Make green energy companies pay their fair share

 President Trump’s “big, beautiful bill” terminated electric vehicle tax credits and began phasing out subsidies for new wind and solar projects. These were important steps in ending what Trump calls the “Green New Scam” and undoing a huge piece of former President Joe Biden’s signature legislation, the 2022 Inflation Reduction Act.

But the One Big Beautiful Bill Act did not go far enough. Although it is great that taxpayers won’t be forced to subsidize new wind and solar projects, they also shouldn’t have to keep subsidizing existing grandfathered wind and solar.  

Fortunately, the second budget reconciliation bill of Trump’s term presents a “beautiful” opportunity for conservatives in Congress to use an Inflation Reduction Act provision against the IRA’s own green energy subsidies.

That provision is the corporate alternative minimum tax, also known as the book minimum tax.

The book minimum tax is ostensibly meant to ensure that every large company pays federal income tax each year of no less than 15 percent of its financial statement income. But since Democrats created the book minimum tax in the same legislation in which they handed out $1 trillion in tax-based subsidies to the green energy industrial complex, the book minimum tax was designed to accommodate these and other subsidies.

Under the book minimum tax, companies can use green tax credits to reduce their federal income taxes to less than 15 percent — or even less than zero, effectively. The Inflation Reduction Act went so far as to make green tax credits transferable so that green energy companies that don’t expect to pay any taxes for the foreseeable future can go on benefitting from the tax credits by selling them to other companies who can use them. That is another absurd shell game that Congress should end.

Most companies and individuals consider the income tax system a burden and obstacle to their success. But for green energy companies, the income tax system has been a ticket — paid for by taxpayers — to success, thanks in large part to the Inflation Reduction Act.

Even prior to the Inflation Reducation Act’s expansion of the green energy tax credits, most large companies that consistently paid zero or near zero corporate income taxes between 2018 and 2021 appear to have done so by claiming green tax credits like the production tax credit and investment tax credit, as I noted in a 2023 report. With the explosion of green energy tax credits, grants and other subsidies since 2022, green energy companies are by far the predominant source of corporate tax avoidance and subsidy-seeking in America today.

Many companies that are now forced to pay the book minimum tax have good reasons for having apparently low tax liability in any particular year. For example, financial statements don’t carry losses forward into future years, so the book minimum tax overtaxes companies that have cyclical profits — those making profits some years and losses in others. Other accounting differences between federal income taxes and financial statements, regarding the timing of when income or costs are recognized, can also drive financial statement profits to appear higher or lower than taxable profits in any given year.

In short, in 2022, Congress and the White House used the book minimum tax to scapegoat and punish companies that were paying their taxes and doing everything right, then turned around and funded a massive handout to America’s biggest corporate welfare beneficiaries — politically favored wind and solar companies.

So it would be fitting for Congress to repurpose the book minimum tax into a corporate minimum tax that truly focuses on green energy companies — the companies that have most egregiously avoided taxes and taken advantage of federal subsidies.

Corporations above a certain revenue threshold should no longer be allowed to use green tax credits to reduce their tax liability to less than 15 percent of their taxable income. Congress should also end the special treatment of transferability of green energy tax credits, so that companies can’t avoid the tax by simply transferring their credits to other companies.

The repurposed corporate minimum tax could apply the same treatment to other tax credits and other overt federal subsidies, but Congress should otherwise scrap the current minimum tax system based on financial statement income, which causes businesses to face less consistent tax treatment.

Congress should reject the left’s false narratives that have left taxpayers carrying the tab for subsidized wind and solar. It’s time for green energy companies to pay their fair share.

Preston Brashers is a research fellow for tax policy in the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget.

 

 

Make green energy companies pay their fair share