Federal Tax Credit Research Articles

Comparative economic analysis of supporting policies for residential solar PV in the United States: Solar Renewable Energy Credit (SREC) potential

Numerous studies and market reports suggest that the solar photovoltaic markets rely heavily, if not entirely, upon governmental support policies at present. Unlike in other countries where these policies are enacted at a national level, the 50 states in the US pursue different policies in an attempt to foster the growth of renewable energy, and specifically solar photovoltaics. This paper provides an economic and financial analysis of the US federal and state level policies in states with solar-targeted policies that have Solar Renewable Energy Credits (SREC) markets. After putting a value on SRECs, this study further compares solar carve-outs with other incentives including the federal tax credit, net metering, and state personal tax credits. Our findings show that SREC markets can certainly be strong, with New Jersey, Delaware, and Massachusetts having the most potential. Despite their strong potential as effective renewable policies, the lack of a guaranteed minimum and the uncertainty attached are major drawbacks of SREC markets. However, the leveraging of this high value offers hope that the policies will indeed stimulate residential solar photovoltaic markets.

Is Smoking Inferior? Evidence from Variation in the Earned Income Tax Credit

In this paper we estimate the income elasticity of smoking. In contrast to previous research, we address the econometric endogeneity of income as a determinant of smoking participation, cessation, and cigarette demand conditional upon participation. We use an instrumental variables (IV) estimation strategy that exploits exogenous variation in family income generated by changes in Federal and State Earned Income Tax Credit parameters. Using the IV strategy we find that smoking cigarettes appears to be a normal good among low-income adults: higher instrumented income is associated with a higher probability of smoking participation and a lower probability of smoking cessation. The magnitude and direction of the changes in the income coefficients from our OLS to IV estimates are consistent with the hypothesis that correlational estimates between income and smoking related outcomes are biased by unobservable characteristics that differentiate higher income smokers from lower income smokers.

Community Health Centers And Community Development Financial Institutions: Joining Forces To Address Determinants Of Health

Community health centers and community development financial institutions share similar origins and missions and are increasingly working together to meet community needs. Addressing the social and economic determinants of health is a common focus. The availability of new federal grants and tax credits has led these financial institutions to invest in the creation and expansion of community health centers. This article reviews the most recent trends in these two sectors and explores opportunities for further collaboration to transform the health and well-being of the nation's low-income communities.

Using Our Sun for Energy Independence and National Security

Can we really use the power of the sun to create a workable solution to our ever increasing energy demands and aging power grid? Has the technology advanced enough to be a real solution to energy independence and security? Currently many people are looking for the ultimate clean renewable resource for our power demands. There has been exciting and promising work achieved in the areas of home energy and alternative fuels for automobiles. However, one source of renewable energy that has only token support is solar power. True there are several state and federal programs currently applicable that try to foster a continuing growth in the solar energy arena but none go far enough to give solar energy a fighting chance. The goal of this article is to present a summary of the current federal and state legal incentives available to residential consumers in Pennsylvania. It then presents possible suggestions on how to modify present state legislation to increase solar farming and locally generated and supplied solar energy to as many communities as possible, thus reducing our dependency and burden on the national electricity gird and increasing energy independence. The federal government currently has several incentives to promote the use of solar cell technology. A brief list of the programs include: High Energy Cost Grant Program, Residential Energy Conservation Subsidy Exclusion (Personal), and the Residential Renewable Energy Tax Credit.The High Energy Cost Grant Program provides financial assistance for the improvement of energy generation, transmission, and distribution serving eligible rural communities with home energy costs that are over 275 percent of the national average. From 2003-2010 there have been less than 65 projects under this program, mostly centered in Alaska and Arizona. This is a very important program but a very limited one that does little to encourage the widespread use of solar energy through the country.Under the Residential Energy Conservation Subsidy Exclusion Program, energy conservation subsidies provided to customers by public utilities, either directly or indirectly, are non-taxable. This exclusion does not apply to electricity-generating systems registered as qualifying facilities under the Public Utility Regulatory Policies Act of 1978. If a taxpayer claims federal tax credits or deductions for the energy conservation property, the investment basis for the purpose of claiming the deduction or tax credit must be reduced by the value of the energy conservation subsidy (i.e., a taxpayer may not claim a tax credit for an expense that the taxpayer ultimately did not pay). Eligible dwelling units include houses, apartments, condominiums, mobile homes, boats and similar properties.

State and Federal Frameworks for Distributed Solar and Wind Projects

The federal government and many states have recognized and are addressing the disconnect between extensive federal- and state-level incentives to promote distributed wind and solar power and outmoded local permitting and zoning procedures that impede installation of generation equipment. Federal renewable energy production incentives, loans, grants, and tax credits, and state renewable portfolio standards, tax rebates, and feed-in tariffs are all designed to encourage development of renewable energy facilities. Yet it is municipal and county governments that typically oversee the siting and installation of small- to mid-scale wind and solar projects.

Are Hybrid Cars A Good Buy?

This case examines the benefits and costs of buying a hybrid car. Students examine the car purchase decision along with depreciation rates and the long-term value of hybrid cars, while they calculate the benefits and costs of the various hybrid vehicles and their comparable sister cars. Secondary issues include an examination of the trade-in value for non-hybrid cars and the horsepower and greenhouse gas emission differences between hybrid and their sister cars. Furthermore, students will examine whether or not the federal tax credit for hybrids should be reinstated.

Using the Tax System to Promote Physical Activity: Critical Analysis of Canadian Initiatives

In Canada, tax incentives have been recently introduced to promote physical activity and reduce rates of obesity. The most prominent of these is the federal government's Children's Fitness Tax Credit, which came into effect in 2007. We critically assess the potential benefits and limitations of using tax measures to promote physical activity. Careful design could make these measures more effective, but any tax-based measures have inherent limitations, and the costs of such programs are substantial. Therefore, it is important to consider whether public funds are better spent on other strategies that could instead provide direct public funding to address environmental and systemic factors.

GASOLINE PRICES, GOVERNMENT SUPPORT, AND THE DEMAND FOR HYBRID VEHICLES IN THE UNITED STATES*

We analyze the determinants of hybrid vehicle demand, focusing on gasoline prices and income tax incentives. We find that hybrid vehicle sales in 2006 would have been 37% lower had gasoline prices stayed at the 1999 levels, and the effect of the federal income tax credit program is estimated at 20% in 2006. Under the program, the cost of reducing gasoline consumption was $75 per barrel in government revenue and that of CO2 emission reduction was $177 per ton. We show that the cost effectiveness of federal tax programs can be improved by a flat rebate scheme.

Uncertain Future for California's Low-Carbon Fuel Standard?

A multiperiod optimization model is used to analyze how changes in the U.S. ethanol market may affect California's low-carbon fuel standard. The six market conditions analyzed include a reference scenario in which development of the lignocellulosic ethanol industry proceeds according to the current industry forecast of the Environmental Protection Agency (EPA) and the ethanol tariff and federal ethanol tax credits maintain current levels; a 5-year delay in development of the lignocellulosic ethanol industry; accelerated growth of the lignocellulosic ethanol industry; removal of the $0.54/gallon ethanol import tariff; removal of the three federal ethanol tax credits; and removal of both the tariff and tax credits. The most dramatic change in California's compliance pathway occurs with changes in development of the cellulosic ethanol industry. If the industry is delayed for an additional 5 years, Brazilian ethanol will account for 25% of all transportation energy in the state by 2020. If industry development accelerates faster than EPA predictions, lignocellulosic ethanol will become the main low-carbon fuel by 2013 and replace all Brazilian ethanol. Removing the ethanol tariff will result in little change from the reference case before 2020. Removing the tax credits or the tax credits and the ethanol tariff will result in no Brazilian ethanol before 2019.

Impact of public policy uncertainty on renewable energy investment: Wind power and the production tax credit

It is generally understood that the pattern of repeated expiration and short-term renewal of the federal production tax credit (PTC) causes a boom–bust cycle in wind power plant investment in the US. This on–off pattern is detrimental to the wind industry, since ramp-up and ramp-down costs are high, and players are deterred from making long-term investments. It is often assumed that the severe downturn in investment during “off” years implies that wind power is unviable without the PTC. This assumption turns out to be unsubstantiated: this paper demonstrates that it is not the absence of the PTC that causes the investment downturn during “off” years, but rather the uncertainty over its return. Specifically, it is the dynamic of power purchase agreement (PPA) negotiations in the face of PTC renewal uncertainty that drives investment volatility. With contract negotiations prevalent in the renewable energy industry, this finding suggests that reducing uncertainty is a crucial component of effective renewable energy policy. The PTC as currently structured is not the only means, existing or potential, for encouraging wind power investment. Using data from a survey of energy professionals, various policy instruments are compared in terms of their perceived stability for supporting long-term investment.

Helping Outstanding Pupils Educationally: Public Policy Issues of the Georgia HOPE Scholarship Program and the Lottery for Education

The HOPE (Helping Outstanding Pupils Educationally – scholarship program), which began in 1993, is one of the most popular public policies ever enacted in the state of Georgia. This lottery-funded program pays for tuition, fees, and books at any public college or university in the state for any Georgia student who graduates from high school with a B or better grade point average (GPA). To keep the scholarship, students must maintain the B or better GPA in college. The program's popularity has spread well beyond Georgia's borders; at least a dozen other states have instituted similar broad-based merit scholarship programs, and most state legislatures have considered legislation to start similar programs. The federal HOPE tax credit, established in 1997, took its name from Georgia's program, though the originally-proposed merit-based component of the program was not enacted. In light of its popularity, HOPE raises a number of important policy questions regarding both the program itself and its funding source, the Georgia Lottery for Education: (1) What effect has the HOPE Scholarship program had on student performance in high school? (2) What effect has the HOPE Scholarship program had on student performance in college: (3) Who pays for and who benefits from the Georgia lottery and the programs it funds? (4) Has the scholarship program caused inflation in the cost of higher education in Georgia? This policy brief describes the HOPE Scholarship program and the Georgia Lottery for Education, summarizes a series of studies examining the program, offers recommendations for the design of merit-based financial aid programs, and suggests topics for further research.

Preliminary evaluation of the Section 1603 treasury grant program for renewable power projects in the United States

This article evaluates the first year of the Section 1603 Treasury cash grant program, which enables renewable power projects in the US to elect cash grants in lieu of the federal tax credits that are otherwise available. To date, the program has been heavily subscribed, particularly by wind power projects, which had received 86% of the nearly $2.6 billion in grants that had been disbursed as of March 1, 2010. As of that date, 6.2 GW of the 10 GW of new wind capacity installed in the US in 2009 had applied for grants in lieu of production tax credits. Roughly 2.4 GW of this wind capacity may not have otherwise been built in 2009 in the absence of the grant program; this 2.4 GW may have supported approximately 51,600 short-term full-time-equivalent (FTE) gross job-years in the US during the construction phase of these wind projects, and 3860 long-term FTE gross jobs during the operational phase. The program’s popularity stems from the significant economic value that it provides to renewable power projects, relative to the otherwise available tax credits. Although grants reward investment rather than efficient performance, this evaluation finds no evidence at this time of either widespread “gold-plating” or performance problems.

Unintended consequences: examining the impact of tax credit programmes on work in the Canadian independent film and television production sector

In Canada, the institutional framework that shapes labour markets for film and television professionals includes a combination of policy instruments operating at local, provincial and federal levels. Through an examination of the impact that federal and provincial film and television tax credit programmes have on labour markets and workers in the English language Canadian independent film and television production industry, this analysis will demonstrate that despite having an overall, albeit fluctuating, positive impact on the volume of work at national and subnational levels, tax credit programmes at the provincial level are producing perverse labour market effects. Although designed to promote Canada and its provincial jurisdictions as globally competitive centres of excellence for film and television production, the application of the tax credit scheme has negatively impacted on both working conditions and labour mobility for highly skilled film and television production workers in the English language independent production sector. The end result is a policy regime deeply rooted in a competition framework that contributes to, rather than ameliorates, the vulnerability of workers in film and television production labour markets in both major and regional production centres.

New Financing Options and Incentives for Landfill Gas Energy

ABSTRACT Stakeholders promoting landfill gas (LFG) energy projects are identifying new funding incentives to implement LFG energy (LFGE) projects. This article focuses on how landfills are participating in voluntary carbon and renewable energy markets, and presents case studies from award-winning projects that utilize these funding mechanisms. Landfills participate in the voluntary carbon markets using one of two main mechanisms: on an exchange or through an over-the-counter (OTC) transaction. An exchange, such as the Chicago Climate Exchange (CCX), is likely the most well known mechanism. At present, CCX has 35 registered landfill methane offset project providers in the United States [1]. As of April 2008, landfill methane projects comprised approximately 9 percent of all the carbon credits issued by CCX. OTC transactions are private between the seller, buyer, and/or broker involved in the transaction. Despite their private nature, the volume of OTC traded emissions has substantially grown in recent years according to research from Ecosystem Marketplace [2]. Recent data from Point Carbon indicate that 132 U.S. landfills have either made a transaction in the carbon market, or are in the process of developing, producing, certifying, or verifying their emissions reductions to prepare for an OTC transaction or exchange on the CCX [3]. In addition to carbon finance, LFGE projects generating electricity are also selling renewable energy certificates (RECs). These RECs are then purchased by companies wishing to reduce their environmental footprint or used by utilities to comply with various renewable portfolio standards. Stakeholders are also using state and federal financial incentives to promote LFGE projects. In 2008, the IRS awarded 45 applicants the authority to issue Clean Renewable Energy Bonds (CREBs) to support LFGE projects [4]. Several other new financial incentives were funded under the American Recovery and Reinvestment Act of 2009 (ARRA) including the Energy Efficiency and Conservation Block Grants (EECBG) and extensions to the federal production tax credits. This article summarizes financial incentives available for LFGE projects and provides case study examples of several landfills that are implementing projects with these funds.

WHY DON'T ELIGIBLE FIRMS CLAIM HIRING SUBSIDIES? THE ROLE OF JOB DURATION

I. INTRODUCTION For over 30 yr, the U.S. government has encouraged the hiring of disadvantaged workers by allowing firms with qualified workers to claim federal tax credits. The Work Opportunity Tax Credit (WOTC) and Welfare-to-Work Tax Credit (WtW) are available to firms that hire certain workers from a number of target groups, such as welfare recipients, young food stamp recipients, young workers from economically depressed areas, and ex-felons. Despite substantial labor market participation by these groups, only a small percentage of firms claim the subsidies for which they qualify. For example, Wisconsin microdata suggest that employers left an estimated $8 million unclaimed for qualified welfare and food stamp recipients in 2001; in the same year, employers claimed less than $2 million for workers in these target groups. Because Wisconsin only accounts for about 2% of the U.S. population (and 2% of all WOTC/WtW certifications), unclaimed benefits nationwide are likely to be worth over $400 million per year. Moreover, low participation in employer subsidy programs is not a new phenomenon but has persisted for decades in a variety of similar programs. Why do firms leave these subsidies unclaimed? Possible explanations for this puzzle include lack of information, discomfort with involvement in government programs, or low benefits from participation relative to administrative costs. In this study, I examine the merits of the last explanation. In particular, I investigate the potential role of worker requirements, which tightly link subsidy rates to the job duration of qualified employees. Such requirements have been a standard feature of targeted employer tax credit programs since the 1970s. In the period I study (1999-2002), a firm qualifies for the WOTC only if an eligible worker remains employed for at least 120 h, and the subsidy rate increases if the worker exceeds 400 h. The WtW credit requires a minimum of 400 h of work; however, workers in this category can qualify for the WOTC if they do not meet this hours requirement. A firm must apply for the tax credits at the time it hires a qualified worker, even though the firm will only be permitted to claim a subsidy if the worker's hours exceed the threshold. This combination of up-front costs and uncertain benefits might discourage some firms from participating. Understanding the potential role of hours requirements in the participation decision may provide needed insight into firms' continually low interest in employer subsidies. In this article, I examine the relationship between a firm's WOTC/WtW participation and the distribution of its eligible workers' job durations, which is a key determinant of potential benefits. I use a unique set of Wisconsin administrative data, which links the state's WOTC/WtW job records (containing hourly wage data) to their corresponding unemployment insurance records (containing total earnings data). This allows me to conduct the first examination, to my knowledge, of the distribution of job durations (in hours) for subsidy-certified workers. (1) I then compare this distribution with an estimate of the hours distribution for other WOTC/WtW-eligible workers whose employers did not apply for the credits. A reasonable explanation for these firms' nonparticipation may be that they would have gained little from the subsidy program. If firms form expectations based on their typical hours distribution, then I expect to see higher participation among firms with stronger distributions, that is, with more workers in the higher subsidy brackets. I estimate the average fixed cost of firm participation in WOTC and then, using a probit model in which I control for relevant covariates, I analyze the relationship between firms' worker-hour distributions and their participation in the WOTC/WtW. Although this relationship is interesting, it does not necessarily imply a causal effect of hours on participation if, as theory would predict, participating firms maximize WOTC/WtW benefits by intentionally increasing workers' job duration (after the participation decision has already been made). …

Introduction

Introduction

Investment in Energy Infrastructure and the Tax Code

Executive Summary Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy. On the basis of the coefficient estimates, the elasticity of investment with respect to the user cost of capital is in the range of −1 to −2. I also demonstrate that the federal production tax credit plays a key role in driving wind investment over the past 18 years.

Growing America’s fuel: an analysis of corn and cellulosic ethanol feasibility in the United States

Recent excitement over ethanol in the United States has been unmatched by other alternative energy sources. To a certain extent, the mention of ethanol by President Bush in the past four State of the Union Addresses has politicized the debate and generated a high level of support for increased ethanol production in both Congress and the private sector. In December 2007, President Bush signed into law the Energy Independence and Security Act, which increased the renewable fuel standard that was mandated under the Energy Policy Act of 2005 to 36 billion gallons by 2022. “Growing fuel” has appealed to politicians, the American public, and powerful agricultural interests all for different reasons. Whether or not the large-scale ethanol production and distribution of ethanol is efficient is not easily understood. Corn-based ethanol is so heavily subsidized through federal tax credits and even state credits that its true cost is hard to determine (Gardner in J Agric Food Ind Organ 5:4, 2007). The high corrosiveness of ethanol and its tendency to absorb water damages existing fuel infrastructure and requires special equipment and supply chains for transportation (Rusco and Walls in Biofuels, petroleum refining and the shipping of motor fuels. Institute for Advanced Policy Research, Technical Paper TP-05008, 2008). Perhaps, most importantly, the agricultural availability for energy crops is intertwined closely with food crops; corn prices are influenced by the converging demands of ethanol, feed crops and human consumption. After examining the feasibility of recent goals for alternative fuels in the context of corn and cellulosic ethanol production, we are unable to validate that corn-based ethanol is worthy of continued pursuit as a viable, comprehensive alternative to gasoline. On the other hand, we find the argument for cellulosic production more compelling due to the ubiquitous availability of amounts and variety of feedstock, combined with a high potential for far reaching and decentralized refineries. Our work indicates that a transition to advanced, cellulosic feedstocks for ethanol is absolutely necessary for increased biofuel production and reduced petroleum use to occur. However, in light of the lack of commercial availability of key components needed for cellulosic ethanol production, we conclude that the feasibility of cellulosic ethanol as a mainstream fuel will require many changes in technology and federal funding. Thus, we conclude that, in the short term, ethanol cannot meet the energy security and environmental goals of a gasoline alternative.

Gasoline Prices, Government Support, and the Demand for Hybrid Vehicles in the U.S.

We analyze the determinants in the demand for hybrid vehicles and examine government programs that aim to promote the adoption of these vehicles. We find that hybrid vehicle sales in 2006 would have been 37 percent lower had gasoline prices stayed at the 1999 levels while the effect of the federal income tax credit program is estimated at 20 percent in 2006. Our results suggest that under the income tax credit program, the cost of reducing gasoline consumption was $75 per barrel in government revenue and that of CO2 emission reduction was $177 per ton. We show that the cost-effectiveness of federal tax programs can be improved by adopting a flat rebate scheme.

Removing Distortions in the U.S. Ethanol Market: What Does It Imply for the United States and Brazil?

AbstractWe analyze the impact of trade liberalization and removal of the federal tax credit in the United States on ethanol markets using a multimarket international ethanol model. We find that U.S. trade barriers have been effective in protecting the ethanol industry. Under current policy, there is separability of the U.S. ethanol market from world markets. With trade liberalization, the ethanol market deepens, making it less susceptible to price volatility. The effect of trade liberalization extends beyond ethanol markets, affecting agricultural markets. The results show that the impact of removal of the tax credit overrides the impact of the tariff removal.