've enjoyed since 1914 if you look at the oil depletion allowance," said Christopher Mansour, vice president of federal affairs at the Solar Energy Industries Association.

The renewable energy industry is also hoping a deal it struck with lawmakers in 2015 to extend and then gradually reduce and eliminate their investment and production tax credits will keep the incentives off the chopping block.

"Any tax reform bill will have transition rules. Congress may decide that the existing phase-out schedule for the tax credits is a transition rule and leave them alone," Keith Martin, a partner at Chadbourne & Parke LLP, wrote in an email.

Finally, some are skeptical that Republicans will be able to quickly coalesce around a tax reform plan, given the preferences of individual members and differences between congressional leaders and the incoming Trump administration.

President-elect Donald Trump, for example, wants to use revenue from a repatriation tax on corporate profits for infrastructure spending, an approach that does not seem to interest Republican leaders, Flynn said.

"What we have heard is that at least the Republican staff on the Senate Finance Committee and the House Ways and Means Committee, the two tax-writing committees, really feel they need to accomplish this, to get tax reform done and signed by the president, by August recess of 2017, otherwise they kind of slip into the next election cycle of 2018," Mansour said. "I mean, I find that incredibly difficult to believe."

The Senate also plans to repeal the Affordable Care Act with a budget resolution and follow-on reconciliation "vehicle," said McConnell, R-Ky.