Rescue Sweetened With Tax Incentives

Congress approves a massive plan to shore up the U.S. financial system, despite a stunning early defeat. The Senate passed the legislation on Wednesday evening, and the House passed the legislation on Friday afternoon.
By Cecilia Kang
Washington Post Staff Writer
Saturday, October 4, 2008

The House of Representatives yesterday approved $107 billion in tax breaks for businesses and consumers as part of a sweeping financial rescue package designed to stave the credit crisis.

Saddled onto the 450-page bill is a provision to shield as many as 25 million Americans from the alternative minimum tax and $18 billion in tax credit extensions for wind and solar energy production.

Yet to appease lawmakers and make the bill more attractive, several more prosaic tax provisions are included, according to a government budgetary watchdog group.

NASCAR will be able to write off racetrack costs over 7 years and manufacturers of wooden arrows for children will be shielded from an excise tax applied to other shafts. The NASCAR provision was introduced by Rep. Mike Thompson (D-Calif.), who voted in favor of the bill.

The bailout package also provides tax rebates on rum imported from Puerto Rico and the Virgin Islands and tax credits for economic development on the island of American Samoa.

"In the midst of a debate over a historic bailout package, Senate pulled out an old bag of tricks: piling billions of dollars of unrelated legislative provisions into the package and daring the House to reject the bailout again," said Ryan Alexander, president of Taxpayers for Common Sense. "Many of these provisions are tax extenders that have been waiting in the wings for months, hoping for a legislative train to leave the station."

The bill passed the House yesterday 263 to 171. It was a last-ditch effort of sorts for proponents of renewable energy to get tax provisions extended before they were set to expire by the end of the year. Those extensions, estimated at $18 billion, had repeatedly failed to pass legislative muster in both the Senate and House over the past year.

The tax breaks in the legislation total $149 billion over 10 years, and are offset by $42 billion in tax increases. The hikes include a new levy on hedge-fund managers who avoid taxes by transferring income offshore, a provision that would raise $25 billion over 10 years.

"These tax incentives will help individuals and companies make important investments to produce energy from renewable sources and reduce our dependence on foreign oil," said Rep. Charles B. Rangel (D-N.Y.), chairman of the House Ways and Means Committee. "By helping companies perform research and develop new technologies we also create new, green jobs at a time when millions are struggling in a slow job market."

The provisions include an eight-year extension of an estimated $1.9 billion in tax credits on solar equipment purchases by solar energy producers. Wind, geothermal and biomass producers would also receive about $5.8 billion in tax credit extensions.

Beltsville-based SunEdison, a supplier of solar energy for businesses around the nation, said the tax credits of 30 percent on their investments in solar equipment helps them offer rates that compete with regular electric and other utility companies. If the tax credits weren't extended by the end of the year, those incentives would drop to 10 percent, according to the company.

"We are a nascent industry, and we are building and creating and growing," said Martha Duggan, vice president of regulatory affairs at SunEdison. "The payoffs for efficiency come later in development."

For homeowners, the bill removes the current $2,000 tax credit cap for residential projects, allowing those who convert to solar electricity to reduce their taxes by up to 30 percent of the project's cost. Residents will also get tax credits for energy-efficient appliances.

Brad Penney, director of government relations at the nonprofit Alliance to Save Energy, said such tax breaks will lessen the financial burden on homeowners of energy-efficient investments. He said the average family spends $6,300 a year on vehicle and home energy costs -- about 13 percent of the average household income of $50,000.

Buyers of plug-in electric cars would get tax credits of $2,500 to $7,500. Electric vehicle recharging stations, meanwhile, would get a one-year extension on $30,000 in tax credits or up to 30 percent of their costs.

Yet the bill has also drawn criticism from environmental groups for its inclusion of $900 million in tax credit extension to refineries using tar sands or coals-to-liquids technology.

"We are still in a situation where big coal and big oil demand their pound of flesh every time we move forward with clean energy," said Josh Dorner, a spokesman for Sierra Club.

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