With wind, solar and geothermal receiving much of the government handouts when it comes to energy production, biomass is back in the game after the Senate Finance Committee unveiled its tax extender plan, which includes a $100 million in production tax credits for biomass energy as part of a larger tax extender package. Politico reports,
As drafted, Section 503 breathed new life into an unusual production tax credit, first awarded to the industry in 2004 as part of a one-time, five-year deal benefiting nearly 80 biomass electric-generating plants, most of which were up and running well before the tax break was enacted. The House balked at renewing this bargain in December, saying production tax credits are to spur new production, not to subsidize old. But Finance subtly changes the old wording from five years to six, thereby adding 12 months to a tax break that is typically worth about $1.75 million annually for a qualified 20-megawatt plant.”
So if biomass production received government support when it wasn’t needed, why does it need more help now? Robert Cleaves, president of the Biomass Power Association, answers, “The production tax credit is really a lifeline for the industry. It’s not a windfall. We’re on the ragged edge as it is.” This should be a pretty convincing indicator that biomass is currently an uncompetitive product and might not be in the market without production tax credits. Biomass, one of the cheaper renewable energy sources, may play a role in America’s energy portfolio, but if it cannot compete in the market, it doesn’t deserve to be there. And biomass isn’t as environmentally friendly as some might suggest.
Billionaire Sam Zell is a financial supporter of biomass. He also bought the Chicago Tribune in 2007, only to see it go bankrupt by the end of 2008. “[I]f you bought something and it’s now worth a great deal less, you made a mistake. And I’m more than willing to say that I made a mistake. I was too optimistic in terms of the newspaper’s ability to preserve its position,” said Zell after the paper went under. Maybe he should consider the same for biomass. Although Senator Harry Reid stripped the tax extenders set to expire at the end of the year from the larger jobs bill, the $31 billion in tax extenders could be broken out into a separate bill.
This comes at a time when President Obama’s budget plans to reduce the deficit by eliminating $36.5 billion in tax breaks to the oil and natural gas industry. Without removing tax breaks and subsidies to other sources of energy, this is essentially a tax increase on our proven sources of energy. The Americans for Tax Reform has more here.
Removing government support for energy production isn’t necessarily a bad thing, but it should be done across the board. A good starting point would be to ending the special tax breaks for biomass.
The more things change, the more things stay the same. A little over a year ago, President Barack Obama came to office expecting to pass a “big bang” of policy changes all in the first year: health care, cap-and-trade, and banking regulation. With the big-bang strategy officially a failure, President Obama’s State of the Union address last night desperately tried to keep all of these legislative efforts alive while also acknowledging that the country has firmly rejected his policy agenda.
The result was an incoherent mess of promised tax cuts for small businesses coupled with the threat of tax hikes from his health care and energy proposals; more federal money to encourage banks to lend to businesses, coupled with new taxes on banks and individuals; the continued waste of his $862 billion stimulus plan and $2 trillion in new health care spending, coupled with a delayed and temporary spending freeze. As one of the longest State of the Unions in the past 45 years, we cannot cover everything here. But our crack team of Heritage experts did hit almost every issue last night, and you can read their full reactions here. Highlights include:
The New Hire Tax Credit
The tax credit for new hires is another recycled idea from Washington. Last tried in the 1970s, the tax credit proved to be a windfall for big businesses that were planning to hire anyway. Small businesses, the engine of job growth, did not use the tax credit largely because they were unaware of it and did not understand how to take advantage of the credit. The jobs tax credit proposal will likely also delay hiring since businesses that understand the tax credit now face an incentive to postpone hiring decisions to take advantage of the tax credit. Extending the Bush tax cuts and undoing the heavy taxes in the health care legislation is a better step to job creation than this tax credit.
The Bank Tax
President Obama tonight called for a new tax on banks and other large financial institutions, “a modest fee,” he said, “to pay back the taxpayers who rescued them in their time of need.” That sounds great, but in truth, the new tax would do nothing of the kind. Mr. Obama knows that almost every major bank has paid-back their bailout funds, with interest. Taxpayers made substantial profits on those repayments. On the other hand, most of the companies that still owe billions to taxpayers, including Fannie Mae and Freddie Mac, and auto firms GM and Chrysler, would not be subject to the tax. In short, Mr. Obama would tax those that have paid back taxpayers and exempt those who have not.
The Spending Freeze
Obama’s spending freeze would apply to a narrow sliver of spending (somewhere around 1/8th of total spending) and at best, savings would be less than one percent of the total budget. Moreover, it explicitly exempts the very entitlement programs driving future deficits. At a time when the deficit is $1.4 trillion and we face a sea of even worse red ink as far as the eye can see, such a freeze is tantamount to bailing out – forgive the double entendre – the Titanic with a dixiecup. And it would start next year, conveniently after the elections. Freezing spending is the right idea, but this freeze falls short of real action.
Energy Production
His calls for new nuclear power, offshore oil and gas exploration, and other new energy technologies are certainly welcome. The problem is that his program of subsidies, special tax treatment, and government support will not work. While government programs can create jobs in specific sectors, the President ignores the evidence that these programs end up killing more jobs than they create. Spain has already gone down this road, and its experience should give the President caution. Between 2000 and 2008, the Spanish government spent $36 billion in taxpayers’ money on wind, solar and mini-hydro development. Each green job created cost on average $758,471.
Foreign Policy
Many around the world have expressed concern that a U.S. administration so focused on domestic priorities and troubles as the current one will be too inward-looking to be deeply engaged in the world. Judging by its placement in his list of priorities, foreign affairs did seem like an afterthought, briefly addressed. In Afghanistan, allied nations are hardly coming together to support the President’s surge — indeed French President Nicolas Sarkozy very publicly stated this week that he would not be contributing any more troops to the endeavor, this on the eve of the Afghanistan conference in London.
And the fight on terrorism has not, as stated, been advanced by the Obama administration — quite the reverse as the nation has become more vulnerable. Nor has the administration distinguished itself by its support for human rights in Iran — in fact it missed a critical moment to get involved during last summer’s uprisings against the Iranian regime. As for the President’s aspiration to control nuclear materials around the world, a goal to be reached through an international conference — that horse left the barn a long time ago.
In “Government’s End,” Jonathan Rauch writes: “Economic thinkers have recognized for generations that every person has two ways to become wealthier. One is to produce more, the other is to capture more of what others produce. … Washington looks increasingly like a public-works jobs program for lawyers and lobbyists, a profit center for professionals who are in business for themselves.” From complicated new tax credits that small business owners don’t have the time or expertise to take advantage of, to new energy, financial and trade regulations that only large corporations have the lawyers and lobbyists to take advantage of, every policy proposal in Obama’s speech last night is a boon for the lawyer/lobbyist economy in Washington and a hindrance to wealth-creating Americans everywhere. This was a speech only the entrenched interests in Washington could love.
Quick Hits:
- According to the latest Rasmussen Reports poll, only 29% of U.S. voters now say the country is heading in the right direction, the lowest level of voter confidence in the nation’s current course so far this year.
- Despite President Obama’s supposed spending freeze, the federal government expects to add more government jobs.
- According to not one, but two, New York Times Supreme Court analysts, Supreme Court Justice Samuel Alito was correct when he mouthed “not true” after President Obama mischaracterized the Supreme Court’s recent campaign finance law decision.
- Explaining that it “would be great if the federal government could find a site that didn’t cost a billion dollars,” New York Mayor Michael Bloomberg said Wednesday he did not want Khalid Sheikh Mohammed’s trial in Manhattan.
- Global warming fear mongers are now blaming this winter’s cold weather on global warming.