"Isn't it nice to think that tomorrow is a new day with no mistakes in it yet?" -- L.M. Montgomery
Indeed, in life and strangely enough finally with this country's tax code, this country later this month is getting a fresh start on expanding what is possible as a nation in that arcane of all government endeavors.
In late June, Senate Finance Committee Chairman Baucus and Ranking Member Orrin Hatch issued a challenge to their colleagues in the Senate for input on what tax expenditures should remain in the tax code as is, reformed or eliminated as part of "tax reform" by July 26.
When you look at what is considered a tax expenditure, it includes virtually everything in the tax code. So they are beginning with a blank slate with in essence everything on the table...
This a golden moment to put some energy behind energy.
In a unique twist, when it comes to that resource, the tax code has always been our energy policy. That has been the case since percentage depletion and other energy specific tax policies were first made part of the Internal Revenue Code. Unlike the EU, the U.S. doesn't utilize energy specific policies like utility feed in tariffs, cap and trade or national energy portfolio standards to encourage energy development. Therefore, eliminating all so-called federal "tax expenditures" for energy means elimination of America's primary energy policy.
Since we all know, the energy marketplace is not really a "free market" but is one governed by a whole series of monopolies, foreign and domestic, and restrained by infrastructure and regulation, that kind of a change should not be taken lightly.
I suggest that instead we seek to achieve more of a level playing field or parity in the taxation of the energy sector, rather than having no energy policy. Energy production -- whether it is renewable or fossil -- is capital intensive and equal access to capital markets should be an objective of energy tax policy.
To that end, the Master Limited Partnership Parity Act (MLPs) introduced by Sens. Chris Coons (D-Del.) and Jerry Moran (R-Kan.), would open to wind and other renewable energy projects the use of the master limited partnerships. It could give access to a market of just under $500 billion of private capital. Americans are eager to invest in these projects but there are few opportunities just as individuals in the private sector are increasingly interested in investing in these new technology projects.
An MLP is a publicly traded partnership not subject to taxation at the MLP level, but instead is taxed as a pass-through entity. MLP's are limited to use by the energy and natural resource industry, excluding renewable sources of energy. As a result, MLPs have been largely limited to the ownership and operation of midstream oil and gas assets such as pipelines and storage terminals, and more recently the exploration and production of oil, gas and coal.
MLPs continue to play an essential role in expanding the oil and gas sector -- it is long past time for parity for renewable energy. As Congress considers tax reform, I would urge that they reform not eliminate America's energy policy contained in the tax code.