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Energy tax breaks are targets of White House reform — Cohn

Peter Behr | E&E News

Energy Secretary Rick Perry spoke Tuesday at a White House press briefing. Perry has hinted in speeches that a continuation of renewable power tax breaks is not in the administration's plans. C-SPAN
National Economic Council Director Gary Cohn told energy industry representatives yesterday that their entire portfolio of prized tax benefits and subsidies is in play as the Trump administration pursues a steep reduction of the overall corporate tax rate.
"We're looking at every single preference item that exists," Cohn said as the meeting began yesterday in the White House Roosevelt Room. "Nothing is off-limits to us, and we really mean nothing."
Cohn also said the administration and Republican congressional leaders have vowed to avoid the legislative chaos over health care that has split the party and frozen action in the Senate so far. Cohn said there will be a single tax reform proposal that will bridge the current chasm of policy differences separating the "blueprint" advanced by House Speaker Paul Ryan (R-Wis.) and House Ways and Means Chairman Kevin Brady (R-Texas), and the positions of Senate leaders and President Trump.
"We're on the same page. We are committed, and I mean committed, to deliver one unified plan together. There will not be competing plans," Cohn said.
Ten executives from the electric utility, nuclear, oil and gas, and energy finance sectors attended the "listening session" yesterday, following hundreds of other groups and individuals who have been canvassed about strategies for a sweeping overhaul of the federal tax code, Cohn said.
Jack Gerard, head of the American Petroleum Institute; Maria Korsnick, president of the Nuclear Energy Institute; Tom Kuhn, president of the Edison Electric Institute; Jim Matheson, chief executive of the National Rural Electric Cooperative Association; Dave McCurdy, president of the American Gas Association; and Lori Ziebart, executive director of the Master Limited Partnership Association, were among the participants. Missing around the table yesterday were representatives of the renewable power industry engaged in what analysts are calling a "fuel war" with fossil fuel and nuclear power generators to capture shares of a slow-growing electricity market.
Reporters were allowed to hear Cohn's opening remarks but not the responses of the energy sector's potent top officials, whose lobbyists have worn Capitol carpets threadbare in pursuit of tax advantages for investments, interest and dividend payments, drilling costs, depreciation schedules, and other "preferences." The congressional Joint Committee on Taxation estimates that energy tax benefits in nearly 50 categories would reduce federal tax revenues by more than $97 billion between 2016 and 2020.
Wind and solar credits in question
In his confirmation hearing, Treasury Secretary Steven Mnuchin assured Sen. Chuck Grassley (R-Iowa) that he supported the current production tax credit for wind farms, which will be phased out in 2020. A tax credit for solar power is also being phased out, and both have been crucial to the rapid expansion of these renewable sources. Energy Secretary Rick Perry has hinted in speeches that a continuation of renewable power tax breaks is not in the administration's plans.
"We've got to broaden the base. It's a plain and simple fact, if you're going to lower rates, across the board you've got to tax a broader swath," Cohn said yesterday.
"You all know the story," he continued. "Every time we get someone who comes in here and says, 'You've got to protect X,' we sort of say, 'Would you rather have a tax system that protects X and a higher rate, or a tax system that doesn't protect X and a lower tax rate?' and usually the people tell us, 'Don't protect X; we'll take the lower rate,' so we're in that area."
Following the meeting, American Petroleum Institute spokeswoman Brooke Sammon mentioned that some "X's" remain on API's list, however. "The right tax reform approach must support job creation, manufacturing competitiveness and global trade, including robust capital cost recovery mechanisms, a competitive international tax system, and use of available foreign tax credits as part of any deemed repatriation provision," she said.
Cohn said Mnuchin is not budging on using the tax code to push policy in one direction or another. "The only decision we can make is, we can't be in the position of picking winners and losers, so if you just eliminate everything, it's a lot easier," he added. "So our goals here is basically to eliminate everything."
Border tax?
Cohn did not disclose any details of the compromises that will be necessary to line up the House and Senate GOP behind a single plan. Ryan and Brady, for example, pitched a border adjustment tax as a way to fund tax cuts. It would make imported goods and components subject to U.S. tax, as a way to check the steady shifting of American corporate operations overseas.
A border tax and other provisions in the Ryan-Brady plan would effectively raise costs of imports by 25 percent, said economist Philip Verleger Jr. "No sector, though, will be more affected than petroleum," he said.
The border tax would not apply to U.S. exporters of crude oil and hydrocarbon products, but imports would be. A persistent campaign against the border tax by U.S. retailers has probably doomed the idea, tax policy analysts say.
Cohn said the path toward lower rates for corporations and individuals, particularly middle-income taxpayers, looks clear, but not the future tax treatment of small and medium-sized business owners whose business income is "passed through" and taxed at personal rates. "Getting pass-through right is very important," he added. "We still haven't figured that out."
Another key issue, he indicated, is changing the taxation of U.S. companies' foreign-based income so that the companies pay the applicable rate in the countries where they do business, rather than have the foreign income taxed at U.S. rates, as is now the case. When foreign taxes are lower, that encourages U.S. companies to keep profits abroad rather than returning them to invest back in the United States, tax analysts note.
The tax proposal will be the administration's top priority beginning in August, Cohn said. Then the release of the details will spell out the political odds of its enactment. "If you don't have a unified plan, you don't have tax reform," said Pinar Cebi Wilber, chief economist of the American Council for Capital Formation.