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Tax Reform Fight Shows Why Subsidies Never Die

The House wanted to scale back an expensive wind energy subsidy, but the Senate prefers to preserve the status quo.

Wind turbineCarsten Medom Madsen/DreamstimeChances are fading fast that tax reform will roll back a wasteful energy subsidy.

The Tax Cuts and Jobs Act, passed by the House last week, promised to save about $12.3 billion over the next decade by scaling back a "production tax credit" mostly used by wind energy producers. It was a tepid but welcome change to a program that has far outlived whatever usefulness it might have had. Sadly, even this marginal reform seems to be too much for Senate Republicans, who have left the credit untouched in their version of the bill.

"This is how government grows," says Veronique de Rugy, a researcher at George Mason University's Mercatus Center and a regular Reason columnist. "It concentrates benefits on a few winners, and it spreads the cost on a large number of losers."

In 1992, the Renewable Electricity Production Tax Credit gave renewable energy producers a 1.5 cent per kilowatt tax break for the first 10 years a facility is online. That tax break was indexed to inflation, and by 2016 it had grown from 1.5 to 2.3 cents.

That might not sound like much, but it costs the federal treasury about $3.4 billion per year in forgone revenue. The vast majority of its benefits go to wind farm producers, who receive up to 80 percent of these tax credits per year and who have eaten up $12.8 billion in production tax credits since 2008.

When it was first created, the program was supposed to expire in 1999, having fulfilled its role in jumpstarting new wind farms. Instead it has been extended 10 times, most recently in 2015. It has even risen from the dead: The credit has expired five times, and each time it was resurrected by wind lobbyists, who insist their industry can't survive without it. They are now howling about the modest rollback the credit would see under the House bill.

"The House tax bill, far from being pro-business, would kill over half of new wind farms planned in the U.S. and undermine one of the country's fastest growing jobs," said Tom Kiernan, CEO of the American Wind Energy Association, on Friday.

The House's bill, mind you, wouldn't even end the tax credit, which is currently set to expire in 2019. It would merely bring it back to the original 1.5 cent subsidy and restrict the types of new construction that the credit could be applied to.

The Senate bill drops these provisions. Sen. Chuck Grassley (R-Iowa), who initially created the credit—and who wields considerable influence from his position as a senior member of the Senate's Finance and Budget committees—has made it clear that he is set against any change to the program.

De Rugy calls programs like the tax credit "a redistribution of wealth from the non-subsidized to the subsidized." But it is that very redistribution, she adds, that keeps such programs around. The small group of beneficiaries, after all, is highly motivated to keep whatever special exemption it receives. And the much larger set of people who pay? "These unseen victims don't even know or understand the cost of these programs," she says. "Even if they understand, they are not incentivized enough to band and organized enough to fight against the subsidies."

Photo Credit: Carsten Medom Madsen/Dreamstime

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  • Hugh Akston||

    The Tax Cuts and Jobs Act

    Representatives don't think much of Americans, do they?

  • Citizen X - #6||

  • JFree||

    Hey - its better than the Job Cuts and Taxes Act

    or the Puppies Motherhood and Apple Pie Act

  • Earth Skeptic||

    Or the apple mother and puppy pie act?

  • Mitsima||

    Job Cuts and Taxes Act

    Truth in advertising, it's the law!

  • Mitsima||

    ^^ generally speaking.

  • Diane Reynolds (Paul.)||

    It's impossible to overestimate the power of wind.

  • Pro Libertate||

    The reason Chicago is called the Windy City is not because it's breezy.

  • Diane Reynolds (Paul.)||

    undermine one of the country's fastest growing jobs,

    Wait, what? The country's fastest growing job [sectors-- I presume] is in wind farms?

  • Pro Libertate||

    Politics, dude.

  • BestUsedCarSales||

    My guess is that it was basically zero a few years ago, and has been adding dozens of new jobs a year. Literally 100% increases every year.

  • Hugh Akston||

    Also the high turnover rate due to guys falling off the nacelles and being chopped in half by the rotors.

  • Citizen X - #6||

    Happens all the fucking time, dude.

  • Mickey Rat||

    It is not the fall that kills you, it is the sudden stops.

  • Diane Reynolds (Paul.)||

    If a Wind Power worker falls at 12mph and his hit by a turbine going 75mph, what's the effective force of the collision?

  • Mickey Rat||

    If your industry cannot survive without subsidies, then should it survive?

    If wind power is that good an energy source, once you have the major capital expenditure of building the wind farm done it should be making money. Are the upkeep costs really that unsustainable?

  • Diane Reynolds (Paul.)||

    Not only are they unsustainable, but they're incredibly carbon intensive.

  • JFree||

    How's that?

    On the operating side, wind generators reduce carbon emissions by roughly 1.5 tons of carbon per MwH produced. ie by displacing the MwH produced by an average existing power generator.

    So the only extra carbon would have to come from the manufacturing/capital side. Which may well be - idk and I doubt you do either. But that should mean only that turbine/etc manufacturers move their facilities TO the wind energy producing areas (High Plains mostly) - and move AWAY from mfg in areas that use carbon-intensive energy. That would also pretty dramatically reduce the capital expenditure in long-distance transmission lines - to those areas where the wind turbines are currently manufactured.

    My guess (idk for sure) is that the current subsidy system is precisely intended to ossify the current nonsense system - keep the mfg in high-carbon energy areas, pay WAY too much for transmission lines, and keep the High Plains depopulated of people and full of NIMBY structures - so that urban types can pretend they are doing something good for environment while mostly lining their own pockets.

  • Jerryskids||

    Sen. Chuck Grassley (R-Iowa), who initially created the credit—and who wields considerable influence from his position as a senior member of the Senate's Finance and Budget committees—has made it clear that he is set against any change to the program.

    I suppose it's just a coincidence that a parasite sucking up ethanol subsidy money supports parasites sucking up other alternative energy subsidy money. All those parasites lead to a lot of back-scratching.

  • Earth Skeptic||

    And front sucking.

  • Robert||

    So this is Reason's line now: that a tax break is the same as a subsidy?

  • JFree||

    Only if the amount is piddly - like $3.5 billion per year.

    If the amount is significant (like $20 billion per year to hedge fund general partners re carried interest) and goes to the donor class, then that remains merely a tax break

  • Bra Ket||

    "...it costs the federal treasury about $3.4 billion per year in forgone revenue."

    I am never going to get used to this govt accounting bullshit talk.

  • Elli Noah||

    That turbine/and many others manufacturers circulate their facilities TO the wind energy generating regions (high Plains normally) - and move far from mfg in regions that use carbon-in depth power. As soon as you've got the principal capital expenditure of constructing the wind farm accomplished it must be earning profits. The small group of beneficiaries, Essay Help Online UK in spite of everything, is exceedingly stimulated to preserve whatever unique exemption it gets.Each and every instruction of the clients are met with complete precision

  • Paul Sand||

    I was in Iowa this summer, and there sure were a lot of windmills dotting the countryside, slicing up the birdies, and also your tax dollars.

  • Domestic Dissident||

    Meanwhile, we've got Welchie Boy on here crying like a little bitch because his taxes might go up a few bucks if the blue state subsidy goes away.

  • Mitsima||

    The real question is, who cries like a little bitch if Welchie Boy's taxes don't go up a few bucks a little more of Welchie Boy's wealth isn't stolen?

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