2011 July 25: (Debt Limit impact on Energy Issues) Expect the Unexpected

2011 July 25: (Debt Limit impact on Energy Issues) Expect the Unexpected

Michael Platner, Lisa Epifani, Bob Szabo, Mailien Le

The debt ceiling battle has heated up just as the weather in Washington has reached record high temperatures. Perhaps the extreme physical heat could be contributing to the heat of the political battle, as the nation progresses nearer and nearer a potential catastrophic default on its obligations. While no one outside these talks can follow with precision the “bouncing ball,” we do want to offer our initial outlook on how these talks, as well as other proposals, could impact energy issues.

Expect the Unexpected

Print PDFMichael Platner, Lisa Epifani, Bob Szabo, Mailien Le
July 25, 2011

The debt ceiling battle has heated up just as the weather in Washington has reached record high temperatures. Perhaps the extreme physical heat could be contributing to the heat of the political battle, as the nation progresses nearer and nearer a potential catastrophic default on its obligations. While no one outside these talks can follow with precision the “bouncing ball,” we do want to offer our initial outlook on how these talks, as well as other proposals, could impact energy issues.

Discussions on the debt ceiling, deficit reduction and tax reform include consideration of potential elimination or modification of energy tax provisions as well as cuts to spending on a variety of energy programs. Just this past week, Senator Coburn (R-OK) released his detailed “Back to Black” deficit reduction plan, the “Gang of Six” Senators released a broad outline of their deficit reduction plan, and the House approved and the Senate defeated the “Cut, Cap and Balance” deficit plan proposed by the House Republicans. In addition, Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY) continued to work on their interim solution to the debt ceiling problem. The release of the “Gang of Six” proposal briefly put new life into the high level talks between House Speaker John Boehner (R-OH) and President Obama on a large debt ceiling/deficit reduction package.

The discussions between Democrats and Republicans over the weekend appear to have moved the debt ceiling negotiations away from tax increases and to a focus only on spending cuts. While tax increases may be off the table for the debt ceiling discussions today, the substance and timing of any of these potential changes is yet unknown. It is critical to be aware of these potential changes now.

To that end, we have compiled a preliminary list of energy spending items that have been identified for cuts or modification. The energy inventory below highlights the key energy ideas identified in Senator Coburn’s “Back to Black” deficit reduction plan and the Report to the National Commission on Fiscal Responsibility and Reform crafted under the leadership of former Senator Alan Simpson (R-WY) and Erskine Bowles, former Chief of Staff to President Bill Clinton, to give you a sense of the range of potential impacts. Other proposals continue to be part of the discussion; however, few proposals provide the details that are contained in the Coburn and Simpson-Bowles proposals.

The only guarantee we can offer about this list is that it will change—and that the unanticipated and unexpected will surely happen. From time to time, we will update this list and provide more details as they may become available. Obviously, if and when the unexpected occurs, we will be in touch immediately. Our team at VNF can help you analyze your business to identify and value current federal tax and funding policies, we can also monitor and analyze specific provisions of interest and work with you to prepare your strategy going forward.

So, how can you protect yourself against catastrophic changes in tax policy or federal spending policy that could undermine your business? The first step is to understand which existing federal tax policies and federal spending policies are critical to your business: identify the policy, value the policy and determine the effect the removal or significant alteration of the policy would have on your business. The second step is to contact one of the professionals of Van Ness Feldman and we can help you analyze the alternatives available to protect your business.

  Coburn Simpson Bowles
POSSIBLE Tax Provisions to be Eliminated or Modified
Accelerated Depreciation System – Reduce or eliminate accelerated depreciation for all types of assets   *
Advanced Nuclear Power Credit * *
Alternative Motor Vehicle Credit * *
Brownfields Tax Breaks *  
Business Energy Investment Tax Credit * *
Clean Coal Investment and Gasification Tax Credits * *
Clean Renewable Energy Bonds and Qualified Energy Conservation Bonds * *
Eliminate Deferral of Foreign Source Active Income and Replace with a Territorial Tax System   *
Ethanol Tax Incentives    
– VEETC * *
– Small Ethanol Producer Credit * *
– Biodiesel Tax Credit * *
– Cellulosic Ethanol Production Tax Credit * *
Energy Efficiency Tax Credits    
– Residential Energy Efficient Tax Credit for Existing Homes * *
– Energy Efficient New Homes Tax Credit for Homebuilders * *
– Energy Efficient Appliance Tax Credit for Manufacturers * *
– Residential Energy Conservation Subsidy Exclusions for Businesses and Individuals * *
LIFO Inventory Accounting Method   *
Oil and Gas Tax Issues    
– Enhanced Oil Recovery Credit * *
– Marginal Well Tax Credit * *
– Excess of percentage over cost depletion for fuels   *
– Modify the foreign tax credit rules applicable to large integrated oil companies   *
– Increase Gasoline Excise Tax   *
Qualifying Advanced Energy Manufacturing Investment Tax Credit * *
Renewable Electricity Production Tax Credit * *
Renewable Energy Tax Credits * *
Residential Renewable Energy Tax Credit * *
Section 1603 Grants in Lieu of Tax Credits * *
Section 199 Domestic Production Activity Deduction   *
Tax Treatment of Employer-Provided Health Insurance * *
Transit and Parking Tax Subsidy * *
Department of Energy – Possible Spending Programs to be Eliminated or Modified
Eliminate the Office of Energy Efficiency and Renewable Energy *  
– Solar Energy Technologies Program *  
– Wind & Water Power Program *  
– Geothermal Technologies Program *  
– Fuel Cell Technologies Program *  
– Biomass Program *  
– Building Technologies Program *  
– Weatherization and Intergovernmental Assistance Program *  
– Federal Energy Management Program *  
– State Energy-Efficient Appliance Rebate Program *  
– Vehicle Technology Programs *  
Eliminate the Office of Fossil Energy’s Research and Development funding but Maintain Strategic Petroleum Reserve Responsibilities *  
Fossil Energy Research and Development (R&D) programs *  
– CCS Demonstration Program *  
– The CCS and Power Systems Program *  
– Other R&D Programs, Direction Management Support *  
Petroleum Reserves *  
Eliminate the Office of Nuclear Energy and transfer its nuclear waste storage responsibilities *  
Maintain the National Nuclear Security Administration (NNSA) and consolidate the Office of Environmental Management and reduce funding by 20 percent *  
Reduce Office of Electricity Delivery and Energy Reliability (EDER) *  
Eliminate the Energy Star Program *  
Eliminate the Section 1705 loan guarantees and the Advanced Technology Vehicles Manufacturing Loan Program but maintain the Section 1703 loan guarantees at a reduced funding level *  
Eliminate the Office of Indian Energy Policy and Programs *  
Eliminate Power Marketing Administrations *  
Department of Agriculture – Possible Spending Programs to be Eliminated or Modified
The Environmental Quality Incentives Program (EQIP) *  
Conservation Stewardship Program *  
Reduce funding for Rural Development (High Energy Cost Grants, BioEnergy programs) *  
Biomass Crop Assistance *  
Biorefinery Program for Advanced Fuels Program *  
Biobased Products and Bioenergy Program *  
Biorefinery Repowering Assistance Program *  
New Era Rural Technology Competitive Grants Program *  
Feedstock Flexibility Program *  
Rural Energy for America Program *  
Reduce funding for USDA’s National Institute of Food and Agriculture *  
Department of Interior – Possible Spending Programs to be Eliminated or Modified
Cut climate change research and response *  
Environmental Protection Agency (EPA) – Possible Spending Programs to be Eliminated or Modified
Eliminate EPA’s Environmental Justice program (some of these grants focus on climate change, green jobs and clean energy) *  
Diesel Emission Reduction Program *  
Department of Transportation – Possible Spending Programs to be Eliminated or Modified
Eliminate the Transit Investment for Greenhouse Gas and Energy Reduction (TIGGER) grant program

Click here to read the Update on our website

Click here for a PDF version of the Update

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