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Permanent Tax Subsidy? Solar’s 15 extensions

By Robert Bradley Jr. -- June 4, 2024

“But nothing is so permanent as a temporary government program.” (Milton and Rose Friedman, Tyranny of the Status Quo, 1983, p. 115)

“The infant industry argument is a smoke screen. The so-called infants never grow up.” (Milton and Rose Friedman, Free to Choose, 1979, p. 49)

What was said in a previous post regarding wind power’s 14 extensions of the Production Tax Credit also applies to solar power’s Investment Tax Credit (ITC) and its preceding tax favors. From 1978 to the present (46 years), 15 extensions belie the industry’s age-old claims of almost being competitive. Remember the New York Times’ declaration in 1994 (per Enron) that solar was “competitive” with fossil fuels? Remember Solyndra? Joe Romm in 2011: “It is clear that solar and wind are competitive in many situations right now.”

Solar is not an infant industry, having been demonstrated as grid electricity in the nineteenth century and again during World War II. But it is dilute and intermittent, fatal qualities as against fossil-fuel-generated electricity.

A legislative review (source: Congressional Research Service) of the solar tax subsidy reveals fifteen (15) legislative extensions from 1978 to 2022 with the current law extending to 2035 (57 years). A dividing point is the Energy Policy Act of 1992, which tripled solar’s credit (and put wind back into business after a short expiration).

Early History [7 laws; 6 extensions]

  1. The Energy Tax Act of 1978 (P.L. 95-618) created a “temporary” 10 percent tax credit for business property and equipment using energies other than [thought to be rapidly depleting] oil or natural gas. Tax credits for solar (and wind) were refundable (e.g. credits could be received as a payment if the taxpayer could not offset his or her tax liability). Expiration was set for December 31, 1982.
  2. The Windfall Profit Tax Act of 1980 (P.L. 96-223) expanded the energy credit to subsidize qualifying renewables. The prior tax credits for solar (and wind) were extended for three years (through 1985) and increased to 15 percent. The credit was made nonrefundable.
  3. The Tax Reform Act of 1986 (P.L. 99-514), extended investment tax credits for solar (and geothermal) with a phase down to 10 percent before being set to expire December 31, 1988. The credit for wind was not extended.
  4. The Miscellaneous Revenue Act of 1988 (P.L. 100-647) extended the solar, geothermal, and ocean thermal investment credits at their 1988 rates.
  5. The Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) again extended the credits for solar (and geothermal and ocean thermal).
  6. The Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508) extended the tax credits for solar (and geothermal).
  7. The Tax Extension Act of 1991 (P.L. 102-227) again extended the solar (and geothermal) tax credits.

Modern History [9 extensions/modifications]

  1. The Energy Policy Act of 1992 (P.L. 109-58) increased the ITC from 10 percent to 30 percent for commercial/residential solar through 2006.
  2. The Tax Relief and Health Care Act of 2006 (P.L. 109-432) extended the above credits for one additional year (2007).
  3. The Emergency Economic Stabilization Act of 2008 (P.L. 110-343) substantially expanded and provided the ITC for solar through 2016 (8 years).
  4. The Energy Improvement and Extension Act of 2008 expanded the new solar tax credits for Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, and Solar Hybrid Lighting with a home-use cap of $2,000.
  5. The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) modified and extended the ITC energy tax credit through 2016. The $2,000 cap was removed.
  6. The Consolidated Appropriations Act of 2016 (P.L. 114-113) extended the credit through 2019. The termination date was changed from a placed-in-service deadline to a construction start-date phaseout, with a 26 percent for construction beginning in 2020, and 22 percent for construction commencing in 2021.
  7. The Bipartisan Budget Act of 2018 (P.L. 115-123) extended the ITC for five years for fiber-optic solar (as well as fuel cell, small wind, microturbine, CHP, and geothermal heat pumps). These energies were eligible for a 30 percent credit through 2019, with rates declining with construction dates.
  8. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 (P.L. 116-260) extended the ITC by two years.
  9. The Inflation Reduction Act of 2022 extended the Residential Clean Energy Credit, previously called the Investment Tax Credit (ITC), through 2034 (12 years). The credit was increased to 30 percent (from 26 percent). Thirty percent of solar panel purchases were deductible from the total cost of federal taxes. The residential solar tax credit is scheduled to drop to 26 percent in 2033 and 22 percent in 2034.


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