Richard Caperton
Published: 2010
Total Pages: 0
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Tax expenditures -- government spending programs that deliver subsidies through the tax code via special tax credits, deductions, exclusions, exemptions, and preferential rates -- are the dominant type of federal support for the U.S. energy industry. Altogether, these spending programs amount to 60 percent of the government's total support to the industry. These tax expenditures are functionally equivalent to direct spending, but they are often subject to less scrutiny. Viewing tax expenditures through the same lens as other government expenditures provides a clearer image of both how they support public policy and use public resources. This paper adopts that lens and looks at two energy-related tax expenditures: the percentage depletion allowance in the oil industry and the production tax credit, or PTC, in the wind industry. We also consider a program in which a tax expenditure was temporarily converted into direct spending: the cash grant in lieu of the investment tax credit, or ITC, for wind generation. Through this analysis, we find these tax expenditures lack accountability, transparency, and measurability, yet there is some indication that the wind-related expenditures are effective. We find little justification for the percentage-depletion allowance, but we do find that when tax expenditures are redesigned and offered as direct spending -- as with the cash grant in lieu of the ITC -- the program can be more effectively monitored and managed.