Crisis puts renewable energy incentives into play

By Robert Pear
Published: October 2, 2008

WASHINGTON: A long-stalled tax bill offering incentives for the use of renewable energy and providing tax breaks to millions of families and businesses gained momentum on Wednesday, when it was strapped onto emergency legislation to shore up the nation's financial system.
By a vote of 74 to 25, the Senate passed the legislation, including the tax breaks, on Wednesday night. The tax provisions may make the bill more attractive to some Republicans in the House, which rejected a bailout bill in a stunning vote on Monday.
The Senate version of the bailout package was amended, at the last minute, to include a wide range of tax breaks, as well as financial aid for certain rural schools and a measure requiring health insurance companies to provide more generous coverage to many people with mental illnesses.
With the new provisions, the legislation has become more palatable to many lawmakers.
Lawmakers of both parties said the changes would help win support for the package in the House, which rejected the bailout plan in a stunning vote on Monday.

The latest version of the tax legislation, virtually identical to that passed overwhelmingly by the Senate on Sept. 23, would extend the business tax credit for research and development, expand the child tax credit and protect millions of middle-income families from the alternative minimum tax, originally aimed at high-income families.
It would also provide tax relief to victims of recent natural disasters, including floods, tornadoes and severe storms.
The tax credits for investing in solar energy and producing wind energy are scheduled to expire at the end of this year.
Gregory Wetstone, director of government affairs at the American Wind Energy Association, hailed the efforts in Congress.
"The renewable energy tax credits are critically important to the future of wind and solar energy in America," Wetstone said. "In 2000, 2002 and 2004, the industry suffered a drop of 70 percent to 90 percent in the level of annual new wind power as a result of Congress's failure to extend the tax credit, which is currently the only major federal program to support renewable energy."
Many House Democrats, led by the fiscally conservative Blue Dog Coalition, had insisted that the cost of tax breaks be fully offset by revenue increases or spending cuts. But it appeared that they were going to lose their yearlong fight with the Senate over this question.
Taken as a whole, the Senate tax package would cost $150.5 billion over 10 years. Of that amount, about $43.5 billion would be offset.
The Senate bill includes several revenue-raising provisions. It would, for example, keep hedge fund managers from using offshore corporations to defer taxes on compensation for their investment services. It would also freeze a tax deduction that oil and gas companies get for certain domestic production activities. The deduction, now 6 percent, is scheduled to rise to 9 percent in 2010.
"With oil and gas prices on the rise, the oil and gas industry does not need tax incentives that it may have needed in the past," said Senator Max Baucus, Democrat of Montana and the chairman of the Finance Committee.
Charles Rangel, Democrat of New York and the chairman of the Ways and Means Committee, said the Senate was setting a bad precedent by trying to impose its tax legislation on the House, rather than negotiating a compromise.
"The Senate leadership took an unprecedented gamble when they attached a package of tax extenders to the emergency financial rescue legislation," Rangel said. He complained that Senate Democrats "repeatedly capitulate to demands" by Republican senators, many of whom contend that Congress should not have to pay for the extension of expiring tax breaks.
To increase tax compliance, the bill would require brokerage firms to track and report the cost basis of stocks, bonds and other securities sold during the year. The cost basis is used in computing the capital gains on which investors must pay taxes. When people overstate the original value or purchase price of stock, they may pay less tax than they should.
Congress estimates that the proposed reporting requirement would raise $6.7 billion in additional revenue over 10 years.
The House jealously guards its power to originate tax bills. The Constitution says, "All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other bills."
The Senate version of the bailout package is technically an amendment to a House bill that would require group health insurance plans to provide equivalence, or parity, in the coverage of mental and physical illnesses.
Insurers often charge higher co-payments and set stricter limits for mental health care than for the treatment of physical illnesses. The bill would outlaw such discrimination, and the government could impose an excise tax on health plans that violated the new requirement.
On the tax legislation, as on other issues in the last two years, the Senate appears likely to get its way because major bills typically need 60 votes to clear procedural hurdles in the Senate. In practice, this means that the majority Democrats cannot pass contentious bills without help from some Republicans.
Another sweetener added to the bailout bill would extend the "secure rural schools" program, which compensates counties for the loss of revenues they had been receiving from the sale of timber on federal lands. Counties in Oregon and several other states have laid off police officers and cut back public services since authority for the program, which provides money for schools and roads, expired this year.