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Washington Wire: What Wyden’s Chairmanship Means for Tax Credits, Tax Reform

Published by Michael J. Novogradac on Saturday, March 1, 2014

Journal cover March 2014   Download PDF

The chairman of the Senate Finance Committee wields substantial influence because of the committee’s role in taxation matters, among other issues. Considering the increasing consensus about the need for tax reform, this is especially true today. With the Feb. 6 confirmation of one of the driving forces behind recent tax reform efforts, Senate Finance Committee Chairman Max Baucus, D-Mont., as the U. S. ambassador to China, it’s widely believed that the next chairman could play a key role in shaping the future tax code.

And so, as Sen. Ron Wyden, D-Ore., emerged as Baucus’ successor, all eyes turned to his legislative record. Wyden has represented Oregon in the Senate since 1996, providing nearly 20 years of sponsorship and votes to consider. Coincidentally, Wyden was elected to fill the Senate seat vacated by Senate Finance Committee Chairman Bob Packwood, R-Ore., who was a key player in drafting and passing the Tax Reform Act of 1986. While history provides no guarantees of what Wyden will do as Finance Committee chair, it does provide insight into his positions on the low-income housing tax credit (LIHTC), new markets tax credit (NMTC) and renewable energy production tax credit (PTC) and investment tax credit (ITC).

Sen. Wyden on Tax Credits
Generally speaking, Sen. Wyden has been supportive of tax incentives for affordable housing, community development and renewable energy. Most recently, Sen. Wyden joined colleagues in signing a letter urging the Senate to take up and pass the Tax Extenders Act of 2013, which would extend tax provisions that expired on Dec. 31, 2013. The letter specifically mentioned the NMTC and LIHTC, saying, “[The NMTC is] a great program for encouraging investment into challenging areas of our country … [The LIHTC is] a great incentive to get more affordable housing built in hard-to-serve areas and challenging areas because of high cost.”

Sen. Wyden hasn’t sponsored bills directly related to the LIHTC, but he has co-sponsored a number of key pieces of LIHTC legislation. For example, in the 111th Congress, he signed on as a co-sponsor of S. 3326, the Job Creation and Affordable Housing Act of 2010, which would have extended the Section 1602 affordable housing cash grant program and would have allowed a five-year carryback of the LIHTC. In addition, in 2009, Wyden signed a “Dear Colleague” letter drafted by Sens. Maria Cantwell, D-Wash., and John Kerry, D-Mass., in support of a set of provisions designed to bolster the LIHTC: a one-year extension of the exchange program including 4 percent tax credits; a five-year LIHTC carryback with 100 percent reinvestment requirement; and changes in the passive-loss provisions to bring new investors into the program. He has also cosponsored other affordable housing bills including S. 1248 in 2001 and S. 2523 in 2007, which called for the establishment of a National Housing Trust Fund.

Similarly, Sen. Wyden has cosponsored four bills to extend the NMTC: S. 1800 in 2005, S. 1239 in 2007, S. 3125 in 2008 and S. 996 in 2011. In a May 5, 2004 statement, Sen. Wyden said, “[NMTCs] will help bring new economic life and new investment to areas of Portland that are too often overlooked. I was pleased to work on a bipartisan basis to secure these tax credits, and believe they will provide Oregon with the kind of economic boost that Congress and the president had in mind back in 2000 when we created the New Markets program."

Of all the tax credits covered in this space, Sen. Wyden has been most vocal and most active legislatively in his support for renewable energy tax incentives. In 2011, he sponsored the Storage Technology for Renewable and Green Energy Act of 2011 (STORAGE Act) along with Sen. Susan Collins, R-Maine, and Senate Energy Committee Chairman Jeff Bingaman, D-N.M. The STORAGE Act was intended to jumpstart the development of energy storage technology to better manage capacity to meet peak energy needs and make it possible for intermittent energy sources like wind and solar power to reach their potential by providing a 20 percent investment tax credit of up to $40 million for storage systems that are connected to the electric grid and a 30 percent ITC of up to $1 million to businesses and homeowners for on-site storage projects. Sen. Wyden also sponsored S. 1413 in 2011 and S. 3788 in 2010 to temporarily increase the ITC for geothermal energy property.

In addition, he has co-sponsored bills to extend the PTC. In 2012, Sen. Wyden was one of six bipartisan co-sponsors of S. 2201, to provide a two-year extension of the wind energy PTC to Jan. 1, 2015 and to extend the PTC for biomass, geothermal, landfill gas, trash, hydropower, and marine and hydrokinetic energy by one year to Jan. 1, 2015. In a March 15, 2012 press release about that bill, Sen. Wyden said, “Wind energy is one of the fastest growing and most promising sectors of the energy industry providing for thousands of jobs in Oregon and nationwide. The existing production tax credit has given the renewable energy industry an important tool to grow and its expiration could put the future innovation of wind resources and other forms of renewable energy at risk.”

On Sept. 23, 2012, Sen. Wyden wrote an op-ed in Politico calling for the PTC to be extended. That column tied the idea of a temporary extension to the larger issue of tax reform. He wrote, “Congress should continue this crucial program in the short term to stop the economic damage caused by the expiration of these tax credits. In the longer term, however, Congress needs to find a better way to create clean-energy jobs than its on-again, off-again approach to the production tax credit. As part of a larger energy policy—and tax reform efforts—we should rethink how the government treats energy incentives. Both for renewables and for other energy sources.”

What Wyden’s Chairmanship Could Mean for Tax Reform
While his positions on specific tax credits are important, Sen. Wyden’s thoughts about comprehensive tax reform may be just as meaningful as he steps into the process Sen. Baucus started years ago.

Sen. Wyden is not new to the tax reform process. In 2005, he introduced S. 1927, the Fair Flat Tax Act, which would have collapsed the tax brackets to three: 15, 25 and 35 percent. In 2010, he and then-Sen. Judd Gregg, R-N.H., collaborated on a tax reform proposal that Sen. Wyden later updated with Sen. Dan Coats, R-Ind., in 2011. That proposal essentially called for lowering the corporate tax rate from 35 percent to 24 percent by eliminating what were described as “special tax provisions or sweetheart deals” such as the deferral of taxes on active foreign earnings. It also called for repealing the domestic manufacturing deduction, eliminating the corporate alternative minimum tax, and repealing a number of tax deductions for the oil and gas industry.

Since Sen. Baucus’ nomination for ambassador, Sen. Wyden’s remarks on the subject of tax reform have been relatively broad. In a statement on Dec. 20, Sen. Wyden said he looked forward to continuing his work on “updating the nation’s tax system with a focus on growth, fairness and efficiency and ensuring that fiscal policy supports keeping jobs here in America.”

On CNBC on Feb. 3, Sen. Wyden said his tax reform package would update what was done in the Tax Reform Act of 1986 to “clean out scores and scores of special interest tax breaks, hold down rates for everybody and keep progressivity.”

In addition to Sen. Wyden’s own previous proposals, a considerable tax reform foundation has already been laid in the Senate Finance Committee. In recent years, Sen. Baucus had prioritized tax reform, holding dozens of hearings and even joining Ways and Means Committee Chairman Dave Camp, R-Mich., on a national tour to gather public input on tax reform priorities.

In June, then-Chairman Baucus and Ranking Member Orrin Hatch, R-Utah, proposed a “blank-slate” approach as a legislative starting point for tax reform that would have put all tax provisions on even footing, at least in theory. Sens. Baucus and Hatch asked their colleagues to consider which tax expenditures and other provisions should be added back to a reformed tax code, and to formally submit legislative language or detailed proposals for what tax expenditures should be included in a reformed tax code, as well as other provisions that should be added, repealed or reformed as part of tax reform. Several senators submitted responses to the request for proposals to be considered during the crafting of the committee’s tax reform bill, but it’s unknown if Sen. Wyden was one of them. If Sen. Wyden did submit a response, he did not release it publicly.

In addition, on Dec. 18 Sen. Baucus released a discussion draft for energy tax reform that would consolidate almost all existing energy tax credits into two new tax credits: one for clean electricity production and one for clean transportation fuel. The electricity production tax credit would replace several existing incentives, including the PTC and ITC. The PTC and ITC would remain available until 2016. The new tax credits would be available as either production or investment tax credits. The new credits would be phased out once the country’s greenhouse gas intensity reaches a level that is 25 percent lower than that of 2013.

With the change in committee leadership, it’s unclear where this proposal and the Senate Finance Committee’s tax reform efforts stand. In fact, some early speculation suggests that lawmakers could push comprehensive tax reform efforts off until 2015. This prospect has refocused the spotlight on extending the more than 50 tax provisions that were allowed to expire on Dec. 31, 2013, including the NMTC and the fixed 9 percent LIHTC rate.

Unlike his predecessor who was believed to have been prepared to let lapsed tax provisions remain while pursuing tax reform, Sen. Wyden is reportedly anxious to pass a temporary extenders package before turning to long-term changes to the tax code. However, that effort would require agreement with Ways and Means Chairman Camp. As the Novogradac Journal of Tax Credits went to press, initial reports suggested that tax extenders will likely make progress in the coming months and an extenders bill could be considered in the Senate in March, April or May. If that occurs, many believe the House Ways and Means Committee may have no practical option other than to take up tax extenders as well. That said, it’s possible a final tax extenders bill will not be enacted until after the November elections.

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