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Summary

Historically, U.S. federal energy tax policy promoted the supply of oil and gas. However, the 1970s witnessed (1) a significant cutback in the oil and gas industry's tax preferences, (2) the imposition of new excise taxes on oil, and (3) the introduction of numerous tax preferences for energy conservation, the development of alternative fuels, and the commercialization of the technologies for producing these fuels (renewables such as solar, wind, and biomass, and nonconventional fossil fuels such as shale oil and coalbed methane). The Reagan Administration, using a free-market approach, advocated repeal of the windfall profit tax on oil and the repeal or phase-out of most energy tax preferences -- for oil and gas, as well as alternative fuels. Due to the combined effects of the Economic Recovery Tax Act and the energy tax subsidies that had not been repealed, which together created negative effective tax rates in some cases, the actual energy tax policy differed from the stated policy. The George H. W. Bush and Bill Clinton years witnessed a return to a much more activist energy tax policy, with an emphasis on energy conservation and alternative fuels. While the original aim was to reduce demand for imported oil, energy tax policy was also increasingly viewed as a tool for achieving environmental and fiscal objectives. The Clinton Administration's energy tax policy emphasized the environmental benefits of reducing greenhouse gases and global climate change, but it will also be remembered for its failed proposal to enact a broadly based energy tax on Btus (British thermal units) and its 1993 across-the-board increase in motor fuels taxes of 4.3?/gallon. The 109th Congress enacted the Energy Policy Act of 2005 (P.L. 109-58), signed by President Bush on August 8, 2005, provided a net energy tax cut of $11.5 billion ($14.5 billion gross energy tax cuts, less $3 billion of energy tax increases) for fossil fuels and electricity, as well as for energy efficiency, and for several types of alternative and renewable resources, such as solar and geothermal. The Tax Relief and Health Care Act of 2006 (P.L. 109-432), enacted in December 2006, provided for one-year extensions of these provisions. The current energy tax structure favors tax incentives for alternative and renewable fuels supply relative to energy from conventional fossil fuels, and this posture was accentuated under the Energy Policy Act of 2005. At this writing, congressional action is focusing on extension and liberalization of energy tax subsidies. The House bill is H.R. 6049, which was approved by the House on May 21. In the Senate, there are three different versions of tax extenders and energy tax provisions: S. 3125, a Republican bill reintroduced as S. 3335, S. 3089, and the Ensign Amendment. Also Senate Democrats have introduced S. 3044, the Consumer-First Energy Act, which would repeal tax code provisions that are advantageous to the oil and gas industry and impose a windfall profits tax on that industry. Twice in June, and once in July, Senate action on the energy tax bills has been blocked by a failure to invoke cloture and proceed to H.R. 6049. Finally, the recently enacted farm bill (P.L. 110-234) also expands and reforms several energy tax provisions -- all tax subsidies for renewable and alternative fuels from crops -- but also includes a 6? reduction in the excise tax credit for fuel ethanol.

Related Legislation:
• H.R.6049
• S.3125
• S.3335
• S.3089
• S.3044
• S.1993

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