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Juice Up Tax Credits to Stimulate a Green Economy

Coincidentally, as Obama's economic stimulus package runs out the US economy shows signs of losing steam. Job creation is feeble. The economy can't be allowed to fall off a cliff again. Action should be taken now.

In an election season a deficit-concerned Congress won't be in the mood to pass a mega-spending bill, but tax cuts are always popular.

Obama wants to build a clean energy economy. Why not expand and extend existing tax breaks for clean, renewable and efficient energy to continue efforts already underway to do so?

Let's take a look at a few Federal tax incentives for efficient and renewable energy now on the books:
The Residential Energy Efficiency Tax Credit is a personal tax credit that covers the installation of certain energy efficient water heaters, furnaces, boilers, heat pumps, central air conditioners, building insulation, windows, doors, roofs, some circulating fans used in qualifying home furnaces, as well as some biomass fuel stoves.

The credit, taken off the bottom line of a homeowner's tax return, is for 30 percent of the cost of the energy efficiency improvements. But the total amount of the credit is a miserly $1500 for all improvements combined. That cost may include labor costs or just the cost of the qualified equipment.

This credit is set to expire at the end of 2010. Why not extend it another few years and double (or more) the amount of the credit to at least $3000?

The Residential Renewable Energy Tax Credit is another personal tax credit (again off the bottom line of taxes due for a given year) that covers solar water heating, solar photovoltaics, wind energy, fuel cells, geothermal heat pumps and other solar electric technologies.

Like the energy efficiency tax credit, it's for 30 percent of the installation, but for qualifying solar, wind or geothermal for systems installed beginning in 2009 there is no maximum amount of the credit. If the system cost is, for example, $20,000, the credit, the amount off your tax bill, would be $6000. If the credit brings your tax bill below zero the excess credit may be carried forward to the succeeding tax year.

This fairly generous credit is set to expire at the end of 2016. Still, why not increase the amount of the credit to 40 or even 50 percent?

For vehicles, there are a number of tax credits for alternative fuels including diesels, natural gas, propane, hybrids, plug-in hybrids and battery electric vehicles. The credits are specific to certain models and the expiration date varies depending on the number of vehicles sold.

The biggest tax break available - up to $7500 - is for upcoming electric and plug-in hybrid electric vehicles. Yet that tax break isn't forever and will phase out at the beginning of the second calendar quarter after the manufacturer produces 200,000 eligible vehicles. That could be quite a while, since these vehicles are expected to sell relatively small numbers. Still, why not be more generous with the tax credit and increase it to say $10,000?

There are other energy efficiency and renewable energy tax credits, of course, that are aimed at business and industry. There are probably extensions and expansions possible within those provisions.

Many states also have additional tax incentives such as sales tax relief for renewable energies. The states often follow the lead on what Washington does.

Overall, energy tax credits are a plus all-around for the economy.

Those making the energy efficiency or renewable energy investment will likely see a reduction in fuel and/or electric bills. Money not spent on energy can be spent elsewhere in the economy, or perhaps saved.

The equipment purchased for homes, such as solar panels, solar water heaters, high efficiency air conditioners, for example, may be entirely US made (great for those US factories), may be imported or be some combination of the two. In any case, some jobs will be created in manufacturing. However, all of the equipment has to be installed by professionals, definitely creating jobs and new business.

As for electric and plug-in hybrid cars, there is already considerable investment in manufacturing vehicles and components here in the US, in part because of the first stimulus package and in part because of legislation enacted under President Bush. Being more generous with those tax breaks should draw in more buyers, increase production rates creating jobs in US factories and perhaps even encouraging the development of more models.

There is a down side, of course. Tax breaks mean taxes not entering the US Treasury, and it's possible that these enhanced incentives would increase the deficit. However, that possibility would have to weigh against the creation of new jobs which would send income tax dollars to the government. Further, in saving money on energy people will have more disposable income which could be spent, with some of that eventually finding its way into the Treasury. Finally, cutting energy is the gift that keeps on giving. As long as the energy technology keeps functioning the savings in dollars and cents will be like a newfound source of income year after year.

The President and Democrats in Congress are still thinking of a climate and energy bill this year. The oil disaster in the Gulf of Mexico will make passage of that bill easier but not guaranteed. So, instead of fighting for a new energy and climate policy, why not continue efforts for new economic stimulus using energy at its core? Stimulating the economy, cutting conventional energy consumption, adopting cleaner energy with the side-benefit of cutting greenhouse gas emissions, would all be part of the same package.

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