Thursday, February 28, 2008

VOTE 51 : MN Jobs at stake while Congress chooses whose Tax Break to Extend

Arguably, the American tax system is chock-full of tax credits and provisions that have created an unfair system which are dominated by lobbyists and special interest groups. Congress is in the midst of making a decision concerning which industries should have their tax breaks extended. Should industry profitability eliminate a few companies from the tax credit? How should America's vision of the future and the jobs that could be created be factored into the equation ?

Choice A – Re-enact tax incentives - now set to expire in 2008 - which will end all federal tax credits on solar, wind and other alternative energy installations. Allowing the tax incentives to expire, would effect investors as they would be unlikely to pump much new money into clean power unless they are sure the credits will be available next year. When the tax credit expired at the end of 2003, the construction of new wind farms dropped by 75 percent the next year. The American Wind Energy Association has already detected a drop in new capital spending. An economic study by Navigant Consulting finds that over 76,000 jobs are put at risk in the wind industry, and approximately 40,000 jobs in the solar industry. The states that could lose the most jobs include: Texas, Colorado, Illinois, Oregon, Minnesota, Washington, Iowa, North Dakota, Oklahoma, Pennsylvania, and California.

Choice B – Permit the scheduled tax credit increase which was at 3% in 2005, that was raised to 6 percent in 2007 and to increase to 9 percent in 2010 for MAJOR oil companies.

That’s the choice.
Jobs – current and future - or reducing corporate income taxes to the five largest oil companies.

A little history : The American Jobs Creation Act allowed the deduction of up to 3 percent of qualified income for qualified domestic production activity income. In January, 2005, when this deduction took effect, the spot price in West Texas was $46.84/barrel. Recently, the posted price of West Texas Intermediate oil is $94.62. The big five oil companies made a combined profit of $123 billion in 2007 alone. Major integrated oil companies are defined as those with all of the following: (1)average daily worldwide crude production of at least 500,000 barrels for the taxable year: (2) gross receipts of $1 billion per year; and (3) average daily refinery run in excess of 75,000 barrels. Currently that fits only FIVE companies. All non-integrated oil companies would still be able to claim a 6 percent domestic manufacturing deduction. All other manufacturers would get a 9 percent deduction starting in 2010.

The Joint Committee on Taxation estimates that removal of the credit for major integrated oil and gas producers would bring in $9.433 billion in federal revenue over the next eleven years. Additionally, the proposal freezes the current deduction for all other oil and gas producers to its current 6 percent of qualified income. That portion of the proposed modification would have the effect of freezing the effective corporate income tax to those producers at 32.9 percent, rather than allowing the effective rate to fall to 31.85 percent if the deduction was fully implemented.

The chairman and CEO of Exxon-Mobil testified that if Congress took back the billions of dollars, it would not affect Exxon-Mobil (the Joint Hearing before the Committee on Commerce, Science, and Transportation and the Committee on Energy and Natural Resources, 109th Congress, November 9, 2005).

The bill also proposes a clarification to an existing tax code which would eliminate the potential for major oil and gas companies to manipulate their extraction income in order to achieve beneficial results under U.S. foreign tax credit rules. This small clarification would raise approximately $4.08 billion over ten years, and would more than cover the proposed renewable energy and energy efficiency tax incentives.

Taking oil out of the equation, let’s look at how Minnesota could be affected. With the new Southwest Minnesota wind farm project, Minnesota is ranked as the nation's third largest producer of wind energy capacity, behind California and Texas.

But the future is clouded because of the tax question, putting at risk pending in-state projects.

I acknowledge that any change how energy is acquired can have impacts that the current system is not prepared (the capacity for the nation's high-voltage lines to accept wind turbine energy, local community concerns, safety concerns, etc.) and that mistakes have been made by embracing ethanol so eagerly. Yet, the first question needs to be, do these five major oil companies still need the tax reduction? The second question is, will extending the tax credit for alternative energy programs create (and maintain) jobs?

Those questions are simple to answer.
And the House of Representatives voted yesterday Roll Call 84 with Minnesota’s delegation voting in favor 6 to 2. Keith Ellison was co-sponsor of HR 5351 . Support for alternative energy is not surpising as previously, Tim Walz introduced with the co-sponsorship of Jim Ramstad, Betty McCollum, Collin Peterson and Ellison, HR 2691 to provide incentives for facilities producing electricity from wind.

Why is it that Representatives Bachmann and Kline do not see the value of alternative energy and the jobs involved that the other Republicans and Democrats see ?

Now, that the legislation has been approved, the Senate will consider it. Based on past votes, it will be close. Minnesota Senator Amy Klobuchar has introduced S. 2642 that would establish a national renewable energy standard; to extend and create renewable energy tax incentives, so she should be supportive. Senator Coleman has voted to move forward for a final vote the previous legislation. It failed by one vote to achieve the 60 vote requirement. Senator Durbin reacted : “The future just failed by one vote, the past was preserved the oil companies are now celebrating in their boardrooms. Not only do they have the highest profits in history, they continue to have a death grip on this Senate.”

That’s part of the problem … the 60 vote requirement to move legislation forward is causing inaction.

Now, the chairman of the Senate Budget Committee, Democratic Sen. Kent Conrad of North Dakota, said
Democratic leaders are considering advancing the House bill under fast-track procedures related to the budget. This process would not permit an indefinite GOP stall. In essence, it would require just 51 votes to force Senate action.

If, the Senate approves, then the legislation will go to President Bush who has already promised a veto.

Assuming this plays out, it will be up to Bachmann and Kline on the Veto Override Vote to decide on Minnesota jobs or Billions for the FIVE Oil companies.
Voters should let Bachmann and Kline know now who they wish to support.

1 comment:

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