U.S. Senate Attaches Energy Tax Breaks to $700 Billion Bailout

By Daniel Whitten

Oct. 1 (Bloomberg) -- U.S. tax legislation valued at more than $100 billion, including a host of alternative energy credits, gained new hope after Senate leaders late yesterday announced plans to tie it to a $700 billion financial rescue bill.

The tax plan will extend roughly $17 billion in tax breaks for solar wind and other renewable energy sources. It includes $42 billion in incentives for businesses and individuals for two years, including an $8.6 billion annual research and development benefit, and it would spare 24 million households from a $61.8 billion alternative-minimum tax due to take effect this year.

Senate Democratic Leader Harry Reid, of Nevada and his Republican counterpart Mitch McConnell, of Kentucky, agreed in principle on a bailout plan that they hope will draw the support of the House and Senate. It will now include tax measures, the energy proposals among them, that have been the subject of an impasse between the two chambers. The Senate has scheduled a vote on the bailout legislation tonight.

``We are fired up that Senator Reid and Senator McConnell have brought the extenders into play by attaching it to the financial rescue plan,'' said Rhone Resch, president of the Solar Energy Industries Association in Washington. ``The American public has engaged in a debate about the need to pass legislation that stabilizes our economy.''

The Senate is attaching unrelated tax legislation that it passed and that was opposed by some in the House of Representatives to the bailout bill. It is likely the last chance to get the tax measures passed and sent to President George W. Bush before next month's election.


Risk to Legislation

The risk is that the bailout legislation may be jeopardized by contested tax legislation. The Senate leaders are calculating that the House will heed President Bush's call to pass the rescue measures, ensuring the passage of the tax laws at the same time.

House Majority Leader Steny Hoyer and fiscal conservative Democrats, known as Blue Dogs, rejected the Senate tax plan because it wasn't fully paid for. Hoyer and the Blue Dogs, about 24 of whom supported the bailout in a failed House vote Sept. 29, may have to decide whether to reject the new rescue plan because of their opposition to the Senate tax bill.

``I am talking with my House colleagues about the Senate action and how to best proceed,'' Hoyer said late yesterday in a prepared statement, adding he was seeking the ``most successful'' outcome in the House.

Geothermal, Biomass

The rescue package would give the Treasury Department broad power to buy troubled assets, chiefly mortgage-backed securities that are burdening investors and financial institutions.

The energy tax provisions in the final legislation could still be altered from those the Senate passed by a 93-2 margin Sept. 23. That bill included $1.9 billion for an eight-year tax extension for solar energy, $5.8 billion in tax breaks for wind, geothermal, biomass and other alternative energy production and credits of as much as $7,500 for plug-in hybrid vehicle buyers.

``As soon as this legislation passes, good-paying jobs will open up in the green energy sector as wind and solar projects get up and running,'' said Senate Finance Committee Chairman Max Baucus, a Montana Democrat.

``We all support the tax extenders,'' said Florida Blue Dog Allen Boyd at a news conference Sept. 29. ``So this debate is not about the need for those, it's about an underlying principle of whether we, as a government, are willing to pay for the things that we buy.''

The Senate measure would pay for all of the energy tax breaks and about half of the business and individual extenders by curtailing tax breaks oil companies get for job creation and for overseas production, and by ending the ability of hedge-fund managers to defer taxes on profits earned in offshore funds.

To contact the reporters on this story: Daniel Whitten in Washington at dwhitten2@bloomberg.net