Energy Credits a Sticking Point in GOP’s Hopes for Tax Package

Republicans are divided over whether to claw back the energy credits created and expanded by Democrats’ 2022 tax-and-climate law, complicating the GOP efforts to offset the costs of a major tax package next year.

Some top Republicans say rolling back the credits could help pay for an extension of the 2017 tax law provisions that expire at the end of next year. Former President Donald Trump, too, has pledged to seek repeal of the credits if he wins another term.

But the task may not be so simple for the GOP, even if they win full control of Congress and the White House in November. Some credits—including those related to carbon oxide sequestration, biofuel, hydrogen, and nuclear energy—have Republican support. Some have spurred creation of new energy facilities and jobs in districts represented by Republican lawmakers.

The lack of clarity over whether the credits will survive has led some companies to pause their projects, said Mary Burke Baker, a government affairs counselor at K&L Gates who has worked at the IRS and as an aide to Finance Committee Democrats.

And it highlights what could be a deep intraparty division between Republicans whose districts or constituencies may have reaped benefits from them, and others who see environmentally friendly tax breaks as fundamentally counter to GOP principles.

“I cannot imagine a world, if we have the House, the Senate, and the presidency, where we do not pull up by its roots, many, if not all of the tax subsidies for green energy corporations,” Rep. Jodey Arrington (R-Texas), a member of the House Ways and Means Committee, said in June.

But that view is not universal.

“There’s also people in the party who want to keep some of them, so it’s going to depend on who’s in charge and how big the majority is,” said Rep. Andrew Garbarino (R-N.Y.), co-chair of the House’s bipartisan climate solutions caucus.

GOP supporters of the credits will have allies among Democrats, who say they’re going to pull out all the stops to defend the credits.

Senate Finance Committee Chair Ron Wyden (D-Ore.), one author of the tax-and-climate law, told reporters in June Republicans will have to “run over me” to get rid of the credits and he accused the GOP of hypocrisy.

“First thing they’re going to have to explain is going to all the ribbon cutting things that I hear about,” Wyden said.

Budget and Economic Concerns

The majority of GOP lawmakers aren’t enthusiastic. Opponents point to initial cost projections to the government around $400 billion but some estimates now suggest the numbers could ultimately be higher.

Much fire has been aimed at the electric vehicle credit, and related Treasury rules have drawn criticism from Democrats. A Congressional Review Act resolution overturning the rules this week advanced out of the Ways and Means Committee and is expected to get some Democratic support in both chambers.

The fiscal 2025 budget proposal of the conservative Republican Study Committee, which includes about 80% of the House Republicans, calls for repealing “the green giveaways in the Inflation Reduction Act that use taxpayer dollars to fund inefficient and unreliable energy sources.”

If Republicans win control of the House, Senate, and White House in the elections, they could pursue a tax package using the budget reconciliation process that allows lawmakers to circumvent the Senate’s 60-filibuster threshold.

While some Republican tax writers said they see clawing back the energy tax credits in a reconciliation bill, it’s unclear how much undoing the credits would be beneficial as a way to pay for extending the expiring portions of the 2017 tax law.

Rep. Kevin Hern (R-Okla.), the RSC chair and a Ways and Means member, said much will depend on how much pulling back the remaining credits will yield.

“If the money’s already spent, there’s really nothing to go after,” Hern said.

The energy credits have far-reaching impacts in the economy, making lawmaker decisions on what to salvage potentially even more difficult, said Mark Prater, a longtime GOP Senate Finance tax staffer now at PwC.

“Energy policy is not independent of manufacturing and national security,” he said. “It’s not strictly, ‘Here’s a subsidy for this production of this thing.’”

Lawmakers deciding how to proceed will need to look at data beyond just what dollars were spent on the credits, but also evaluate how programs are working, and what supply chain or market pressures exist, Prater said.

GOP Division

When House Republicans attempted to claw back energy credits last year during negotiations to raise the debt limit, they were only able to pass a bill doing so after removing some roll-back of biofuel credits at the instance of the Iowa delegation. The bill never got a vote in the Democratic-controlled Senate.

The midwestern wall of opposition to repealing certain energy credits also seemed influential in legislation Ways and Means Republicans advanced in 2023. The tax writers’ bill, which was not taken up by the full House, called for repealing a narrower set of energy provisions than the debt limit legislation.

In addition to legislation, Republicans would also have other avenues to take aim at the tax breaks if Trump wins. Trump could undo some regulations implementing the energy incentives, and lawmakers could use the Congressional Review Act to overturn regulations on the credits that were finalized near the end of President Joe Biden’s term.

But votes taking aim at the energy credits would be different for Republicans next year because the measures may actually have a chance of taking effect, Baker said.

“When the House voted to repeal most of the IRA tax credits, I view that as an easier vote for Republicans to take against those tax credits because it’s largely a popular message with constituents and they knew it wasn’t going to be approved in the Senate,” she said. “If it’s a real vote it would be a more difficult vote for a lot of Republicans to take.”