During a March 14, 2018, hearing on expired tax provisions, House Ways and Means Tax Policy Subcommittee Chairman Vern Buchanan (R-FL) repeatedly questioned why businesses that benefit from rate reductions and expensing under the Tax Cuts and Jobs Act (TCJA) need additional tax incentives. Buchanan and Ranking Member Lloyd Doggett (D-TX) agreed that tax extender provisions should either be made permanent or eliminated.

In an opening statement, Chairman Buchanan said for each extender provision, the Committee will ask: "What role does this provision play in the new tax code? If it is no longer needed because of the reforms that have been enacted, the provision should be eliminated. If the provision continues to play an important role and enhances the new pro-growth tax reform, we should consider making it permanent. And in that case, we will ask those who benefit from the provision to consider what other tax benefits they would forego in favor of having this provision made a permanent part of the tax code." Buchanan told reporters he is also planning a Members' Day hearing on tax extenders, Politico reported.

Rep. Doggett said the temporary nature and retroactive extensions of tax extender provisions reduce their ability to incentivize behavior, and that some provisions, like the classification of certain race horses as three-year property, appear to be obvious for elimination. Doggett suggested the roughly $90 billion cost of making permanent the provisions that expired in 2017 — reflecting preliminary estimates in Joint Committee on Taxation report JCX-5-18 — should be considered in the context of the $2 trillion TCJA, which was adopted without hearings. Other Democrats criticized the lack of bipartisanship and swift consideration of the TCJA.

The hearing follows the February 9 budget bill that extended tax extender provisions for 2017, and comes amid Senate efforts to extend them through 2018.

Panel 1: Energy efficiency

Witnesses and the provisions they focused on:

— The Honorable Rick Lazio, Senior Vice President, Alliantgroup — energy-efficient commercial buildings deduction (Section 179D)

— Henry Chamberlain, President and Chief Operating Officer, Building Owners and Managers Association International — energy-efficient commercial buildings deduction (Section 179D)

— Daniel Bresette, Vice President for Policy and Research, Alliance to Save Energy — credit for certain nonbusiness energy property (Section 25C), credit for construction of new energy-efficient homes (Section 45L), energy-efficient commercial buildings deduction (Section 179D)

— Lisa Jacobson, President, Business Council for Sustainable Energy — credit for certain nonbusiness energy property (Section 25C), alternative motor vehicle credit for qualified fuel cell motor vehicles (Section 30B(b)), credit for alternative fuel vehicle refueling property (Section 30C), credit for electricity produced from certain renewable resources (other than wind) (Sections 45 and 48(a)(5)), credit for construction of new energy-efficient homes (Section 45L), energy-efficient commercial buildings deduction (Section 179D)

— Sam Paschel, Chief Executive Officer, Zero Motorcycles Inc. — credit for two-wheeled plug-in electric vehicles (Section 30D)

Some of the discussion during the first panel focused on timeframes for projects. Rep. John Larson (D-CT) said energy projects may have a longer horizon and the inconsistency with how businesses are rewarded or punished must be reviewed. Chamberlain said businesses need to plan on certainty. Rep. Suzan DelBene (D-WA) said Republicans sacrificed bipartisanship in order to rush the TCJA bill to the President's desk, leaving lawmakers with tax extenders and questions about hastily drafted provisions, and constituents asking members for corrections where the rushed process produced mistakes. She said Congress should put an end to retroactive extensions of tax provisions, and asked about what timeframes would be appropriate for new technology.

Jacobson said all industries are distinct businesses and have different business cycles: some technologies could be implemented quickly, and others could take 10 years to go from origination to construction and fulfilling their objective. She said a one-size-fits-all solution may not work for the energy and transportation sectors and that tax incentives need to be distributed in an equitable manner, without Congress putting its thumb on the scale for any particular technology. Permanency or multi-year extensions are welcome, Jacobson said.

Rep. Tom Rice (R-SC) suggested that governments are going to require energy-efficient buildings and investors are going to invest in them anyway, and questioned why the Government needs to incentivize that investment. Buchanan asked why, in light of the "more-than-generous" TCJA, businesses need more, and said he would be questioning businesses that are making money under the new code over what they are willing to give up for their provision to be extended. Lazio said the TCJA did not help public entities, and the best way to improve the efficiency of state, local, and federal buildings is to provide incentives to designers through the 179D credit. Paschel said nobody in his industry is profitable and seeing benefits from tax bill, meaning tax incentives are necessary.

Panel 2: Alternative fuels

Witnesses and the provisions they focused on:

— Andrew West, Founder and Chief Executive Officer, American Natural Gas — incentives for alternative fuel and alternative fuel mixtures (Sections 6426(d) and (e), and 6427(e))

— Daniel Gage, President, NGV America — incentives for alternative fuel and alternative fuel mixtures (Sections 6426(d) and (e), and 6427(e))

— Stuart Weidie, President and Chief Executive Officer, The Bloosman Companies, representing National Propane Gas Association — incentives for alternative fuel and alternative fuel mixtures (Sections 6426(d) and (e), and 6427(e)), credit for alternative fuel vehicle refueling property (Section 30C)

— Michael Dungan, Director of Sales and Marketing, RES Polyflow, representing American Chemistry Council — incentives for alternative fuel and alternative fuel mixtures (Sections 6426(d) and (e), and 6427(e))

— Robbie Diamond, President and Chief Executive Officer, Securing America's Future Energy — credit for alternative fuel vehicle refueling property (Section 30C)

— Morry Markowitz, President, Fuel Cell and Hydrogen Energy Association — alternative motor vehicle credit for qualified fuel cell motor vehicles (Section 30B(b)), credit for alternative fuel vehicle refueling property (Section 30C)

Rep. Rice asked why the Government should subsidize emerging energy technologies when the United States produces so much oil and gas. Rep. Doggett, noting the expense of the provision, asked whether a five-year extension of the alternative fuels tax credit is sufficient, or if a longer duration incentive is necessary.

Rep. Larson said the TCJA added $2.3 trillion to the deficit — that number reflects the Administration's assumption of a permanent extension of the individual income tax and estate and gift tax provisions — and asked witnesses whether they support a carbon tax to offset the costs.

Rep. Earl Blumenauer (D-OR) observed that, while it is important for the Committee consider how to finance the energy and transportation technologies of tomorrow, members also need to examine how to fund the Highway Trust Fund and meet infrastructure needs.

Chairman Buchanan again returned to the issue of why businesses need more tax incentives given that the TCJA cut the corporate tax rate by 43%, pass-through taxes by 25%, and provided full expensing for five years. He also expressed concerns over cost, saying "we do have to pay the bills."

Panel 3: Deficit spending

Witnesses:

— David Burton, Senior Fellow in Economic Policy, The Heritage Foundation
— Richard Phillips, Senior Policy Analyst, Institute on Taxation and Economic Policy
— Ryan Alexander, President, Taxpayers for Common Sense
— Maya MacGuineas, President, Committee for a Responsible Federal Budget
— Seth Hanlon, Senior Fellow, Center for American Progress

In addressing witnesses who were skeptical of the value of tax extenders, Rep. Jim Renacci (R-OH) said Congress should determine which extenders should be eliminated, phased out, or made permanent and end the process of temporary extensions, and asked for input on how to "bring this plane down slowly." He also noted that it is important to avoid picking winners and losers.

Alexander said now is a good time to make decisions on tax extenders, because businesses just got a significant rate reduction and this is the time when they can afford to lose a break.

Rep. Tom Reed (R-NY) spoke in favor of motorsports depreciation provisions, and said he is in favor of making the tax extenders permanent.

Buchanan said he did not want to see companies double dipping: benefiting from the TCJA then asking Congress for a provision to be extended.

Rep. Larson asked each witness whether they would support a revenue-neutral carbon tax and four of the five said yes.

Panel 4: Fuels, railroads, real estate

Witnesses and the provisions they focused on:

— Cal Meyer, Group Vice President and Chief Operating Officer, Ag Processing Inc., representing National Biodiesel Board — incentives for biodiesel and renewable diesel (Sections 40A, 6426(c), and 6427(e))

— Michael McAdams, President, Advanced Biofuels Association — incentives for biodiesel and renewable diesel (Sections 40A, 6426(c), and 6427(e))

— Edward Hubbard, General Counsel, Renewable Fuels Association, Renewable Fuels Association — second generation biofuel credit (Section 40(b)(6))

— Judy Petry, Chair, American Short Line and Regional Railroad Association, Representing American Short Line and Regional Railroad Association — credit for certain expenditures for maintaining railroad tracks (Section 45G)

— Barry Grooms, Realtor and Co-Owner, SaraBay Real Estate Inc., representing National Association of Realtors — discharge of indebtedness on principal residence excluded from gross income of individuals (Section 108(a)(1)(E))

Rep. Dave Reichert (R-WA) asked Meyer sympathetic questions about the expiration of biodiesel incentives. Meyer said the uncertainty surrounding the incentives makes it difficult to make investments. Rep. Rice, however, questioned both Meyer and Ed Hubbard as to whether biodiesel incentives were necessary since US oil and gas production has increased substantially over the past decade.

In response, several Republican members — including Rep. Adrian Smith (R-NE), Rep. Mike Kelly (R-PA), and Rep. Darin LaHood (R-IL) — defended the biodiesel incentives, with Smith noting that the tax credits are necessary to support diversified energy resources and to encourage new technologies.

Chairman Buchanan asked whether the credits are "double-dipping" in the wake of the corporate rate and other tax cuts in the TCJA, and Meyer and Hubbard explained that the credits were essential for the development of pre-commercial technologies. The credits for second generation biofuels, according to Hubbard, assist in attracting private investment and lead to both job creation and environmental benefits.

Chairman Buchanan's statement and JCX-5-18 are attached.

Testimony from the hearing.

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ATTACHMENTS

Buchanan Statement

JCX-5-18