A potential last-minute deal on the fiscal cliff is likely to include an extension of an expiring wind-energy tax credit, according to congressional aides.
The deal taking shape Monday would include tax breaks adopted by the Senate Finance Committee earlier this year, aides with knowledge of the talks said. Among them was a one-year extension of the tax credit, with slight modifications that would allow wind-farm developers to claim the credit for projects that begin construction by Jan. 1, 2014.
As the law currently stands, only projects that are completed and connected to the electricity grid by the end of 2012 can claim the credit.
Aides cautioned that the fiscal-cliff deal and its components weren’t final. Any package agreed to by lead negotiators also would have to be passed by the Senate and House.
President Barack Obama, speaking Monday afternoon about the emerging deal, referred to clean-energy tax credits without mentioning wind power specifically. He said the deal “would extend tax credits for clean-energy companies that are creating jobs and reducing our dependence on foreign oil.”
The cost of extending the wind-energy credit could be about $12 billion over 10 years, according to the Joint Committee on Taxation. Wind energy provides about 3.2% of U.S. electricity.
The tax credit is worth 2.2 cents for every kilowatt hour of electricity generated by a wind farm, so long as the facility is connected to the grid by the expiration date.
The last-minute renewal of the credit would arrive after months of heated battle. Proponents of wind energy, including clean-energy advocates—but also many Republicans from states such as Iowa and Colorado with healthy wind-power sectors—argued that extending the credit was key to preserving 75,000 jobs in the wind-energy business. They said that the expiration of the tax credit would have cost 37,000 jobs.
Opponents say that at a time of fiscal austerity, extending the credit is too expensive. Additionally, critics of wind power say it does little to make electricity generation more environmentally friendly because wind farms require some traditional sources of power as back up.
Power companies had also joined the fray. Exelon Corp., EXC +2.34% one of the largest utilities in the U.S., lobbied not to extend the credit, saying the subsidy distorts electricity prices and makes the company less likely to add new generating capacity.
If the credit is extended, attention would likely turn to ways to modify how the government supports wind energy. One proposal, endorsed by the wind lobby itself, would phase out tax credits over several years, giving the industry a chance to close the cost gap with traditional sources of power while still enjoying some government support.
Another proposal, introduced in Congress last summer, would make it easier for individuals to invest in renewable-energy projects by giving them the same tax treatment—access to master limited partnerships—that oil and gas projects receive. By widening the pool of investors, it could reduce capital costs, which could make renewable energy more competitive with traditional power sources.
The months of uncertainty over the credit’s extension mean that plenty of damage already has been done to the project pipeline and wind energy’s manufacturing base.
Uncertainty surrounding the credit led companies throughout the industry to lay off employees in 2012, from big makers of wind turbines such as Siemens AG SIE.XE -0.59% to small outfits that make some of the 8,000 components that go inside each machine. Also, because wind-farm developers hurried to finish projects in 2012 before the credit expired, a good part of the pipeline for future projects has already been installed, which will further damp the prospects for 2013.
By allowing wind projects that begin construction in 2013 to become eligible, the Senate Finance Committee’s version of the extension would support wind-farm construction over at least the next two years. A one-year extension without that modification would have been essentially useless, given that it can take between 12 and 24 months to build a wind farm.
President Barack Obama says it appears that an agreement to avoid the fiscal cliff is “in sight,” but says it’s not yet complete and work continues.
Obama says this has been a “pressing issue on people’s minds,” and tells an audience of middle-class taxpayers the deal would, among other things, extend unemployment benefits for Americans “who are still out there looking for a job.”
He voiced regret that the work of the administration and lawmakers on Capitol Hill won’t produce a “grand bargain” on tax-and-spend issues, but said that “with this Congress, it couldn’t happen at that time.”
Officials familiar with the negotiations say an agreement would raise tax rates on family income over $450,000 a year and increase the estate tax rate.
Any overall deal was also likely to include a provision to prevent a spike in milk prices with the new year, extend unemployment benefits due to expire and protect doctors who treat Medicare patients from a 27 percent cut in fees.
Both the House and Senate were on track to meet on the final day of the year, although there was no expectation that a compromise could be approved by both houses by midnight, even if one were agreed to.
Instead, the hope of the White House and lawmakers was to seal an agreement, enact it and send it to Obama for his signature before taxpayers felt the impact of higher income taxes or federal agencies began issuing furloughs or taking other steps required by spending cuts.
Regardless of the fate of the negotiations, it appeared all workers would experience a cut in their-home pay with the expiration of a two-year cut in payroll taxes.
Officials who described the negotiations did so on condition of anonymity, citing the confidential nature of the discussions.
A spokesman for McConnell, Don Stewart, said the Kentucky lawmaker and Biden “continued their discussion late into the evening and will continue to work toward a solution.” Underscoring the flurry of activity, another GOP aide said the two men had conversations at 12:45 a.m. and 6:30 a.m. Monday.
Unless an agreement is reached and approved by Congress by the start of New Year’s Day, more than $500 billion in 2013 tax increases will begin to take effect and $109 billion will be carved from defense and domestic programs
Though the tax hikes and budget cuts would be felt gradually, economists warn that if allowed to fully take hold, their combined impact — the so-called fiscal cliff — would rekindle a recession.
“This whole thing is a national embarrassment,” Sen. Bob Corker, R-Tenn., said Monday on MSNBC, adding that any solution Congress would swallow at this late stage would be inconsequential. “We still haven’t moved any closer to solving our nation’s problems.”
In a move that was sure to irritate Republicans, Reid was planning — absent a deal — to force a Senate vote Monday on Obama’s campaign-season proposal to continue expiring tax cuts for all but those with income exceeding $200,000 for individuals and $250,000 for couples.
In one sign of movement on Sunday, Republicans dropped a demand to slow the growth of Social Security and other benefits by changing how those payments are increased each year to allow for inflation.
Obama had offered to include that change, despite opposition by many Democrats, as part of earlier, failed bargaining with House Speaker John Boehner, R-Ohio, over a larger deficit reduction agreement. But Democrats said they would never include the new inflation formula in the smaller deal now being sought to forestall wide-ranging tax boosts and budget cuts, and Republicans relented.
“It’s just acknowledging the reality,” Sen. Susan Collins, R-Maine, said of the GOP decision to drop the idea.
There was still no final agreement on the income level above which decade-old income tax cuts would be allowed to expire. While Obama has long insisted on letting the top 35 percent tax rate rise to 39.6 percent on earnings over $250,000, he’d agreed to boost that level to $400,000 in his talks with Boehner. GOP senators said they wanted the figure hoisted to at least that level.
Senators said disagreements remained over taxing large inherited estates. Republicans want the tax left at its current 35 percent, with the first $5.1 million excluded, while Democrats want the rate increased to 45 percent with a smaller exclusion.
The two sides were also apart on how to keep the alternative minimum tax from raising the tax bills of nearly 30 million middle-income families and how to extend tax breaks for research by business and other activities.