RL33578 - Energy Tax Policy: History and Current Issues
30-Oct-2008; Salvatore Lazzari; 25 p.
Update: Previous releases:
September 26, 2008
June 10, 2008
April 1, 2008
February 8, 2008
November 7, 2007
August 7, 2007
August 1, 2007
March 7, 2007
Abstract: Historically, U.S. federal energy tax policy promoted the supply of oil and gas. However, the 1970s witnessed (1) a significant cutback in the oil and gas industry’s tax preferences, (2) the imposition of new excise taxes on oil, and (3) the introduction of numerous tax preferences for energy conservation, the development of alternative fuels, and the commercialization of the technologies for producing these fuels (renewables such as solar, wind, and biomass, and nonconventional fossil fuels such as shale oil and coalbed methane). The Reagan Administration, using a free-market approach, advocated repeal of the windfall profit tax on oil and the repeal or phase-out of most energy tax preferences — for oil and gas, as well as alternative fuels. Due to the combined effects of the Economic Recovery Tax Act and the energy tax subsidies that had not been repealed, which together created negative effective tax rates in some cases, the actual energy tax policy differed from the stated policy. The George H. W. Bush and Bill Clinton years witnessed a return to a much more activist energy tax policy, with an emphasis on energy conservation and alternative fuels. While the original aim was to reduce demand for imported oil, energy tax policy was also increasingly viewed as a tool for achieving environmental and fiscal objectives. The Clinton Administration’s energy tax policy emphasized the environmental benefits of reducing greenhouse gases and global climate change, but it will also be remembered for its failed proposal to enact a broadly based energy tax on Btus (British thermal units) and its 1993 across-the-board increase in motor fuels taxes of 4.3¢/gallon.
The 109th Congress enacted the Energy Policy Act of 2005 (P.L. 109-58), signed by President Bush on August 8, 2005, provided a net energy tax cut of $11.5 billion ($14.5 billion gross energy tax cuts, less $3 billion of energy tax increases) for fossil fuels and electricity, as well as for energy efficiency, and for several types of alternative and renewable resources, such as solar and geothermal. The Tax Relief and Health Care Act of 2006 (P.L. 109-432), enacted in December 2006, provided for one-year extensions of these provisions. The current energy tax structure favors tax incentives for alternative and renewable fuels supply relative to energy from conventional fossil fuels, and this posture was accentuated under the Energy Policy Act of 2005.
On September 16, the House approved H.R. 6899, the Comprehensive American Energy Security and Consumer Protection, a broadly-based energy policy legislation that also includes extension and liberalization of energy tax subsidies — provisions that were in earlier bills such as H.R. 5351 and H.R. 6049 (which were approved by the House earlier this year). On September 25, the Senate passed a substitute amendment of S. 3478, which was then substituted for the energy tax provision of H.R. 6049, which it also approved, and which also included an AMT patch, disaster tax relief, and extensions of (non-energy) individual and business tax provisions. On September 25 the House split H.R. 6049 into four separate bills, and approved the energy tax extenders and other extenders as a separate bill, H.R. 7060. Other energy tax proposals are being considered in the Senate, such as the Gang of 20 proposal, the Bingaman/Baucus bill, and the Republican “Gas Price Reduction Act” (introduced by Senator McConnell as S.Amdt. 5108).