Unable to even define ‘subsidy,’ a gridlocked Senate shoots down energy tax bill

Source: Elana Schor, E&E reporter • Posted: Friday, March 30, 2012

The Senate turned back a proposal today to end oil and gas industry tax breaks and extend a passel of renewable energy credits, the latest twist in a political spectacle centered on a question worthy of Hamlet: What is a subsidy?

The 51-47 upper-chamber vote surprised few in Washington even as it handed President Obama a chance to commandeer the day’s headlines with a speech that sought to frame the vote as a choice between “oil subsidies that keep us trapped in the past” and ending those “subsidies so that we can invest in the future.”

But the opposition to today’s energy tax bill from four Democrats and all but two Republicans underscores how divisive the S-word has become for lawmakers who also face mounting pressure to pare a tax code laden with industry-specific supports.

The persistent, partisan fight over whether the oil industry’s tax benefits amount to subsidies — not to mention the wind, solar and clean-vehicle breaks extended by today’s legislation, which more than a few in the GOP support — threatens to hobble that tax reform debate even before it begins.

That risk was evident in the alarm among Republicans over Obama’s attempt to define as a subsidy the manufacturing and percentage depletion tax benefits for oil and gas, both of which mirror breaks that other industries receive by effectively treating fuel as a U.S.-made good.

“The president repeatedly conflates not taking even more money from oil companies through higher taxes with actual subsidies such as the government giving cash to Solyndra,” Robert Dillon, spokesman for Sen. Lisa Murkowski (R-Alaska), wrote in a memo that raised the stakes by mentioning another S-word in the form of the failed, government-backed solar company.

“By this logic, any dollar earned but not seized by the government is a ‘subsidy’ for which we should feel grateful.”

When ethanol tax credits were struck down with 73 Senate votes last year, however, many Republicans joined environmentalists such as Ben Schreiber of Friends of the Earth in slamming the benefits as subsidies (E&E Daily, June 17, 2011).

“The definition of subsidy obviously changes depending on the time and the day,” Schreiber said in an interview, recalling the GOP-green alignment on that ethanol vote. In many ways, he contended, tax credits are preferable to direct federal appropriations because “it’s much harder to repeal them.”

The slippery meaning of “subsidy” is not disputed by Sen. Jim Risch (Idaho) and his fellow Republicans. Yet they see as much election-year hypocrisy in Obama’s vow to support U.S. manufacturing — while pushing to strip manufacturing benefits from oil producers — as Democrats do in the GOP’s simultaneous opposition to renewable energy “subsidies” and support for oil industry benefits.

“Language is an amazing thing in this town,” Risch marveled in a committee hearing minutes before today’s vote, adding that the oil and gas credits now being targeted were called “incentives” in previous years. “Now they’re labeled as loopholes and subsidies.”

One of Risch’s colleagues, Sen. Lamar Alexander (R-Tenn.), raised eyebrows in Washington energy circles this month by proposing the phaseout of oil and gas subsidies as well as the renewable-power tax breaks that today’s failed legislation from Sen. Robert Menendez (D-N.J.) would have extended (E&ENews PM, March 7).

“The notion that a leading conservative concerned about the debt is open to examining fossil subsidies suggests you can begin to have an informed discussion about the policy merits and rationale for energy subsidies across sources,” said Paul Bledsoe, a senior energy adviser at the Bipartisan Policy Center.

But Alexander has colored his pitch for a broad subsidy rollback by exempting oil and gas benefits that mirror tax breaks enjoyed by other industries, meaning that the manufacturing and percentage depletion credits — the second- and third-biggest pots of money Democrats hope to reclaim from the industry — would remain intact.

The four Democrats who today opposed extending the renewables credits while repealing the oil credits were Sens. Mark Begich (Alaska), Mary Landrieu (La.), Ben Nelson (Neb.) and Jim Webb (Va.), who changed his vote since a similar bill failed in the Senate 10 months ago. Maine Republican Sens. Susan Collins and Olympia Snowe were the only members of their party to support the bill.

Tax benefits are subsidies — CBO

The nonpartisan Congressional Budget Office (CBO), held up by both parties as a reliable arbiter in spending debates, this month said in no uncertain terms that “tax preferences” for both fossil fuels and renewables amount to a form of subsidy.

More than two-thirds of energy tax subsidies in fiscal 2011 went to renewables, though those supports are less permanent than the fossil-fuel benefits that amounted to 15 percent of 2011 tax-benefit allocations, the agency estimated.

That America is giving “higher levels of subsidies to less mature industries like solar and wind and lower levels to more mature industries like oil and gas” tracks with a long-standing strategy “to provide incipient industries more incentives,” said Bledsoe, of the bipartisan think tank.

“It’s evidence of the profound nature of budgetary pressures on existing energy subsidies that both mature and developing industry incentives are being called into question.”

A more “cost-effective way” to promote changes to U.S. energy consumption, CBO added, “would be to levy a tax on energy sources that reflects the environmental and other costs associated with their production and use.”