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Greening American Tax Policy

Green programs could spur growth of new energy solutions and generate revenue that will reduce the deficit and spur the economy.

John Irons, Director of Tax Policy at the Center for American Progress, predicted last month that “We should expect—and perhaps demand—a renewed interest in generating revenue from taxes or regulations that protect the environment.” And this week, the Senate Finance Committee and the House Ways and Means Committee will begin exploring the issue with hearings to discuss methods for marrying tax and energy policy.

The Center for American Progress has developed numerous policy solutions over the past year that use financial incentives to promote the environment and advance new, sustainable technologies.

Fueling a New Farm Economy, for example, advocates combining tax credits for biofuel farmers and manufacturers with tax and production incentives for private sector investments in biofuel production infrastructure and clean energy marketplaces to quickly bring the next generation of biofuels up to a commercial scale.

American Energy, a report co-produced with Worldwatch Institute, proposes extending the currently intermittent Renewable Energy Tax Credits for wind and biofuel production in order to encourage new investment.

John Irons also points out in last month’s Tax Notes that a carbon tax or cap-and-trade program with auctioned permits could generate significant revenue, while at the same time reducing greenhouse gases and cleaning the environment. The green revenue generated from programs like these could then be used to offset other taxes that create efficiency losses—or prevent rates from increasing in the future.

Green programs have the potential to generate an enormous amount of revenue; estimates from the Congressional Budget Office and Energy Information Administration range from tens of billions of dollars a year to $100 billion or more. Such changes could be part of a larger tax reform, or could be used to pursue an aggressive, innovation-driven energy strategy through investment in research on renewable, low-carbon technologies.

Tax reform may be the key method for facilitating the growth of clean, sustainable energy. Proposals outlined in Fueling a New Farm Economy and American Energy have the potential to promote the environment while also boosting the American and world economies.

Read more about the Center for American Progress’ strategies for America’s energy future:

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