Government should impose transparency on carbon capture tax

OPINION:

The federal government and Congress need to be better stewards of taxpayer cash. One dirty little secret in Washington is that tax credits serve as spending through the tax code. When the spending is on families, it is less objectionable to taxpayers. Still, tax credits that funnel cash to corporations can serve as corporate welfare that many corporations do not deserve or need. 

Both the right and the left are strongly opposed to crony capitalism. Sometimes tax credits promoted with the goal of changing corporate behavior or encouraging a specific behavior end up allowing some of America’s largest corporations to get a check from the Internal Revenue Service rather than cut a check to the IRS.

The recently expanded carbon capture tax credit is a classic example of a tax credit that fails to serve its intended purpose and invites abuse. Section 45Q of the IRS code, the carbon capture and sequestration tax credit, has provided a tax credit for carbon dioxide storage since 2008. The goal of the credit was to provide an incentive for companies to find ways to capture and store carbon dioxide emissions. The credit can be claimed for every metric ton of CO2 captured and sequestered. In reality, the credits have been used by oil and gas companies that pump captured gas into wells and do nothing to lessen emissions. 

The so-called Inflation Reduction Act was loaded with green energy programs, and one provision expanded and extended the life of the 45Q tax credit. Even though the tax credits have had a sordid history of providing corporate welfare to undeserving companies, Congress and the Biden administration doubled down.

Conservatives are not fans of tax credits as a rule because they function as spending using the tax code. Preston Brashers, an analyst in tax policy at The Heritage Foundation, made the case succinctly in a Jan. 24, 2022, paper, arguing that most tax credits are bad tax policy because “tax credits are usually arbitrary, with amounts, percentages, and limits set by policymakers making finger-in-the-wind judgments with little to no economic basis.” Conservatives believe that the tax code’s core purpose is to collect just enough cash to run the government, not to change behavior.

Many progressives are not happy with this tax credit for a different reason. The 45Q tax credit has not served the intended purpose of reducing emissions and has been the subject of abuse by a handful of oil and gas companies. Rachel Frazin of The Hill reported on April 30, 2020 that “the vast majority of money claimed through a clean air tax credit over the past decade were done by companies that had not been properly complying with its requirement, according to an internal government watchdog.” The news story cited a Treasury Department report that “10 entities had claimed more than $1 million each between tax years 2010 and 2019, and that their combined claims made up 99.9 percent of credits given.” The fact that this provision served as corporate welfare for wealthy energy companies and didn’t sequester the promised amount of carbon dioxide emissions is a big problem for progressives.

The solution is a simple one: transparency. After Congress set up the Paycheck Protection Program  pursuant to passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Trump administration compiled publicly searchable databases so Americans could see who was taking advantage of the program.

The database led to a number of fraud cases that NBC News characterized as the “biggest fraud in a generation.” There are estimates of hundreds of billions of dollars’ worth of fraud. A publicly searchable database was helpful in rooting out fraud in the PPP program, and it could work for the 45Q program.

At a minimum, the Treasury Department should set up under existing authority a publicly searchable database of every entity taking these tax credits so the American people can see who is getting them. Taxpayers for Common Sense submitted public comments to the Department of the Treasury on Dec. 2, 2022, where it concluded that “there is mounting evidence that CCS is not economically viable nor currently a solution to decreasing the pace and impact of climate change.”

Sunlight, in the form of a publicly searchable database, will allow the American people to come to their own conclusion as to whether the 45Q CCS tax credit should be reformed or repealed.

• Brian Darling is former counsel for Republican Sen. Rand Paul of Kentucky.