On November 14, the Senate Finance Committee began its mark-up of comprehensive tax reform titled the Tax Cuts and Jobs Act. The legislation proposes a number of major changes to the tax code and includes cuts in both corporate and individual tax rates. There are a number of key differences between the Senate proposal and that which the House has developed. For example, the Senate bill contains more individual brackets (seven instead of four) than the House bill. In addition, the Senate bill does not completely repeal the Estate Tax and retains the mortgage interest debt deduction—the House bill lowers the deduction from the current cap of $1 million to $500,000. While both the Senate and House bills would lower the corporate tax rate from 35 percent to 20 percent, the Senate bill would delay the reduction by one year so it would not go into effect until 2019.
In terms of issues of interest to public natural gas systems and the energy industry, there are a number of items of note. Similar to the House bill, the Senate bill does not impact tax-exempt financing. The bill eliminates advanced refundings after this year; but unlike the House bill, it retains private activity bonds. Advance refunding allows municipals to take advantage of low interest rate environments to save money on infrastructure financings before their bonds are callable. Advanced refunding is a potentially useful tool for a public natural gas system to have at their disposal for the refinancing of utility system revenue bonds, and APGA has opposed its elimination. APGA joined a number of other organizations, including the American Public Power Association and Large Public Power Council, in a letter to the Senate Finance Committee opposing the elimination of advance refundings.
Tax subsidies for the energy industry, both fossil fuel as well as renewable, would remain in place. This allows natural gas producers to take accelerated deduction of “intangible drilling costs” for expenses such as supplies and repairs but also allows the production tax credit for energy from wind and other renewables worth billions of dollars to continue as is. By contrast the House bill reduced the value of the production tax credit by more than a third and included language to make it harder for wind farms to qualify for the credit. The Senate bill retains the $7,500 tax credit for electric-vehicle purchases. The incentive, which is capped at 200,000 vehicles per manufacturer, has helped stoke early demand for electric cars from manufacturers such as Tesla Inc., General Motors Co. and, and Nissan Motor Co. APGA has pushed for the inclusion of two key natural gas vehicle tax credits but we are hearing that those items could potentially move as part of a separate tax extenders package but the situation remains very fluid.
The mark-up in the Senate Finance Committee could take several weeks. The House and Senate Republicans have a goal of getting a bill to the President’s desk by the end of the year. However, once each body passes their respective version of tax reform legislation, a conference committee will have to be formed to resolve the differences between the two bills and then the final bill will have to once again pass the House and Senate before it is sent to the President. It remains uncertain if this could be accomplished prior to the end of the year.
For questions on this article, please contact Dave Schryver of APGA staff by phone at 202-464-2742 or by email at
dschryver@apga.org.