U.S. GOVERNMENT PUBLISHING OFFICE

33–797 WASHINGTON : 2019

POST TAX REFORM EVALUATION OF

RECENTLY EXPIRED TAX PROVISIONS

HEARING

BEFORE THE

SUBCOMMITTEE ON TAX POLICY

OF THE

COMMITTEE ON WAYS AND MEANS

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

SECOND SESSION

MARCH 14, 2018

Serial No. 115–TP03

Printed for the use of the Committee on Ways and Means

(


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COMMITTEE ON WAYS AND MEANS

KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas

DEVIN NUNES, California

DAVID G. REICHERT, Washington

PETER J. ROSKAM, Illinois

VERN BUCHANAN, Florida

ADRIAN SMITH, Nebraska

LYNN JENKINS, Kansas

ERIK PAULSEN, Minnesota

KENNY MARCHANT, Texas

DIANE BLACK, Tennessee

TOM REED, New York

MIKE KELLY, Pennsylvania

JIM RENACCI, Ohio

PAT MEEHAN, Pennsylvania

KRISTI NOEM, South Dakota

GEORGE HOLDING, North Carolina

JASON SMITH, Missouri

TOM RICE, South Carolina

DAVID SCHWEIKERT, Arizona

JACKIE WALORSKI, Indiana

CARLOS CURBELO, Florida

MIKE BISHOP, Michigan

DARIN LAHOOD, Illinois

RICHARD E. NEAL, Massachusetts

SANDER M. LEVIN, Michigan

JOHN LEWIS, Georgia

LLOYD DOGGETT, Texas

MIKE THOMPSON, California

JOHN B. LARSON, Connecticut

EARL BLUMENAUER, Oregon

RON KIND, Wisconsin

BILL PASCRELL, JR., New Jersey

JOSEPH CROWLEY, New York

DANNY DAVIS, Illinois

LINDA SA ́ NCHEZ, California

BRIAN HIGGINS, New York

TERRI SEWELL, Alabama

SUZAN DELBENE, Washington

JUDY CHU, California

DAVID STEWART, Staff Director

BRANDON CASEY, Minority Chief Counsel

SUBCOMMITTEE ON TAX POLICY

VERN BUCHANAN, Florida, Chairman

PETER J. ROSKAM, Illinois

DAVID G. REICHERT, Washington

JIM RENACCI, Ohio

KRISTI NOEM, South Dakota

GEORGE HOLDING, North Carolina

PAT MEEHAN, Pennsylvania

JASON SMITH, Missouri

TOM RICE, South Carolina

LLOYD DOGGETT, Texas

JOHN B. LARSON, Connecticut

LINDA SA ́ NCHEZ, California

MIKE THOMPSON, California

SUZAN DELBENE, Washington

EARL BLUMENAUER, Oregon


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C O N T E N T S

Page

Advisory of March 14, 2018 .................................................................................... 2

WITNESSES

Panel One

The Honorable Rick Lazio, Senior Vice President, Alliantgroup ......................... 7

Mr. Henry Chamberlain, President and Chief Operating Officer, Building

Owners and Managers Association International ............................................. 15

Mr. Daniel Bresette, Vice President for Policy and Research, Alliance to

Save Energy .......................................................................................................... 19

Ms. Lisa Jacobson, President, Business Council for Sustainable Energy ........... 25

Mr. Sam Paschel, Chief Executive Officer, Zero Motorcycles Inc. ....................... 31

Panel Two

Mr. Andrew West, Founder and Chief Executive Officer, American Natural

Gas, LLC ............................................................................................................... 50

Mr. Daniel Gage, President, NGVAmerica ............................................................ 54

Mr. Stuart Weidie, President and Chief Executive Officer, The Blossman

Companies ............................................................................................................ 64

Mr. Michael Dungan, Director of Sales and Marketing, RES Polyflow .............. 69

Mr. Robbie Diamond, President and Chief Executive Officer, Securing America’s Future Energy .............................................................................................. 73

Mr. Morry Markowitz, President, Fuel Cell and Hydrogen Energy Association 82

Panel Three

Mr. David Burton, Senior Fellow in Economic Policy, The Heritage Foundation ........................................................................................................................ 95

Mr. Richard Phillips, Senior Policy Analyst, Institute on Taxation and Economic Policy .......................................................................................................... 105

Ms. Ryan Alexander, President, Taxpayers for Common Sense .......................... 111

Ms. Maya MacGuineas, President, Committee for a Responsible Federal

Budget ................................................................................................................... 116

Mr. Seth Hanlon, Senior Fellow, Center for American Progress ......................... 124

Panel Four

Mr. Cal Meyer, Group Vice President and Chief Operating Officer, Ag Processing Inc. ............................................................................................................. 142

Mr. Michael McAdams, President, Advanced Biofuels Association ..................... 147

Mr. Edward Hubbard, General Counsel, Renewable Fuels Association ............. 157

Ms. Judy Petry, Chair American Short Line and Regional Railroad Association ........................................................................................................................ 163

Mr. Barry Grooms, Realtor and Co-Owner, SaraBay Real Estate Inc. ............... 174

MEMBER SUBMISSIONS FOR THE RECORD

Representative Bill Posey of Florida, statement ................................................... 204

Representative Hal Rogers of Kentucky, statement ............................................. 206

Representative Aumua Amata Coleman Radewagen of American Samoa,

statement .............................................................................................................. 207

SUBMISSIONS FOR THE RECORD

AARP, statement ..................................................................................................... 210

Air-Conditioning, Heating, and Refrigeration Institute, statement .................... 212

AltAir Fuels, statement ........................................................................................... 214


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American Biogas Council, statement ..................................................................... 217

American Council for an Energy-Efficient Economy, statement ......................... 219

The American Farm Bureau Federation, statement ............................................ 222

American Public Gas Association, statement ........................................................ 225

American Soybean Association, statement ............................................................ 229

Amp Americas, LLC, statement ............................................................................. 232

NGVAmerica, statement ......................................................................................... 234

BIOX, statement ...................................................................................................... 239

The Bond Dealers of America, statement .............................................................. 242

Coalition for Energy Efficient Jobs & Investment, statement ............................. 247

Regional Economic Models, Inc., statement .......................................................... 250

CRES Forum, statement ......................................................................................... 253

Efficiency Energy LLC, statement ......................................................................... 255

Energy Optimizers, USA, statement ...................................................................... 264

Energy Recovery Council, statement ..................................................................... 266

EtaGen, Inc., statement .......................................................................................... 271

Freedom CNG, statement ....................................................................................... 273

Washington Council Ernst & Young, statement ................................................... 275

Growth Energy, statement ...................................................................................... 279

Hexagon Lincoln, statement ................................................................................... 280

ITC Holdings Corp., statement ............................................................................... 283

Kentucky Highlands Empowerment Zone, statement .......................................... 286

Kern Oil & Refining Co., statement ....................................................................... 288

NAFA Fleet Management Association, statement ................................................ 291

National Association of Energy Service Companies, statement .......................... 294

American Council for an Energy-Efficient Economy and the National Electrical Manufacturers Association, statement ..................................................... 299

National Mining Association, statement ................................................................ 307

National Renderers Association, statement .......................................................... 309

Daniel J. Gage, NGVAmerica, statement .............................................................. 312

New England Fuel Institute, statement ................................................................ 318

Owensboro Grain Company, statement ................................................................. 325

Paper Recycling Coalition, Inc., statement ............................................................ 328

Policy and Taxation Group, statement .................................................................. 331

Pacific Gas and Electric Company, statement ...................................................... 333

Rio Valley Biofuels, statement ............................................................................... 335

Rye Development, statement .................................................................................. 339

Senture, Inc., statement .......................................................................................... 342

U.S. Green Building Council, statement ............................................................... 345

Viesel Fuel, statement ............................................................................................. 347

W2Fuel, statement .................................................................................................. 350

Work Opportunity Tax Credit Coalition, statement ............................................. 354

ChargePoint, Inc., statement .................................................................................. 363

Real Estate professionals, statement ..................................................................... 365

National Multifamily Housing Council .............................................................. 365

National Apartment Association ......................................................................... 365

National Association of Home Builders .............................................................. 365

National Association of REALTORS ................................................................ 365

National Leased Housing Association ................................................................ 365

Leading Builders of America ............................................................................... 365

The Real Estate Roundtable ............................................................................... 365

Electric Drive Transportation Association, statement .......................................... 367

World Energy, statement ........................................................................................ 369

H&V Consulting, statement .................................................................................... 372

Houff Corporation, statement ................................................................................. 375

Residential Energy Leaders, statement ................................................................. 377

Home Performance Coalition .............................................................................. 377

E4TheFuture ........................................................................................................ 377

Efficiency First ..................................................................................................... 377

The Building Performance Institute ................................................................... 377

National Hydropower Association, statement ....................................................... 381

Plug In America, statement .................................................................................... 383

Freedom Partners and Americans for Prosperity, statement .............................. 390

Sorenson Engineering, statement .......................................................................... 391

Southeast Biodiesel, statement .............................................................................. 393

Arcimoto, statement ................................................................................................ 399

Tile Roofing Institute, statement ........................................................................... 403

Center for Fiscal Equity, statement ....................................................................... 404


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Rebuild America’s Schools, statement ................................................................... 407

Biotechnology Innovation Organization, statement .............................................. 409

Global Automakers, Inc., statement ....................................................................... 413

National Electrical Manufacturers Association, statement .................................. 416

Advanced Biofuels Business Council, statement ................................................... 418

Novus Wood Group, statement ............................................................................... 427

Uncompahgre Valley Water Users Association, statement .................................. 431

Refined Coal Facilities, statement ......................................................................... 432

Arthur J. Gallagher & Co. ................................................................................... 432

Bowie Resource Partners, LLC ........................................................................... 432

CERT, LLC ........................................................................................................... 432

DTE Energy Federal Affairs ............................................................................... 432

Tinuum .................................................................................................................. 432

Advanced Emissions Solutions, Inc. ................................................................... 432

Commercial Carrier Logistics ............................................................................. 432

Concrete Plants, Inc. ............................................................................................ 432

DRA Energy Operations ...................................................................................... 432

FRM Fuels ............................................................................................................ 432

ICL–IP America, Inc. ........................................................................................... 432

LafargeHolcim North America ............................................................................ 432

Lafarge Joppa ....................................................................................................... 432

LANXESS Corp. ................................................................................................... 432

M&M Milling ........................................................................................................ 432

NextGen Refined Coal, LLC ................................................................................ 432

Orefco .................................................................................................................... 432

Pugmill Systems, Inc. .......................................................................................... 432

River Trading ....................................................................................................... 432

SCANA Corp. ........................................................................................................ 432

Transwood Logistics ............................................................................................. 432

Weir International, Inc. ....................................................................................... 432


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(1)

POST TAX REFORM EVALUATION OF

RECENTLY EXPIRED TAX PROVISIONS

WEDNESDAY, MARCH 14, 2018

U.S. HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON TAX POLICY,

Washington, DC.

The Subcommittee met, pursuant to notice, at 10:02 a.m., in

Room 1100, Longworth House Office Building, the Honorable Vern

Buchanan [Chairman of the Subcommittee] presiding.

[The advisory announcing the hearing follows:]


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Chairman BUCHANAN. The Subcommittee will come to order.

Welcome to the Ways and Means Subcommittee on Tax Policy

hearing on Post Tax Evaluation of Recently Expired Tax Provisions.

Before we get started, I would like to yield to the chairman of

the Ways and Means Committee, Kevin Brady, for the purposes of

an opening statement. Mr. Chairman?

Chairman BRADY. Thank you, Chairman Buchanan, for holding

this important hearing and for your leadership of the Tax Policy

Subcommittee. And thank you to all the witnesses for being here

as well.

We are here today to begin charting a new path forward on temporary tax provisions. Washington may call them tax extenders.

For too many years before our historic tax reform, the approach to

handling these provisions has centered around what works for

Washington, not what works for the American people.

In many cases, these tax extenders were a symptom of a much

larger problem, our Nation’s outdated and uncompetitive Tax Code.

High tax rates often drove both the supply and the demand of

these short-term provisions. So rather than allowing the families of

our job creators to keep more of their income up front and Washington forced to rely on these credits, these exclusions and examples for short-lived relief, meanwhile the real problem is our Nation’s broken Tax Code went unaddressed and grew worse.

That is no longer the case. Today we have a new Tax Code that

is modern, competitive, and built for growth. We have lower tax

rates for Americans of all income levels and businesses of all sizes.

We have taken unprecedented action to encourage and reward investment throughout our economy, not just for a few industries but

for all. We delivered one of the most competitive tax systems in the

world, leveling the playing field for our businesses and workers

across the globe and, more importantly, here at home.

So the question now is: With all the outstanding features of our

new Tax Code, do we need to keep temporary provisions that are

a relic of the old, broken system? That is the question we are going

to begin answering today as we move ahead with the new forwardlooking approach on tax extenders that aligns with the principles

and priorities of America’s new pro-growth Tax Code.

So starting right now, we are going to apply a rigorous test to

these temporary provisions. We are going to take a close look at

each of them, asking ourselves and our witnesses, are these provisions truly needed in the modern Tax Code? Do they amplify and

complement the growth and competitiveness provided by our new

tax system? And if the answer is yes, what other tax provisions are

stakeholders willing to give up to make the extenders a permanent

or a long-term part of our Tax Code?

We built a new Tax Code for the long-term. Temporary measures

are rarely good tax policies. Those that do not pass these tests

should be eliminated so we can continue our ongoing work to improve America’s Tax Code, making it even more pro-growth and

even simpler.

This is Congress’ opportunity to end business as usual with these

tax extenders and find the way forward for permanence and longterm status for those that remain. I challenge Committee Members


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on both sides of the aisle to view these with fresh eyes. Let’s work

together to continue to craft the fairest and most competitive Tax

Code in the world.

Once again I thank you, Chairman Buchanan, for calling this important hearing today, and I look forward to working together with

all of you to continue our work of delivering a fair, simpler Tax

Code. With that, I yield back.

Chairman BUCHANAN. Thank you, Mr. Chairman. Last year

Congress enacted the most comprehensive and sweeping rewrite of

the tax laws in over three decades. For our modern, pro-growth Tax

Code now in place, we need to turn our focus to maintaining it and

making further refinements and enhancements.

We do not want to wait another 30 years for the next tax reform.

Instead, our ongoing focus will be on continuing to make improvements to the Tax Code to promote growth, promote fairness and

simplicity for all taxpayers.

Today we take an important step in that process by beginning to

evaluate the set of provisions which have been renewed so frequently that they are most often called tax extenders. Contrary to

our focus in tax reform on providing broad tax benefits for all taxpayers, like rate reduction, full expensing, many of these expired

provisions are targeted very narrowly to encourage certain activity

for certain industries.

Following our historic reforms, it should not be business as usual

with respect to tax extenders. Now is the time to examine each one

of these provisions one by one to determine whether now they fit

into the next Tax Code. That means taking a hard look at whether

each provision provides value to the American taxpayer.

For each provision, we will ask what role does this provision play

in the new Tax Code? If it is no longer needed because of the reforms that have been enacted, the provision should be eliminated.

If the provision continues to play an important role in enhanced

pro-growth tax reform, we should consider making it permanent.

And in that case, we will ask those who benefit from the provision

to consider what other tax benefits they would be willing to forgo

in favor of having this provision made a permanent part of the Tax

Code.

To that end, we open the door on the Subcommittee on Tax Policy to all stakeholders or groups interested in testifying on these

provisions that were in effect through 2017 and are now expired.

Over 20 individuals and groups have taken us up on the offer. We

are now looking forward to hearing from four panels of witnesses

testifying today about this provision and their roles in the new Tax

Code in order to help us answer the key question I have laid out.

Without further ado, let’s get to it. I now yield to the distinguished Ranking Member, Mr. Doggett, for the purposes of an

opening statement.

Mr. DOGGETT. Thank you very much, and I look forward to

working with you on getting a rigorous review of all of these provisions. This is a rather unusual hearing. Indeed, I suppose any

hearing on taxes in this Committee is unusual since we went

through a period over the last year plus where it was deemed easier to pass bills without public hearings than with them, and to

minimize public participation, including the participation of those


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who are affected most directly by various tax provisions and, of

course, to never hold the Administration accountable by having any

of its officials come and testify about their position on these measures.

As Mr. Brady alluded to in his opening remarks, he actually told

us that the enactment of the Republican tax law would make extenders unnecessary. He said he would be ‘‘ensuring that we will

no longer have to spend months each year debating temporary tax

extensions.’’

Of course, in prior years we have not really spent months debating them; often, they have been included with must-pass legislation

at the end of the year, really questioning whether they provided

very much incentive, and certainly without very much oversight.

In 2009 I was successful in getting provisions added to the extender bill that year requiring careful cost/benefit analysis of each

extender. It never was implemented in fact.

Today’s hearing really seems to be focusing mainly on the leftovers and the left outs, what was not deemed of sufficient value to

include in the new tax law. We know that while we have the kind

of open hearing process that should have been the process used

during consideration of the tax law, that if we extended all 26 provisions that are the subject of the hearing, the cost over a decade

would be a little over $90 billion dollars. While that is nothing to

ignore, it pales in comparison with the more than $2 trillion involved in the original tax law adopted without specific hearings.

I hope that what we will see out of this hearing and the resulting

process is that we either include tax provisions in permanent law

or we eliminate them. The idea of leaving people, year to year, not

only questioning whether they are extended but suspended is really

not fair. And it also reduces any incentive value that any of these

provisions may have. Certainly there is little incentive associated

with retroactively applying a tax extender.

I am particularly interested in hearing this afternoon from a

number of witnesses in Panel 3. I am interested in hearing all the

witnesses, but in Panel 3, it will focus on the broader impact of

these provisions and how they tie in with the tax law we have already passed.

I think some are obvious for elimination, such as the racehorse

provision. Some present closer questions. Indeed, there is the energy panel we are about to hear from. What a contrast between the

way tax breaks were handled for fossil fuels, none of which were

touched one of which was actually expanded so that multinational

oil companies would pay even less tax on income they earn abroad

than other multinationals.

But it has been many of the renewable energy provisions that

have been left with uncertainty. If these merit inclusion or extension—if they merit extension, they merit inclusion on a permanent

basis in the Tax Code.

So I look forward to working with you, Mr. Chairman, as we

evaluate all of these provisions, consider their overall impact, and

I hope that this hearing will not be the last in looking at the implications of tax policy for our economy and the impact of what in fact

happened as a result of last year’s legislation. Thank you very

much.


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Chairman BUCHANAN. Thank you, Mr. Doggett.

Now it is my pleasure to welcome our first panel of the day. Our

first panel is focused on expired tax incentives pertaining to energy

efficiency.

First we will hear from the Honorable Rick Lazio, senior vice

president of Alliantgroup. Mr. Lazio served in Congress 1993 to

2000. Welcome back.

Mr. LAZIO. Thank you, Mr. Chairman.

Chairman BUCHANAN. We are delighted to have him appearing

before us today.

Secondly we will hear from Henry Chamberlain, president and

chief operating officer of the Building Owners and Managers Association International.

Thirdly we will hear from Daniel Bresette, vice president for policy and research at Alliance to Save Energy.

Fourthly we will hear from Lisa Jacobson, president of the Business Council for Sustainable Energy.

Finally, we welcome Sam Paschel, Chief Executive Officer of Zero

Motorcycles, Inc.

Thank you again for being here today and taking the time. The

Committee has received each of your written statements and they

will be made part of the formal hearing reported. Each of you will

be recognized for three minutes for all remarks.

Mr. Lazio, you are recognized for three minutes.

STATEMENT OF THE HONORABLE RICK LAZIO, SENIOR VICE

PRESIDENT, ALLIANTGROUP

Mr. LAZIO. Thank you, Mr. Chairman. I want to thank you and

Ranking Member Doggett. Good to see so many old friends and colleagues. And I also recognize Mr. Brady, who was here earlier.

I am going to try to get right to the point here. The provision

that I address today encourages the building of energy-efficient

commercial and government buildings. It is referenced in Section

179D of the Tax Code.

I would like to recognize the strong support of Congressman

Reed of the Committee and Congressman Reichert, as well as Congressman Blumenauer; and on the Senate side, Senators Cardin

and Portman have been doing yeoman’s work on this area of legislation.

According to the Department of Energy, about 36 percent of all

electricity—that is $4 out of every $10, just about, in this country—

and one-fifth of all energy is consumed by commercial buildings.

The cost of electricity is a significant and a growing burden on both

businesses and government, also known as the taxpayer, with taxpayers now shouldering about $10 billion a year for state and local

government energy usage. That is the operating costs that are built

in as a result of, in many cases, excess energy usage.

In short, encouraging energy-efficient buildings significantly supports the policy goals of energy independence while at the same

time reducing costs for both businesses and for taxpayers.

Mr. Chairman, I speak to you today as the senior vice president

of Alliantgroup. This is a national tax services firm that helps businesses qualify for 179D. I am sharing my perspective on behalf of


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the company, which has a national perspective, working with thousands of companies across the Nation. In fact, many entities speaking today as members of the 179D Coalition, of which Alliantgroup

is a proud member.

My answer to those ask, fairly, why do we need a tax break to

encourage the building of energy-efficient buildings, is the following

four things.

One, the benefits from energy efficiency have a long horizon.

They are often not captured in making decisions about costs and

funding for buildings, and rarely are they part of underwriting, or

fairly reflected in underwriting, in terms of financing.

Secondly, a recognition that energy-efficient design leads to

greater energy independence.

Thirdly, our need to continue to encourage energy-efficient design

and maintain our leadership in this field.

And fourthly, this incentive helps provide and encourage designers, whether it is architects, engineers, or other contractors, to

spend time, unbillable time, to develop cutting-edge technologies

that lead to lower operating costs, ultimately leading to savings for

taxpayers.

There are five specific points I would like to encourage the Committee to consider based on Alliantgroup’s years of experience with

the incentive. These are recommendations for the Committee.

Number one, raise the benchmark ASHRAE standard every time,

on a regular basis. Make it a reoccurring upgrade of that standard.

Push designers to continue to innovative, to do better, and to do

more. My company, Alliantgroup, worked with Congress in 2015

when we did the PATH Act to upgrade it. It needs to continue to

be upgraded.

Quickly, if I can move through this, in small businesses

Chairman BUCHANAN. We are going to have to hold to three

minutes because we have got 20 some witnesses today.

Mr. LAZIO. Sure, Mr. Chairman.

Chairman BUCHANAN. So if you could just wrap up in five seconds or so, if there is anything——

Mr. LAZIO. Sure, sure. The other recommendations that I have

I am going to submit for the record, Mr. Chairman. There are

things I think we can positively do to improve this provision. It

saves taxpayers money. It makes the country more competitive.

And I believe that it is worthy of the Committee’s support.

Chairman BUCHANAN. Thank you, Mr. Lazio.

[The prepared statement of Mr. Lazio follows:]


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Chairman BUCHANAN. Mr. Chamberlain, you are recognized.

STATEMENT OF HENRY CHAMBERLAIN, PRESIDENT AND

CHIEF OPERATING OFFICER, BUILDING OWNERS AND MANAGERS ASSOCIATION INTERNATIONAL

Mr. CHAMBERLAIN. Yes. Chairman Buchanan, Ranking Member Doggett, and Members of the Committee, I would like to thank

you for this opportunity to testify today on the importance of extending and ultimately making permanent the commercial building

energy-efficient tax deduction, commonly referred to as 179D.

I am speaking today on behalf of the Building Owners and Managers Association International, where I serve as president and

chief operating officer. BOMA International is a federation of 88

U.S. local associations and 18 international affiliates. We represent

the owners and managers of all commercial property types.

BOMA is a long-term supporter of 179D, and we have been actively working with Members of Congress to extend this incentive

since its original enactment in 2005. 179D offers building owners

a deduction of up to $1.80 a square foot for energy-efficient improvements made to certain building systems. Buildings must be

independently certified to receive this deduction.

By providing a financial incentive, the tax deduction helps real

estate owners who might not otherwise have the necessary capital

to make the decision to design, retrofit, and operate energy-efficient

structures. These upgrades are particularly necessarily for older

building stock.

179D promotes private sector solutions to improve energy efficiency and modernize the built environment. We continue to applaud these efforts, but more can be done. Currently, 179D is the

only federal tax incentive for office and industrial buildings to enhance their energy efficiency.

A recent study commissioned by BOMA, along with other members of the coalition, to extend and improve the 179D tax deduction

highlights the costs and benefits of extending and modernizing the

incentive. The study estimates that as many as 77,000 jobs will be

created and $7.4 billion will be added annually to the national GDP

with a long-term extension.

The biggest barrier for our members in utilizing this incentive is

the historical short-term nature of its extension. The recent shortterm or retroactive extensions do not account for real estate’s planning horizons, which are generally three to five years for a capital

investment. Even when the deduction was extended for five years

between 2009 and 2013 by the Emergency Economic Stabilization

Act of 2008, the recession made these investments very difficult,

and by the time the industry found itself on a stronger financial

footing, the incentive was set to expire again.

BOMA’s members are committed to making sound energy efficiency investments that not only make business sense but also help

improve sustainability efforts. 179D has the potential to do just

that. We believe that 179D will be fully utilized if the incentive is

made permanent and coupled with moderate reforms that would

increase the incentive amount. This will result in more energy-efficient commercial properties across the country.


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Thank you for this opportunity to testify.

Chairman BUCHANAN. Thank you, Mr. Chamberlain

[The prepared statement of Mr. Chamberlain follows:]


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Chairman BUCHANAN. Mr. Bresette, you are recognized for

three minutes.

STATEMENT OF DANIEL BRESETTE, VICE PRESIDENT FOR

POLICY AND RESEARCH, ALLIANCE TO SAVE ENERGY

Mr. BRESETTE. Thank you, Mr. Chairman, Ranking Member

Doggett, and Members of the subcommittee.

The Alliance to Save Energy is a nonprofit, bipartisan coalition

of business, government, environmental, and consumer interest

leaders that advocates for policies that grow the economy while reducing energy consumption. The Alliance enjoys the support of

more than 120 businesses and organizations, as well as 15 Members of Congress who serve as honorary advisors, including Representative Reichert.

Today the United States realizes twice as much GDP per unit of

energy consumed when compared to 1980. That is tremendous

progress, and tax incentives aligned with critical energy efficiency

policies have played an important part in getting us there.

But now is not the time to stop. The United States still fails to

capture about two-thirds of the energy we produce, which means

more waste and higher costs for homeowners and businesses. Three

tax incentives that help reduce that waste and lower energy costs

have expired. The Alliance supports immediate, forward-looking extensions of these incentives, that were extended through the end of

last year.

Section 25C the non-business energy property credit for existing

homes, provides an incentive for homeowners to choose more energy-efficient products. The Energy Department has estimated that

if this credit were extended for 10 years, household energy bills

would be reduced by more than $13 billion.

Section 45L, the energy efficient home credit, provides an incentive to home builders to construct more energy-efficient homes.

Home buyers realize savings from lower energy bills that pay off

in just a few years. This tax credit has had a marked transformational effect. When it was enacted, less than 1 percent of new

homes qualified, but now that proportion is about 10 percent.

Section 179D, the commercial building tax deduction, provides an

incentive for energy efficiency improvements in commercial multifamily buildings. One recent analysis estimates that renewing

179D with certain modifications would create up to 77,000 jobs and

contribute over $7 billion to U.S. GDP.

In the longer term, the alliance urges Congress to consider improvements to the provisions to drive investment and deliver even

greater savings. In principle, the alliance supports the enactment

of improved tax incentives that are simple and straightforward to

understand and access, strong enough to drive investments and affect behavior, minimize free ridership, and are reasonable in terms

of cost when compared to the potential for savings.

Two bills are representative of modifications that would deliver

even greater energy cost savings to homeowners and businesses.

H.R. 3507, introduced by Representative Reichert, proposes to permanently extend 179D, and require the Treasury Department to

issue regulations to encourage greater use by governmental and

nonprofit entities.


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And S. 1068, the Clean Energy for America Act, introduced by

Senator Ron Wyden, would go further and address new and existing homes as well. It also proposes an alternative performancebased approach to encourage deeper retrofits and greater savings.

Other modifications beyond those proposed in these two bills

might also be necessary. The alliance standards ready to support

the Subcommittee in its efforts to move energy efficiency tax incentives forward.

Thank you for your consideration. I would be glad to answer any

questions today or later for the record.

Chairman BUCHANAN. Thank you, Mr. Bresette.

[The prepared statement of Mr. Bresette follows:]


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Chairman BUCHANAN. Ms. Jacobson, you are recognized for

three minutes.

STATEMENT OF LISA JACOBSON, PRESIDENT, BUSINESS

COUNCIL FOR SUSTAINABLE ENERGY

Ms. JACOBSON. Thank you very much, Mr. Chairman, Ranking

Member, and Members of the Committee.

The Business Council for Sustainable Energy is a coalition of

companies and trade associations representing the energy efficiency, natural gas, and renewable energy sectors. On behalf of the

council, I would like to express our appreciation for the steps Congress has taken to enact the Tax Cuts and Jobs Act, the Bipartisan

Budget Act of 2018. Of note, the Bipartisan Budget Act included

the extension of a number of clean energy tax measures that the

coalition has long supported. We thank you victim.

And while these actions have been very positive for many of our

industry members, I need to highlight that there are still some

technologies from industry sectors that are now at an even larger

competitive disadvantage. Tax incentives in the energy sector

should be structured such that the benefits are provided to all

qualifying technologies in accordance with their energy, environmental, and other public benefits.

Additionally, it is important that tax policies are established over

a sufficient duration to provide investors with the confidence they

need to proceed with major investments. The recent market dynamism in the U.S. energy sector is partly credited to tax policy

frameworks that have benefitted some, but not all, clean energy

technologies.

Importantly, the Bipartisan Budget Act provided a long-term extension for the non-solar investment tax credit technologies, which

include fuel cells, combined heat and power, small wind, and geothermal. The council commends the Committee for this action.

However, other technologies have not benefitted from the same

long-term tax policies. In the renewable energy sector, these technologies include biomass, geothermal, landfill gas, waste-to-energy,

hydropower marine, and hydrokinetic. While these technologies

provide valuable renewable energy 24/7, they also take longer to

reach construction. Consequently, these non-wind PTC Section 45

technologies cannot take advantage of the tax credits that are only

extended for a few weeks or a year at a time. This uncertainty has

created adverse market conditions.

It is more difficult for projects of expired technologies to secure

financing because banks value the security of investing in projects

with a long-term tax credit. It also can be difficult for new and existing projects of expired technologies to secure power purchase

agreements. This is because the extended technologies can offer

better value. Represent Stefanik has introduced H.R. 4137, the Renewable Electricity Tax Credit Equalization Act, which would address this inequity.

I am pleased to associate myself and the coalition with the Alliance to Save Energy’s remarks on energy efficiency. We strongly

support modifications and extension to 179D, 25C, 45L. In the

transportation sector, 30B fuel cell elect vehicle credit and 30C, alVerDate Sep 11 2014 07:08 Mar 19, 2019 Jkt 033797 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33797\33797.XXX 33797

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ternative fuel vehicle infrastructure credit, should also be considered.

And then finally, energy storage should receive consideration.

The Energy Storage Incentive and Deployment Act, H.R. 4649,

should be consider by this Committee.

Thank you very much.

Chairman BUCHANAN. Thank you.

[The prepared statement of Ms. Jacobson follows:]


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Chairman BUCHANAN. Mr. Paschel, you are recognized for

three minutes.

STATEMENT OF SAM PASCHEL, CHIEF EXECUTIVE OFFICER,

ZERO MOTORCYCLES INC.

Mr. PASCHEL. Distinguished Members of the Committee, thank

you for the opportunity to testify today. I am here to ask you to

extend the Section 30D provisions for consumer tax credits for twoand three wheel plug-in vehicles. My name is Sam Paschel and I

am the Chief Executive Officer of Zero Motorcycles.

In the past 11 years, we have grown from a garage startup to

the largest manufacturer of performance two-wheel plug-in vehicles

in the United States and an internationally respected brand. We

manufacture and assemble all of our motorcycles in our offices in

Santa Cruz, California, where we employ 150 people directly, and

rely on more than 70 domestic suppliers in 25 States across the

United States.

I am also testifying on behalf of a coalition of manufacturers in

our industry. Arcimoto is a member of our coalition, and following

their NASDAQ listing this last August, this startup three-wheel

manufacturer built a new facility creating a variety of new jobs to

fill their 2,000-unit back order.

In addition, Zero’s approximately 100 dealers have businesses in

districts that overlap with nearly every Member of this Subcommittee, including Hap’s Cycles in Congressman Buchanan’s

District and AAT Power Sports in Congressman Brady’s district.

I would like to convey four key points regarding this tax credit.

Number one, the credit gets us and U.S. consumers over a key

hurdle. Consumers are consistently measuring the balance of performance and price, and over the past eight years we have dramatically increased all of the performance metrics of the vehicle while

holding the price relatively constant. The price-value gap between

plug-in and internal combustion is the final hurdle, and this credit

helps us and American consumers to clear it.

Number two, this is a critical time. The success of Tesla in the

four-wheel space has brought visibility, but sales in the two and

three wheel industry space have been slower. At the same time, we

are seeing an expansion of entrance from countries with significant

subsidies for plug-in vehicles in the EU and China and India.

In the next few years will be when the market dynamics will solidify, and international leaders in this specific industry will

emerge. Because of the timing, this credit will not only create new

jobs, it can set the foundations for a new American industry.

And number three, we are not a powerful or well-connected special interest. We are just a coalition of small American businesses.

Because we are subscale and have not yet reached profitability, we

are unfortunately not able to benefit from the recently passed and

incredibly beneficial corporate tax cuts that are driving most American businesses forward.

And four, it is an incredibly efficient spend. The fact that we are

small businesses and we currently have small volumes means that

the cost to the government and the taxpayers remains small, while

the impact on thousands of American jobs in an emerging American industry can be massive.


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For us, the clock is ticking. Our peak season is around the corner, and because of this, we respectfully urge you to act quickly to

extend this within your deliberations. I can tell you firsthand you

have an opportunity here to do something that will change the

lives of the Americans that are trying to build the next generation

of two- and three-wheel vehicles that are built here in the United

States, Republicans and Democrats who devote themselves every

day to the hard work of building a business and building the foundations of a new American industry.

We would truly appreciate your support. Thank you.

[The prepared statement of Mr. Paschel follows:]


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Chairman BUCHANAN. I want to thank all of you for your testimony. We will now proceed to a question-and-answer session. Due

to the high volume of witnesses today at this hearing, we have

agreed that each Member will have three minutes to question the

witness on each panel. I will defer my question to the end of the

question period.

I now recognize Mr. Roskam. You may proceed.

Mr. ROSKAM. Thank you, Mr. Chairman.

Ms. Jacobson, I appreciated your kind words about the clean energy initiatives in the Tax Cuts and Jobs Act and the Bipartisan

Budget Act. I wanted to pick up something that you mentioned at

the very end of your oral remarks, and those were about the wasteto-energy credits.

So I represent a constituency in suburban Chicago. There is a

company called Graphic Packaging that does a great job in terms

of recycling, and everybody knows intuitively that incentivizing recycling is a good thing. There is no argument about that. And they

employ 300 people.

Here is an observation about what has been happening, though,

in that there could be some elements of the—if left unattended,

Section 45 can create an incentive that instead of recycling being

diverted, recyclables being diverted to recycling facilities, recycling

can be mixed in with garbage and then burned and so forth, which

there is nobody with a straight face—you, me, nobody—is interested in seeing that.

Can you speak to how it is that we can be wise about this to

make sure that recycling is being set aside for a recycling stream

and not inadvertently being burned for energy?

Ms. JACOBSON. Well, first of all, thank you very much for the

question. I mean, I think the tax issues related to waste-to-energy

I am going to answer just very briefly separately.

But the first part, I have had the pleasure to work with this industry for a good number of years. I can only share my assessment

and what I have heard from the industry. But I know for a number

of the companies we work with, they have very strong data to show

that in waste-to-energy facilities, they do very well with regard to

percentages of recycling; in fact, improved percentages in areas

where they do not have waste-to-energy facilities. I am happy to

get you data on that.

Mr. ROSKAM. Great.

Ms. JACOBSON. The Energy Recovery Council is an excellent

resource. They are one of our members, and they represent the industry.

I think in terms of the tax issues to waste-to-energy and the

other 45 technologies, as I mentioned, the way the tax credit has

been structured does not fit their business cycle. For waste-to-energy, many of them are owned by municipal organizations.

I mean, these are basically local governments, and they operate

on a very different timeline than these credits have been in place.

So we need a long-term extension so local governments can really

do what their communities want. And with regard to waste-to-energy facilities, right now that has not been on the table because we

have not had a workable credit.


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So we certainly hope for all the 45 technologies that the Committee will consider a long-term extension that is mindful of their

business cycle. So thank you very much for the question, and

again, I am happy to follow up with more specific information from

the Energy Recovery Council, and for others.

Mr. ROSKAM. Okay. That is great. Thank you for your insight.

I yield back.

Chairman BUCHANAN. Thank you, Mr. Roskam.

I now recognize the distinguished Ranking Member, Mr. Doggett,

for a question he might have.

Mr. DOGGETT. Thank you very much.

Mr. Chamberlain, you described some improvements that you

would like to see in 179D. The estimate we have is that simply renewing it in its current form would cost about $69 million for last

year. Are the improvements that you are seeking going to increase

the cost of the credit, of the provision, or will it be the same? And

if so, about how much more will it cost to do your version?

Mr. CHAMBERLAIN. Thank you for the question. Number one,

what we would like to see is the—we would like it to be permanent. We think that 179D should be made permanent so we can

plan with our business cycles and all the rest.

The $1.80 is a lower level than we think is the threshold to get

these projects really going, so we would ask for it to be increased

to $3 a foot going forward, and that is part of a permanency.

We would also like to see, if possible, that it be made a transferable tax credit so all the businesses can use it, including the

REITs. I do not have the specific financial impact on that, but

those would be the three things that we would like to see addressed.

Mr. DOGGETT. Can you get us that impact?

Mr. CHAMBERLAIN. We can certainly get data for you.

Mr. DOGGETT. And I believe both you and Mr. Lazio tied this

to the standards of the American Society of Heating, Refrigeration,

and Air Conditioning, that the goal here is to continue to up the

standard over time. Do you both believe that it is important if this

provision is continued in permanent law, that that be part of it?

Mr. LAZIO. I would say, Congressman, absolutely, that we want

to challenge designers to push themselves to continue to improve

these designs and improve the efficiency of these buildings and

lower operating costs.

Originally the bill had a 2001 ASHRAE standard. Then it was

revised to 2007 in the PATH Act. And we believe not only should

it be upgraded and revised regularly, but there ought to be something in the legislation that continually upgrades and raises the

bar in terms of energy efficiency, which would raise efficiency level,

lower costs for governments, and that of course gets passed

through to the taxpayer. So it ultimately saves taxpayers’ dollars.

Mr. DOGGETT. I do not see that in the legislation that you endorsed, any steady increase in the standard. But you believe it

should be part of anything that we approve?

Mr. LAZIO. Yes, Congressman. It is in my submitted testimony,

my written testimony.

Mr. DOGGETT. Yes.

Mr. LAZIO. And I would be happy to expand on that.


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Mr. DOGGETT. I have a number of businesses, perhaps members of your association, in San Antonio and Austin that are part

of a group called 2030 that is seeking to achieve zero carbon emissions by 2030. Should that be a consideration in this credit?

Mr. CHAMBERLAIN. I think energy efficiency should absolutely

be a consideration, and we should be setting goals, such as carbonneutral, if we can and all the rest. But I think we need to realize

that those are goals, and for an existing building stock, back to

ASHRAE 90.1, it is already difficult to achieve that for existing

buildings.

When you go from 2001 to 2007, the efficiency went up 15 percent. So when you look at the deductions, the partial deductions,

of the 60 cents a foot that is in the current 179D provision, people

target that on lighting and some of the other things, and there is

value in that.

But I think we should realize that for an existing building,

ASHRAE is a good benchmark, but it is already difficult to achieve

in a lot of buildings.

Mr. DOGGETT. So do you support including the goal of going—

is it from 2001 to 2007 standard?

Mr. CHAMBERLAIN. I think ASHRAE is a good benchmark for

us to use as a target. We just realize that it is difficult for many

buildings to achieve that, and the partial deductions we think are

important as part of that, once again.

Mr. DOGGETT. As you both get us some cost figures on what additional costs there would be, it would be useful to know exactly

what increased standards you think would be most appropriate.

Mr. DOGGETT. Thank you.

Mr. LAZIO. Thank you.

Mr. DOGGETT. Thanks to all of you for your testimony.

Chairman BUCHANAN. Mr. Reichert, you are recognized.

Mr. REICHERT. Thank you, Mr. Chairman. Thank you all for

being here today.

Section 179 has put money back into the hands of businesses to

reinvest in the economy by providing a deduction to offset the cost

of energy-efficient improvements to commercial and multi-family

residential buildings. It has also helped building owners realize

substantial savings on energy costs and created incentives for the

research and development of new energy efficiency technologies.

Mr. Bresette, can you discuss how 179 fits into the new Tax

Code, please?

Mr. BRESETTE. Could you say the last few words again?

Mr. REICHERT. Could you discuss how Section 179 fits into the

new Tax Code?

Mr. BRESETTE. Oh, sure. So most of what we have talked about

today involves Section 179D. But Section 179 also had some expensing. The tax bill changed the way some pieces of equipment

can be expensed, and what that does is it encourages replacements

of pieces of equipment rather than just keeping older, less efficient

equipment in place by using repairs.

Generally speaking, over time pieces of equipment become more

efficient because of the Department of Energy’s appliance and

equipment standards program. So equipment that is being installed


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today will be more efficient, almost by default, when compared to

previous equipment.

Mr. REICHERT. Could you just expand a little bit on the figures

that you gave? 77,000 jobs, and the increase in GDP and how that

Mr. BRESETTE. Yes.

Mr. REICHERT. How does that happen?

Mr. BRESETTE. Sure.

Mr. REICHERT. It is obvious, but I would like to get it on

record.

Mr. REICHERT. Sure. My written testimony, in footnote number

4, includes the full citation to that analysis.

The analysis was performed by the Regional Economic Models,

Incorporated, and it was published last May. The premise of those

savings, REMI produced sort of three scenarios, 179D sort of, as it

currently standards, and then 179D with certain modifications, including some of those that are part of H.R. 3507.

The increase in GDP and the increase in jobs, I think, is tied to

the increased economic activity around retrofitting buildings. 179D

is a very powerful incentive. And so to the extent that you are providing—that you are doing more of these commercial retrofits, you

are building sort of to higher standards, which was just discussed

with ASHRAE reference.

You are doing more energy efficiency, and more energy efficiency

is more jobs because those are jobs that are generally local. They

cannot be outsourced quite as much. And the energy efficiency sector is really quite diverse. My written testimony also includes district-by-district energy efficiency jobs for each of the Members of

the Subcommittee today.

Mr. REICHERT. Great. Thank you for your answer. I yield back.

Chairman BUCHANAN. Mr. Larson, you are recognized.

Mr. LARSON. Thank you. Thank you, Mr. Chairman, and thank

you for this hearing as well. I think this is a great opportunity to

hear from so many impacted industries. But as Mr. Doggett was

saying at the outset, I think it is the cart before the horse, so to

speak.

We have already passed the bill, unfortunately. And I think any

time we do things in haste without public hearings and without the

kind of testimony that is required. And whether it is the Affordable

Care Act, which I would argue we had a great deal of testimony

on, or whether it is our most recent tax bill, it leaves an awful lot

of unanswered questions.

And so then we call a panel before us and ask you to decide

whether or not credits should remain permanent or whether or not

the tax relief that you received was bountiful enough so that you

can get along on your own.

And so I would just go down the panel, and I will start with a

former colleague, Mr. Lazio, to ask if he thinks that we need to

consider extending more tax credits, or has this tax bill been sufficient in and of itself to deal with that?

Mr. LAZIO. Thank you, Congressman. Well, I guess the reason

I am here is to say yes, there are some needs to extend these temporary provisions and to provide, if possible, some permanency or

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the longer horizon, which I think was one of the guiding philosophies of the tax bill signed into law.

In this case, these provisions would not

Mr. LARSON. Well, especially with energy, the longer horizon

view and the inconsistency with how we award or punish people,

I think, needs to be always reviewed with regard to the long horizon.

Mr. Chamberlain, what would you add to that?

Mr. CHAMBERLAIN. We started this effort back in 2006. We

are looking at energy independence. We are also looking at good

business. I think it is—if you make it——

Mr. LARSON. Are we any closer to energy independence?

Mr. CHAMBERLAIN. No. But the energy efficiency goals—we

talk about ASHRAE 90.1 and the rest. It is important for us to

keep pushing energy efficiency as part of this space.

Mr. LARSON. Why if their permanency important?

Mr. CHAMBERLAIN. Businesses need to plan on certainty. They

are going to go three to five years and longer. This allows us to

bridge the gap between short-term investments around energy efficiency and then the owner’s goals, which can be longer term.

Mr. LARSON. So as Mr. Doggett pointed out earlier, do you feel

left out or left over?

Mr. CHAMBERLAIN. We feel left out. We would like to see this

made permanent, and we would like to see it improved a little bit

so that people can really leverage it up and take advantage.

Mr. LARSON. Well, so would we. And I see my time is expired.

But Mr. Bresette?

Mr. BRESETTE. Sure. I will add two points. One, the Federal

Government already implements a number of federal energy efficiency policies, including codes and standards. And it is helpful to

have incentives in the Tax Code that are complimentary to those,

encouraging more efficient products and equipment to be installed,

encouraging more efficient buildings to be built.

The other thing that I will add is energy efficiency generally supports affordably, resilience, and reliability across the energy sector.

And I think those are important attributes as well.

Mr. LARSON. Thank you. Thank you, Mr. Chairman.

Chairman BUCHANAN. Mr. Rice, you are recognized.

Mr. RICE. Mr. Lazio, the particular improvements that you are

talking about under 179D, it deals with heating and air conditioning units, water heaters, that type of thing, right? And lighting,

that type of thing?

Mr. LAZIO. Correct, Congressman.

Mr. RICE. And it encourages what? Less energy use?

Mr. LAZIO. Less energy use. It is the building envelope, so it

could be the coating on the windows. It could be a different technology affecting, as you said, heating, air conditioning, the HVAC

units. So it could be the skin, the air conditioning, or it could be

the lighting. It could be more efficient lighting.

And any of those—and a designer who is involved in providing

specifications for those particular improvements. And it could be a

new building or a retrofit. As my colleagues were saying, a lot of

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rent ASHRAE standard or the benchmark in order to get the full

benefit of the $1.80 per square foot.

Mr. RICE. So—and this is not a credit? It is a deduction?

Mr. LAZIO. It is a deduction. Correct.

Mr. RICE. And might these same things be deductible under

some other Section of the code?

Mr. LAZIO. Well, they could potentially be, with a longer horizon. But it is—the designer in this case, when we are talking about

public buildings, yes, for commercial buildings the owner can do it.

In the case of Section 4 of 179D, which deals only with allowing

designers who improve public buildings—of course, public buildings, there is no tax basis and there is no tax paid, so there is no

value to the deduction of the credit. And so the law allows them

to allocate that to the designer to incentivize them to improve their

techniques in this space.

Mr. RICE. And have—Mr. Chamberlain? Is that what—I cannot

read your nametag.

Mr. CHAMBERLAIN. Yes, Congressman.

Mr. RICE. Have you looked at the cost-benefit analysis of these?

Ignoring the credit, these various high standard improvements, do

they pay for themselves?

Mr. CHAMBERLAIN. They absolutely do over time. What we are

trying to bridge is the short-term return that people are looking for

with the actual long-term return on the investments in a lighting

system or something else. This allows us to get that capital invested.

Mr. RICE. But with reduced energy cost——

Mr. CHAMBERLAIN. Yes.

Mr. RICE [continuing]. Ignoring the credit, they pay for themselves?

Mr. CHAMBERLAIN. Over time. What we are trying to do is

bridge the gap between a short-term return on investment that

gets an owner to invest in that property and a longer term horizon

on the return on that investment.

Mr. RICE. So governments are generally going to build energy efficiency buildings anyway. Private +investors, if they get a return

on it, they are going to invest in it anyway. Really, what we need

to do with these preferences in the code is incentivize behavior that

people would not already do.

Where I struggle here is are people not going to invest in these

things anyway if they get a valid return, and are not many of these

things deductible anyway under other areas of the code?

Mr. CHAMBERLAIN. Well, Congressman, the average private

sector building in the U.S. is over 30 years old now, so there is a

huge existing building stock out there that has another 34 years

of useful life. And this deduction really goes to the ability to retrofit those buildings for really efficient and profitable futures.

Mr. RICE. Thank you, sir.

Chairman BUCHANAN. Ms. DelBene, you are recognized.

Ms. DELBENE. Thank you, Mr. Chair. And thanks to all of you

for your testimony and for being here with us this morning.

As a former startup Chief Executive Officer and now as a Member of Congress who has the honor of representing a very vibrant

community of innovators and entrepreneurs, I had high hopes


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when we went into tax reform that we would be having serious

conversations about getting our fiscal house in order and reforming

the Tax Code so we could support economic growth that is built to

last, a Tax Code where skilled workers and innovative ideas can

thrive in a stable business climate where modern infrastructure

and a world-class higher education system help students to succeed, and where cutting-edge research creates breakthroughs and

successful businesses.

Accomplishing those things would have put our country on a

path to long-term success and given every American that has been

left behind the opportunity to make life better for themselves and

for their families. But that is tough work that requires a sustained

and bipartisan effort.

Unfortunately, that is not what happened at all at the end of last

year. Instead, my friends on the other side of the aisle rushed a

bill to President Trump’s desk for signature without meaningful

public debate or analysis.

And now here we are with open questions left about tax extenders as well as all the unclear, hastily drafted provisions in the final

law that our constituents and U.S. businesses are now struggling

to understand, in many cases coming to us asking for corrections

where the rushed process resulted in mistakes.

We were promised jobs and growth, but we have seen layoffs

across the country, including from some of the Republican tax giveaway’s most touted beneficiaries, companies like Carrier or Kimberly-Clark, just to name a few. Congress should not pick winners

and losers in the economy, and we should strive for a code that provides certainty to taxpayers, certainty that many of you have

talked about today.

We should put an end to the cycle of retroactive extensions and

jockeying over uncertain tax policies that make it impossible for

hard-working families and small businesses to plan for the future.

Many of you have brought up this concept of certainty and stability and return on investment. I think these are very important.

When we talk about certainty and return, what is the time frame?

I know, Ms. Jacobson, you talked about this as well. What is the

time frame from starting with new technologies to getting through

to having a sustainable business that you see for your companies?

Ms. JACOBSON. Thank you very much for the question. I think

one thing to understand is all of these industries are distinct businesses, and you know, and they have different business cycles. So

some technologies can be implemented very quickly, in, say, a one

or two or three year timeline. But there are others where it could

take 10 years to go from the original origination of that project to

construction and then actually fulfilling its ultimate objective.

So I think the challenge with this conversation is that we cannot

look for an one-size-fits-all solution. I am speaking now from the

energy and the sustainable transportation sectors. They all are distinct. But what we do know is the tax policy needs to be distributed

in an equitable manner. We do not want Congress or other policymakers putting the thumb on the scale for any particular technology. So they need to be equitable.


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And they need to be consistent with the project cycles. So the

longest opportunity, permanent or certainly multi-year extensions,

are very welcome.

Ms. DELBENE. Thank you very much. I yield back.

Chairman BUCHANAN. Mr. Meehan, you are recognized.

Mr. MEEHAN. Thank you, Mr. Chairman. And Representative

Lazio, welcome back.

I am particularly focused on the issue of 179D, your emphasis on

the decisions that are made economically. But I look at what is the

impact of these kinds of credits. And can you give me your assessment of what a difference it makes, not in the shining, gleaming

class A towers that are coming up that everybody likes to see, but

the recognition that in many areas, urban areas particularly, we

see an aging housing stock.

And the ability to get them back into a manner in which they

can be utilized to keep the vibrancy of regions together is critical.

And to the extent to which you can tell me that these kinds of incentives actually can make a difference in having that housing

stock be retrofitted, and once again contribute in a very competitive—a business environment, which helps the sustenance of areas.

And these are not exclusively big city areas. It can be small urban

areas, like Scranton, Pennsylvania, as an example.

Also, would you speak to the question of things like school districts, who are struggling to find dollars, who may look at the necessity to say, if we are going to save taxpayer dollars, are we

going to build a gleaming new high school, or are we going to go

back and retrofit the one we have, and the extent to which those

hundreds of thousands of dollars that could be saved will make not

only an energy-efficient building but also the potential that those

dollars can be reinvested in other kinds of things which are being

shorted in education.

Those are examples of why I think this thing is in place. Am I

missing anything on that, or is this what we are looking for?

Mr. LAZIO. Congressman, you are absolutely right, and you are

making the right points. For example, recently we worked with a

school district and a designer for an upgrade, a retrofit, that placed

an geothermal energy plant in that school, saving it about $450,000

dollars a year. That is $450,000 a year that is less of a tax burden

for the constituents. That is $450,000 more that potentially can be

used to help with innovative teaching solutions in that school.

And you are also right about housing across America. There are

five million Americans that live in assisted housing in one form or

another. The 3400 public housing authorities throughout the country, those are all public agencies.

There is probably a $20 billion backlog in terms of capital expenses for the million two or so people that live in public housing,

for example. This will allow for lower operating costs, more money

freed up, and less pressure on the Federal Government, candidly,

to come to the Federal Government to ask for more subsidy.

So the idea is to make our housing stock more efficient, more

productive, better cash flows, less burden on the taxpayer, less burden on the Federal Government. And we are finding and I find as

I criss-cross the country—we work in virtually every state in the

country in helping small and mid-size architects and engineers and


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contractors in this space—to be able to use their talents to provide

for this efficiency, lowering operating costs, and lowering overall

energy dependence, and saving taxpayers’ dollars. And it is a win

all the way around.

Mr. MEEHAN. Thank you, Mr. Chairman. I yield back.

Chairman BUCHANAN. Mr. Blumenauer, you are recognized.

Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate

this discussion. I am a little frustrated that we had about one day

to jam through the largest transfer of wealth in our Nation’s history. I made the point repeatedly during that hearing that people

did not know what they were doing and we were going to find all

sorts of surprises.

And sadly, that has been the case. Tax-free farming, we are finding out, buried in the bill. But this is a serious conversation. It is

the type of prioritization we should have been doing all along, as

Mr. Lazio mentioned. I have been deeply involved with the provisions here of 179D. It makes sense. And in part, Mr. Rice’s point

about does this, in the long run, pay for itself, it is true.

But unfortunately, in terms of business ownership of these facilities, they typically turn over seven, eight, nine years, and there are

requirements they have for a rate of return, which is good or bad,

depending on your perspective. But lost in this is the fact that it

does not pencil for their business model, and they are not going to

make steps that would benefit society.

It would deal with greenhouse gases. It would help make us

stronger economically. And it would help with the evolution of

these techniques and products that make us more energy-efficient

and that ultimately add to the productivity of this country.

We should have had a discussion like that before the Committee

before we made some things permanent, at massive cost, and something like this, which I am convinced actually pays for itself over

time if we look at the big picture. I hope that we are able to have

that type of conversation going forward because clearly, we have

got to go back and do lots of fixing of a fatally flawed piece of legislation. We will be dealing with that for the next Congress and beyond.

But this is an area that should not be lost. We ought to understand the realities of commercial businesses, of government business, and be able to weigh the costs and benefits not just to the

owner but to society generally.

I appreciate your putting it before us. I appreciate the notion of

having a continuous process of upgrading the standards, which I

think makes a lot of sense. Working together, we can get more out

of this process and be able to attach the appropriate priority as we

go forward.

I am sorry we did not do that with this massive, multi-trilliondollar bill and all its warts and running sores that we will be looking at. But this is one that ought not to be punished. I hope we

can take the time to understand it, to be able to weave it into a

broader context as we spend a significant amount of time over the

next two Congresses trying to fix this flawed bill.

Thank you, Mr. Chairman, and I yield back.

Chairman BUCHANAN. Mr. Renacci, you are recognized.


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Mr. RENACCI. Thank you, Mr. Chairman. And I am actually

very appreciative of the panel being here and us discussing some

of these credits and issues, even after we have passed the tax bill.

I think it is important. I was a businessman. I am a CPA. Many

times you make decisions and then you look and continue to evaluate it.

I wish we would have done that more on the Affordable Care Act,

and evaluated many of the decisions made there and learned from

panels like this. So I appreciate you being here. I am a strong opponent of the all above approach when it comes to energy policy.

I also support exploring developing and producing domestic energy

in an environmentally responsible manner.

But I do want to focus on one bunch of credits. Ms. Jacobson, I

agree that our Tax Code is currently structured in a manner that

puts otherwise competitive technology at a disadvantage in the

marketplace. I will never believe a government should be picking

winners and losers.

With technologies like fuel cells, small wind, and geothermal already having an extension through 2021, technologies like biogas,

biomass, hydropower, and waste-to-energy are not currently competing on a level playing field. We need to do something to put

these competing technologies on an even plane with each other.

I also understand that the credits at issue are configured differently and may need some reconciliation so these competing technologies are treated similarly as the credits are ultimately phased

out. Can you kind of talk a little bit about that and my concerns,

and maybe what we can do to address that?

Ms. JACOBSON. Thank you very much, Congressman. And I

very much appreciate you understanding the broader dynamics and

the differentiation in the treatment of different technologies and industries within the Tax Code and the energy sector.

I think I would start by speaking a little bit about Representative Stefanik’s legislation, which aims at addressing what you just

described. Again, it is H.R. 4137, the Renewable Electricity Tax

Credit Equalization Act, and it aims to kind of bring more equity

and address the technologies that right now basically are at a competitive disadvantage.

So we have seen what stable long-term policy in the energy sector can do. Just in the last year, at the end of 2017, we 18

gigawatts of renewable energy generation come online in this country, which is—now we are 18 percent total generation for the renewable energy sectors. That includes hydropower, of course.

So we are now almost on par with our national nuclear fleet. I

mean, that is an astonishing accomplishment. And what drove the

last several years of growth in renewable energy has largely been

in the areas of wind and solar because of the enactment of the

PATH Act at the end of 2015, which gave a long-term extension.

So those industries have been able to create jobs, attract investment, scale at a very significant rate, and it is because investors

had a long runway consistent with their business cycles. And that

is all we would like to see for all renewable technologies.

Mr. RENACCI. Sure. Well, the one thing in closing—and I know

my time is up—I do like to see a simplification and phasing out of


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all of these. But at the same time, they have to be able to compete

as they do phase out. So thank you. I yield back.

Chairman BUCHANAN. Mr. Curbelo, you are recognized.

Mr. CURBELO. Thank you very much, Mr. Chairman. And I

thank all of the witnesses for being here today.

Energy efficiency is the quickest, most affordable, and easiest

way to extend energy supplies, reduce carbon emissions, while simultaneously improving the bottom line for businesses. When you

waste less energy, you consume less of it. This helps the environment and operating margins. It is estimated that without the gains

in energy efficiency made since 1973, today’s U.S. economy would

consume 60 percent more energy than we currently do.

Mr. Lazio, you know a little bit about politics. And I want to ask

you to expand somewhat on the point made by my colleague, Mr.

Blumenauer, on the multiplier effect, the big picture, and perhaps

the ability of this provision and this concept to really bring Republicans and Democrats together because I do see major gains and

advantages that both sides really support when it comes to this

provision that promotes energy efficiency. I would like to give you

the opportunity to take a wide lens here and give us your perspective.

Mr. LAZIO. Thank you, Congressman. Yes. I do believe this is

one of those provisions where Republicans and Democrats can address their core values and find an area where they come together.

We are lowering the costs for government. We are helping taxpayers. We are providing for energy efficiency.

For those who believe in the threat of carbon, one of the best

ways of doing that is to reduce (sic) the energy efficiency in commercial buildings, which I mentioned before. Thirty-six percent of

all electricity consumed in America flows through commercial

buildings, twenty percent of all energy.

So on so many different fronts, this is a win for whether you are

a Republican or a Democrat, whether you are a conservative or a

liberal. The issues that are addressed through 179D, particularly

this provision Section 4, which deals with public buildings, is a

huge win.

It is helping people that are underserved. It is helping school districts. It is helping businesses grow America. The lower the operating costs for a particular business or for a school district or for

a government building, the more money that you have to invest in

a more productive, more competitive way. And that is what we all

want.

We want a more competitive America. We want more and better

jobs. We want better schools. We want our children to get better

access to better cutting-edge technologies. We want our energy

lower and our dollars greater. And that is exactly what 179D does.

Mr. CURBELO. Thank you, Mr. Lazio, and I agree with you. I

think that this is a very narrow provision that has broad benefits

for our country and for our society. So I thank, again, the chairman

and the Committee for shining a light on this. I yield back.

Chairman BUCHANAN. Thank you. Let me just say a lot of us

have a different background. I have been in business 30 years, so

this whole concept of extenders makes no sense—I mean, because

of the uncertainty that it creates.


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So our goal here—the bill that we passed, I think, does a lot of

good things, personally. But the other side, we are going to continue to work on it, improve it. That is why we have got this process going today.

I think we would like to get as many of these extenders as we

can either permanent in law or get them out, frankly. I think that

is on both sides of the aisle here. But I have got to ask the panel

this question.

Corporate tax cuts for 43 percent. Pass throughs when you add

it up are 25. You got full expensing, not permanent, but that is

something for the next four or five years, very, very significant.

Why do you need this extender based on the new tax law?

And I would like to have you take a few seconds each, or if someone wants to answer it, a couple of you. So the question I am trying

to think, as a business guy for a long time, I think it has been more

than generous. I mean, our goal was to try to grow the economy

from 1, 1

1

⁄2 percent to, ideally, 3 percent and create more jobs.

But I have to ask all of you, why is it, when you get these kind

of deductions, do you need more?

Mr. LAZIO. If I can, Mr. Chairman?

Chairman BUCHANAN. Go ahead.

Mr. LAZIO. Thank you. Well, in the case of 179D and that SubSection 4 that I am talking about, as positive as the outcomes were

with respect to the tax bill that was recently signed by the President, and you have just outlined some of them, that did not help

public entities, right? So public entities continue to have the issue

of finding the way to lower their operating costs to become more

energy-efficient.

The best way to do that is to help designers, who often cannot

bill this out, so this is an unbillable cost

Chairman BUCHANAN. When you say a public entity, just so we

are clear, are you talking about a C corporation?

Mr. LAZIO. No. I am talking about a government. So I am talking about a State——

Chairman BUCHANAN. Okay. I just wanted to make sure.

Mr. LAZIO [continuing]. State, local, or federal building. So those

buildings that are energy-inefficient, the best way to get them more

efficient and to improve the operating costs that ultimately helps

the taxpayer and the Federal Government in terms of subsidiaries,

as they outlined before, is really to provide these incentives for designers to focus their time on these bids.

Chairman BUCHANAN. So the companies are getting the benefits, right?

Mr. LAZIO. Pardon me?

Chairman BUCHANAN. The companies are getting the tax benefits, right?

Mr. LAZIO. The private designers are getting the benefits.

Chairman BUCHANAN. Okay. Are they making money?

Mr. LAZIO. Well, on government buildings, they are often making less. When they are competing for RFPs, many of them have

lower margins than they would on some of the commercial buildings.

Chairman BUCHANAN. My point is if they are making money

and they are successful—and sometimes you do not make money


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right away if it is a startup or something; we all know that it takes

a couple of years or whatever—but if they are profitable and they

are making money, I do not know why they need the additional incentive.

And I would say that to anybody on the panel here, especially if

you look at big public companies or others. If they have got such

a big tax cut or if they are a pass-through or something, they are

getting a lot of consideration on the new tax reform.

We have to pay the bills up here, too, and we are going to have

a panel later to talk about deficit spending, which we have created

$10 trillion in the last 10 years. So we have to take a hard look

at all this stuff.

Would anyone else like to—Mr. Paschel.

Mr. PASCHEL. For us, we sit in that other category as a coalition. The tax bill that passed was——

Chairman BUCHANAN. Can you speak up a little bit, please?

Mr. PASCHEL. All right. We sit in a different place as members

of our coalition. The tax bill that was passed was incredible for

American businesses and industry, but as a group of American

businesses that are still subscale in an emerging industry, nobody

in our coalition is profitable yet as we continue to build sort of this

next generation of two- and three wheeled——

Chairman BUCHANAN. You are kind of a new industry, right?

Mr. PASCHEL. Yes. So for us, a fantastic tax bill that was

passed, but we are not seeing the benefits yet. And there is an opportunity to help us create the next great American industry.

Chairman BUCHANAN. Okay. Yes. Ms. Jacobson.

Ms. JACOBSON. Thank you. I mean, from what I was describing, really there are a number of industries that are at a competitive disadvantage, given the patchwork of energy-related tax measures in the code right now.

Chairman BUCHANAN. Okay. But folks that you work with, if

they are making $10 million a year or something, I do not see——

Ms. JACOBSON. Well, they are inhibited in the marketplace.

Chairman BUCHANAN. I am not saying they are. But

Ms. JACOBSON. Because they cannot get their projects financed.

I mean, as I described, they cannot get PPAs. They are not as competitive to banks. I mean, we can get you more information. But

there are significant competitive disadvantages here so we have an

inequitable system. They are not able to compete on a level playing

field.

Chairman BUCHANAN. Okay. Mr. Bresette.

Mr. BRESETTE. Thank you, sir. Two of the tax credits I mentioned do not flow to businesses. They flow to homeowners, 25C

and 45L. Those tax credits encourage the installation of high-efficiency equipment and other measures, and that helps lower homeowner utility bills, which I think is important and is one of the

higher costs of home ownership over time.

These tax credits also provide certainty, but this time it is to the

contractors, which are the local workforces that incorporate the

availability of credits into their sales strategies, which is important. If the credits are available or not available on a year-to-year

basis, it just makes it harder to sort of close the sale at the kitchen

table, which is kind of the anecdote.


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And then finally, I mentioned S. 1068, which is Senator Wyden’s

bill. That also proposes this performance-based approach, and what

that does is it encourages a more holistic approach to energy efficiency because when you make heating and cooling as well as thermal envelopes improvements and structural improvements, you actually compound the benefits in savings.

Chairman BUCHANAN. Mr. Chamberlain.

Mr. CHAMBERLAIN. And Congressman, I would say even with

increased capital, when you have a long-term payback, it is hard

to get owners to focus their capital on energy efficiency projects.

When you have the capital and we were able to bridge it like this,

we are going to do good business. There is a long-term return to

the owner, but there is also great return to the communities in

terms of efficiency dealing with peak loads and all the rest.

Chairman BUCHANAN. Myself, I am going to be looking at, if

you are getting substantial benefit, I do not know that you are.

Startup industries might be a little different. But I have got to

question—I am going to be questioning if someone is making a lot

of money and taking advantage of the current code, the new Tax

Code, I have got to ask that question.

The other question—we do not have enough time—I want you to

think about, maybe send me a note or something: What are you

willing to give up, if anything, to get the consideration that you are

looking for? And so we do not have enough time to get into that,

but I do want to just—something I want you to think about. And

if you could let me know, if anything, what would your industry or

yourself be willing to give up to get the consideration and make it

permanent?

And so just in closing, thank you for your chance to come and

visit today. We appreciate the opportunity, especially you, Congressman. So again, thank you, and we will move on to the next

panel.

[Recess]

Chairman BUCHANAN. I would like to welcome our second

panel as we turn to expired tax incentives for alternative fuel in

vehicles.

First, we will hear from Drew West, founder and Chief Executive

Officer of American Natural Gas, LLC. Secondly, we will hear from

Dan Gage, president, NGVAmerica. Thirdly we will hear from Stuart Weidie, president and Chief Executive Officer of the Blossman

Companies.

Fourthly we will hear from Michael Dungan, the director of sales

and marketing for RES Polyflow. Fifthly we will hear from Robbie

Diamond, president and Chief Executive Officer of Securing America’s Futures. Finally, we will hear from Morry Markowitz, president of Fuel Cells and Hydrogen Energy Association.

Thanks again for being here today with us. The Committee has

received your written statements and they will be made part of the

formal hearing reported. Each of you will be recognized for three

minutes for your oral remarks; we are trying to keep this moving

along.

Mr. West, you are recognized for three minutes.


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STATEMENT OF ANDREW WEST, FOUNDER AND CHIEF

EXECUTIVE OFFICER, AMERICAN NATURAL GAS, LLC

Mr. WEST. Thank you. Every time we take a diesel truck and

convert it to natural gas, we are taking the equivalent of removing

350 cars from our roads from an emissions perspective. That is tremendous impact.

I drove down here from Upstate New York, Saratoga Springs. I

am the founder and Chief Executive Officer of American Natural

Gas. We design, build, own, and operate CNG stations around the

country; we currently have 40 stations in 13 states. I drove a compressed natural gas because I was inspired in 2011 when I first

saw a Honda Civic with 80,000 miles. And I looked at the tailpipe,

and not only was it clean to the touch, it was clean to the eye.

When we think about the issues plaguing our country, its

healthcare, emissions are a big contributor of that, the particulates

as well as the environment. Compressed natural gas vehicles are

a technology that are here today, and we are very different than

a lot of other tax credits. Our tax credits benefit our customer base.

We pass those on in the forms of reduced fueling costs and direct

benefits to those customers.

So I am here on behalf of those customers that are ready to make

the commitment with parity, with hydrogen, electric, and other alternative fuels that have long-term credits in place. I have commitments from the best fleets around the country, small and large,

that are willing to make that commitment.

We believe that this is also a sustainable industry. When we

reach scale, this industry can operate with the five-year extension

of an AFETC. We can operate without further subsidiaries. We

have come a long way; if you look at the transition from diesel to

compressed natural gas, or from gasoline to diesel, it was a multidecade process. We are in the—it took 20 years.

We are here today. We have made so much progress, given the

support since 2006, But it was not until 2013 that we had a dedicated engine that met the need for the over-the-road class 8 vehicles. And that was a critical timing point for us.

So we are ripe today. We are at a tipping point. And we cannot

forget our drivers. Let’s not let them go back smelling like refiners.

During Hurricane Harvey, our station was up and running.

We were fueling the first relief vehicles providing food and water

for those in need. This technology relies on transportation of fuel

like to your house so you do not impact the roadways with 120,000-

pound gross vehicle weight destroying our roadways, which are

much in need of improvement.

The other thing is this is safe, domestic, and here today. There

are a lot of other things being proposed out there, but no one else

in class 8 is hauling freight like we are today. It is here. There are

challenges with electrification and other technologies. We do not

have Elon Musk, and I think it is very clear that with parity, certainty—and our industry does not benefit from some of the tax reform, and I will get into that later. Thank you.

Chairman BUCHANAN. Thank you, Mr. West.

[The prepared statement of Mr. West follows:]


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Chairman BUCHANAN. Mr. Gage, you are recognized for three

minutes.

STATEMENT OF DANIEL GAGE, PRESIDENT, NGVAMERICA

Mr. GAGE. Chairman Buchanan and Ranking Member Doggett,

distinguished Members of the Committee, thank you very much for

the opportunity today. I am Dan Gage, representing Natural Gas

Vehicles for America. We are a 200 plus member organization dedicated to the development of growing a profitable and sustainable

marketplace for vehicles powered by natural gas, but also using

more natural gas in off- and on-road transportation.

Like Mr. West, we are in support of a five-year extension of the

alternative fuel credit found in IRC 664.26, 664.27, and also the alternative fueling infrastructure credit found in IRC 30C.

Seventy-four percent of heavy duty trucks on America’s roads

today are not certified to the latest EPA emissions standard. Seventy-four percent. Let heavy duty vehicles like short and long-haul

trucks, refuse trucks, school transit buses, they are the fastestgrowing segment of U.S. transportation in terms of energy use and

emissions.

They are major emitters of diesel particulate matter, greenhouse

gases, and smog-forming pollutants like nitrogen oxide, or NOX.

Anyone who has driven behind an old diesel truck has experienced

this up close and firsthand. And while HDVs total 7 percent of all

vehicles on our roads, they account for 33 percent of America’s

smog precursor emissions from mobile sources and 20 percent of all

transportation-related greenhouse gases.

Why this is important: According to the EPA, 125 million Americans reside in areas of exceedingly poor air quality. They call them

non-attainment areas. And almost 40 percent of the U.S. population lives in communities that have dangerous smog-causing pollutants, and breathing in this particular pollution increases the

risk of asthma, lung cancer, heart disease, premature death. Heavy

duty trucks are the number one source of those urban emissions.

The simple truth is if we want cleaner air, we need cleaner

trucks. And we need federal incentives like these credits to encourage the replacement of aging, dirty fleets with clean zero emissionequivalent natural gas power trains.

So we at NGVA believe that every child in America can and

should awake in a neighborhood with clean air by 2025, and natural gas gets us there. Mr. West spoke a little bit about some of

those benefits.

Natural gas vehicles are sustainable. The newest natural gas engines, with zero emissions-equivalent technology, produce 90 percent fewer NOX emissions than the standard. The cleanest heavy

duty truck engine in the world is powered by natural gas. And

when it is powered with renewable natural gas, it has 115 percent

fewer greenhouse gas emissions.

Natural gas vehicles are responsible. As a domestic fuel, its increased use grows the economy. Our engines, the Cummins engine,

the medium and heavy duty, are made in places like Jamestown,

New York, and Rock Mount, North Carolina. Natural gas vehicles

are proven, road tested, and commercially ready right now.


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So I ask for your consideration of a five-year extension for 2018

through 2022 that would offset the cost of these new cleaner-burning trucks and accelerate the investment payback for consumers

and job creators. Extending this alternative credit would provide

some partial parity with other emerging technologies that have additional credits.

Thank you very much.

Chairman BUCHANAN. Thank you.

[The prepared statement of Mr. Gage follows:]


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Chairman BUCHANAN. Mr. Weidie, you are recognized for three

minutes.

STATEMENT OF STUART WEIDIE, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, THE BLOSSMAN COMPANIES

Mr. WEIDIE. Thank you, Mr. Chairman. I am here on behalf of

the National Propane Gas Association, and I would like to briefly

discuss the following three tax provisions that have greatly helped

propane, a domestically produced alternative fuel, gain acceptance

as a transportation fuel: the alternative fuel tax credit, the alternative fuel infrastructure credit, as well as the alternative fuel

mixture credit.

Globally, there are more than 27 million vehicles running on propane auto gas. And unfortunately, in the United States there are

only approximately 220,000 vehicles, despite the clear fuel cost savings and environmental benefits of propane auto gas.

Since the early 1970s, our Nation’s dependence on foreign oil has

been an ongoing dilemma. But in recent years we have come a long

way towards more energy independence, but I think the more appropriate term is energy security, due to the shale gas and oil

methods that have greatly increased supply.

The United States is now the world’s largest producer of propane, a little-known fuel. It is very much a process of natural gas

extraction. In fact, we are expected to grow our supply in the

United States 40 percent over the next decade. So we have got an

abundant supply.

In 2017 alone, more than 14 billion gallons of propane was exported out of our country to nations in Asia, South America, and

Europe. That is enough fuel to convert more than 5.5 million government and private fleet vehicles. Since 2005, Congress has assertively acted to support our Nation’s desire to become more energy

secure and improve emissions, and the legislation that was passed

then encouraged the use of domestic fuel such as propane and natural gas, or CNG.

At that time, hundreds of companies went into business and initiated businesses, and just in time, they created technology for the

vehicles, refueling infrastructure. But in 2010, these incentives

started to expire. And unfortunately, they have only been renewed

one year at a time, sometimes only retroactively, which does little

to stimulate future growth or market adoption.

According to the Gas Technology Institute, propane reduces emissions 35 percent for greenhouse gases and 16 to 18 percent for nitrogen oxides and CO2 and others. So additionally, I would like to

add that NPGA’s support for an extension of the refueling credits,

the refueling infrastructure credits, and the refueling mixture credits is very important in order for us to develop this market.

In summary, propane and natural gas vehicles lower emissions,

reduce maintenance costs; for school districts around our country

who are deploying it dramatically, it has human health benefit due

to the reduction in particulate matter and soot from diesel school

buses.

So I urge this Committee to support our energy security and

cleaner air by providing future incentives.

Chairman BUCHANAN. Thank you.

[The prepared statement of Mr. Weide follows:]


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Chairman BUCHANAN. Mr. Dungan, you are recognized.

STATEMENT OF MICHAEL DUNGAN, DIRECTOR OF SALES AND

MARKETING, RES POLYFLOW

Mr. DUNGAN. Chairman Buchanan, Ranking Member Doggett,

and Members of the Subcommittee, my name is Michael Dungan

and I am the director of sales and marketing at RES Polyflow,

based in Chagrin Falls, Ohio. Today I am here to discuss Section

6426D and C and E of the Federal Tax Code, also known as the

alternative fuel tax credit and alternative fuel mixture credit.

These 50 cent per gallon tax credits accrue to retail sellers and

blenders of alternative fuels. My company manufactures systems

that convert post-use non-recycled plastic into gasoline and diesel

blend stocks, naphtha, and waxes.

We do this via pyrolysis, which is an oxygen-free process that

does not involve burning. Together with three other pyrolysis companies, we form the Plastics to Fuel and Petrochemistry Alliance

at the American Chemistry Council to promote greater understanding and advocate on behalf of these technologies. We are a

fledgling industry that is creating alternative fuels while also providing a solution for non-recycled plastic destined for a landfill.

Parity and fairness in the Federal Tax Code with other renewable and alternative energy technologies is important so our industry is not at a competitive disadvantage. Providing parity for fuels

derived from plastics via pyrolysis will not only deliver an alternative fuel, it will help reduce the volume of material that today’s

taxpayer pays to landfill.

Why? Because the U.S. EPA has calculated that Americans generate over 33 million tons of plastic in our waste stream every year.

Plastics are wonderful material and help us to do more with less,

but unfortunately, we currently recycle less than 10 percent, or

about 3 million tons, and about 25 million tons of these plastics get

buried and wasted. They go to a landfill or worse, and are at risk

of being improperly managed.

Recycling even greater amounts of plastic has become more challenging after China recently banned imports of many types of plastic scrap. Plastics make a particularly valuable feed stock for alternative fuels because U.S.-manufactured plastics are primarily derived from natural gas, which has a very high energy content.

The Earth Engineering Center at Columbia University has conservatively calculated that if the United States converted all of its

landfill-bound plastics to transportation fuel via pyrolysis, these

plastics could produce enough fuel to power nine million cars for

a year.

There are also economic benefits. The ACC has conservatively

calculated that the economic impact of plastics-to-fuel facilities in

the U.S. would generate 39,000 jobs and produce $9 billion in economic impact per year. With over 300 million tons of plastics produced globally each year, there is enormous potential to create additional jobs here in the U.S. by engineering, manufacturing, and

importing these pyrolysis systems.

In closing, I know there are many different opinions about the

efficacy of these energy tax extenders. However, pyrolysis techVerDate Sep 11 2014 07:08 Mar 19, 2019 Jkt 033797 PO 00000 Frm 00079 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33797\33797.XXX 33797

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nologies are exactly the type of fledgling industry that smart, targeted federal tax policy can help jumpstart.

Thank you for the time.

Chairman BUCHANAN. Thank you.

[The prepared statement of Mr. Dungan follows:]


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Chairman BUCHANAN. Mr. Diamond, you are recognized.

STATEMENT OF ROBBIE DIAMOND, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, SECURING AMERICA’S FUTURE ENERGY

Mr. DIAMOND. Thank you very much. Thanks for the opportunity to testify on this critical topic. I represent a nonpartisan organization committed to reducing the United States dependence on

oil for economic and national security reasons.

In 2006, SAFE formed our Energy Security Council, a nonpartisan group of business and military leaders that advocate for

long-term policies to support this mission. The ESLC is currently

chaired by Frederick W. Smith, the chairman and Chief Executive

Officer and founder of FedEx, and General Jim Conway, the 34th

Commandant of the U.S. Marine Corps.

With 92 percent of U.S. transportation powered by oil, businesses

and consumers have no alternatives available at scale when oil

prices spike. And given the global nature of our oil market, a disruption anywhere impacts prices everywhere.

The risks of oil dependence require some policy intervention because oil supply is determined by a cartel and traded on an opaque

and an unfree oil market. Make no mistake. We remain as vulnerable to an oil supply disruption today as we were before the oil

shale boom.

There are three main policy approaches the United States should

take. The first is to continue to increase our domestic oil production. The second is to maintain and modernize our unified fuel

economy standards, which have served as the country’s most effective response to global oil market vulnerability since their introduction after the first OPEC oil embargo.

The third, the topic we are here to discuss today, is to provide

greater fuel choice to consumers and businesses, including American-made advanced fuels like electricity, biodiesel, hydrogen, and

natural gas that many of you have heard about today.

This can be accomplished through the extension of the 30C tax

credit and the biodiesel tax credit. As noted, 92 percent of our

transportation sector requires oil, and there are just no alternatives. And this oil is traded on an unfair and unfree market controlled by people who do not like us.

Extending the credit for alternative fuel infrastructure under

30C is important to diversifying the transportation fuels and maximizing the investments our country has made to date. Extending

30C will increase fuel choice for consumers and businesses, expand

research and development, increase investment in infrastructure,

and encourage policy changes at the State and local level.

Also critical is the ability for American innovators to have a minimum amount of certainty regarding these credits. The biodiesel

tax credit illustrates this point well, but it applies to all these other

credits. Extending the BTC for only short periods of time and often

retroactively casts greater uncertainty into the market rather than

providing assurances.

When biodiesel producers do not know the future of the tax credit, they are forced to gamble on whether or not they think it will

be passed. This stifle innovations and pushes off the day when this


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domestic fuel can fully compete. Certainty is as important as tax

credits themselves.

Diversifying our transportation fuel helps to reduce the need to

import oil. The U.S. has spent $2.5 trillion on imported oil in the

last 10 years. Two-thirds of that has flowed directly to OPEC members.

We should celebrate the benefits from recent increases in domestic production but not be lulled into a false sense of security. Thank

you.

Chairman BUCHANAN. Thank you, Mr. Diamond.

[The prepared statement of Mr. Diamond follows:]


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Chairman BUCHANAN. Mr. Markowitz, you are recognized.

STATEMENT OF MORRY MARKOWITZ, PRESIDENT, FUEL CELL

AND HYDROGEN ENERGY ASSOCIATION

Mr. MARKOWITZ. Thank you for the opportunity to speak with

you today.

The member companies that make up FCHEA range in size from

Fortune 100 companies to small businesses and startups. Our

members currently employ tens of thousands of employees and

workers in the United States.

My comments will focus on two items: the fuel cell vehicle tax

credit, found in Section 30B, and the alternative fuel vehicle refueling property credit, found in Section 30C. That sent a strong signal

to the private industry that the Federal Government was committed to help alleviate initial market barriers by providing consumer credits for zero emission vehicles and help industry comply

with Federal CAFE standards and State mandates concerning

ZEVs.

Automobile manufacturers and industrial gas companies have invested billions of dollars in fuel cells and hydrogen. Light duty vehicles are being sold and leased in the marketplace today. So why

fuel cell electric vehicles? Because it is the only zero emission vehicle technology out there now and for the foreseeable future, the

next five to 10 years, that totally replicates the current driver’s experience of being able to drive three to 400 miles on a tankful of

fuel, but equally important, to be able to refuel it in three to five

minutes.

Plus it has the added advantage of being scalable. You can power

a car from a subcompact to a full-size SUV to a full-size bus to medium and heavy-duty trucks. In other words, fuel cell vehicles offer

American consumers the option of zero emissions, zero compromise.

Unfortunately, the Tax Code is currently aligned to skew customer choice by offering a tax credit for one ZEV technology and

not another. We believe that the best tax policy is one that is technology-neutral. We ask that you extend 30B and 30C provisions in

order to level the playing field.

You may ask, why is this in the best interests of the American

people? My answers are simple.

One, this American-developed technology, which by the way

helped us get a man on the Moon, will enable us to transfer our

transportation sector’s use of foreign oil to domestic production

thanks to the fact that hydrogen can be derived from fossil fuels

such as natural gas to renewables, keeping our national wealth

here.

Two, keep America competitive. As the world moves to vehicle

electrification, equal footing will not only send clear signals to consumers but to automobile manufacturers and will keep us competitive in the global marketplace.

Three, smart tax policy, a technology-neutral approach, will be

simple, fair, and allow consumers more choice.

Four, it will allow automobile manufacturers to meet upcoming

State, Federal, and international mandates.

Five, the costs will be modest when weighed against the benefits.


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Six, the 30C provision is important for the build-out of the necessary infrastructure to fuel the growing fleet of fuel cell vehicles.

In closing, we feel our industry is capable of great things, but we

need to be able to compete on equal footing with other technologies

with the eye towards always letting the consumer be the ultimate

decider in the marketplace.

Thank you.

[The prepared statement of Mr. Markowitz follows:]


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Chairman BUCHANAN. Thank you. Thank all of you for your

testimony. We will now proceed to a question-and-answer session.

I will defer my question till the end of the question period.

I now recognize Mr. Rice.

Mr. RICE. Thank you, sir.

My first question is to Mr. West and Mr. Gage. When I was running for Congress the first time in 2012, a constituent brought me

to a natural gas—I think it was compressed natural gas—service

station in Dillon, South Carolina, right on the 95. It was a Flying

J station. It had cellophane wrapped around it. I think they said

Boone Pickens built it like every 300 miles along the interstate.

Today that thing is still wrapped in cellophane. Why is that?

Turn your microphone one.

Mr. WEST. Sorry. Back in 2011 there was sort of a debate

whether LNG or compressed natural gas would be the fuel of

choice. The clean energy natural gas highway that Boone Pickens

supported was for LNG facilities. They started down the path of developing those facilities.

They never commissioned them because basically, the engine

manufacturers in 2013 came out with a dedicated engine for compressed normal—a 12-liter engine that fit class 8 vehicles’ needs.

So they sunset the production of most LNG engines, and that basically made those stations useless.

So compressed natural gas is the clear choice, and it is very viable.

Mr. RICE. Okay. Okay, thank you. Now, these energy tax incentives that we are talking about here, pretty much all of them came

in effect in 2005, right? Mr. Gage, why did they CME into effect

in 2005?

Mr. GAGE. Well, they were part of a larger bill that——

Mr. RICE. Yes. But why did we need that bill?

Mr. GAGE. Well, in advance—at the time, in 2005, we were looking to get—there was a big push for energy independence, right,

from foreign oil.

Mr. RICE. Why was that?

Mr. GAGE. I am sorry?

Mr. RICE. Why was that?

Mr. GAGE. Well, we had a huge conflict in the——

Mr. RICE. What was oil per barrel at that time?

Mr. GAGE. I do not know, sir.

Mr. RICE. $140 a barrel.

Mr. GAGE. Well over a hundred. And now it is——

Mr. RICE. And we were still operating under what they call peak

oil theory. You know what peak oil theory is? It said we have discovered all our recoverable oil and that we were not going to find

any more and that oil was going to keep going up in price. So we

had to incentivize domestic fuels, right?

Mr. GAGE. Right.

Mr. RICE. I mean, we were trying to be energy independent. You

know what oil costs a barrel today?

Mr. GAGE. Sixty?

Mr. RICE. Sixty dollars a barrel.

Mr. GAGE. Yes, sir.


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Mr. RICE. And do you know the estimate of onshore fuel that we

have now, how many years of onshore fuel we have today in America?

Mr. GAGE. I know we have a 90-year supply of recoverable natural gas.

Mr. RICE. Ninety years. So the purpose of these fuel tax credits

was, oh, my goodness, we are completely subject to our enemies.

Mr. Diamond, you said just as subject today as we were in 2005.

I think that is absolutely untrue. In fact, we are producing more

oil now in the United States than we ever have, ever have, and we

have got almost 100 years’ worth of proven recoverable supplies.

So I am just struggling to understand why we still need to provide this level of incentive.

Mr. GAGE. If I could answer that——

Mr. DIAMOND. Can I respond to the dependence question?

Mr. RICE. Let Mr. Gage——

Mr. GAGE. If I could just answer your question why we need

that for us, it is parity. It is not about finding new fuel sources.

It is about turning fleets over to this cleaner technology. And currently we do not have parity with, as an example, the electric drive

folks. The economics just do not make sense.

And so while you are asking why stations may have been built

five, six, seven years ago and not open, we do not have the number

of fleets to make the numbers work on paper.

Mr. RICE. Thank you.

Chairman BUCHANAN. Thank you, Mr. Rice.

I now recognize the distinguished Ranking Member, Mr. Doggett,

for any questions he might have.

Mr. DOGGETT. Well, thank you very much. I believe that natural gas is a very important transition fuel to get us to a cleaner

place. We have had a significant increase in the availability of natural gas, and much of it is due to what is happening in Texas.

I have ridden on the buses, VIA, the San Antonio public transportation system. I know they have invested in some of these vehicles. And I am interested in protecting their investment and seeing

us move to cleaner fuels, particularly in what is a near non-attainment area in both Austin and San Antonio.

At the same time, I see this tax credit as being rather expensive.

It is over $5 billion per year, and I want to understand it better.

As I understand it, all of you are saying, give is to us for another

five years and we will be fine. Is that, in essence, the testimony?

Mr. GAGE. My testimony is that we are asking for a five-year

extension of the credits.

Mr. RICE. And you will not be asking for six? Five years is sufficient?

Mr. GAGE. Well, when you look at how other alternative power

trains—the light duty does not—currently, light duty electric does

not have a sunset.

Mr. DOGGETT. Well, so are you saying after five years you will

be back asking for five more if they have it?

Mr. GAGE. I am asking—we are asking for a five-year extension.

Mr. DOGGETT. And you say the five-year extension will not lead

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Mr. GAGE. To convert more and more fleets over to natural gas

from currently diesel. Remember, the biodiesel credit is a dollar.

We are half of that.

Mr. DOGGETT. Let me be sure I understand this, the GGE, the

gasoline equivalent. Can you tell me what percentage of that credit

is passed on to consumers?

Mr. WEST. I could probably better answer that, if that is okay.

Mr. DOGGETT. Fine.

Mr. WEST. Whether it is reduced price at the pump or some sort

of rebate back to them, 100 percent of it. We are investing in new

stations without these tax credits. We are just going to stop building infrastructure, and we are at that tipping point. This is a critical time to support the investments we have made. And like I said,

diesel took 20 years to convert. It is critical timing now.

Mr. DOGGETT. So no part of the credit goes to expanding capital

expenditures for natural gas extraction?

Mr. GAGE. This credit is with fuelers, for fuelers and consumers.

Mr. DOGGETT. And you are saying 100 percent of it flows to the

consumer?

Mr. GAGE. Generally. Generally, it is a consumer credit.

Mr. WEIDIE. I can speak to the propane auto gas in the United

States. A hundred percent goes to the consumer, the fleet operator

that is running their business for their government fleet every day.

And I just want to add that the third most widely used fuel is

propane. It is slightly ahead of natural gas globally. Here we are

sort of like the stepchild; it does not get much attention. But we

do have a prominent place in the market, particularly in class 6,

7 vehicles and lower.

Mr. DOGGETT. And if I understand, Mr. Dungan, you have really kind of the same argument Mr. Gage has about—as regards electric. You are saying that unless you can cover this plastics to fuel,

you are at a disadvantage relative to natural gas?

Mr. DUNGAN. That is correct. We are asking to be listed as

a——

Mr. DOGGETT. Do you know how much it would cost to list you,

expand the credit?

Mr. DUNGAN. We are going through an economic study right

now with ACC in order to provide that.

Mr. DOGGETT. You will get that to us? Thank you all.

Chairman BUCHANAN. Thank you.

Mr. Larson, you are recognized.

Mr. LARSON. Thank you, Mr. Chairman. And I find this question interesting. It is that old saying. I am going to ask some rapid

questions about the—I hate to be Biblical, but everybody wants to

go to heaven but nobody wants to die. And when we look at this

tax bill, of course, and we see the enormous amount of debt that

we are putting on the American people, when you really look at it

it is about $2.3 trillion.

So in essence, when we are talking to you, we are asking you and

you are saying, hey, look. We should be included. There has got to

be fairness and equity within all of this. And I note some very farsighted thinkers, most notably Senator Lindsey Graham, but closer

to home, some real radicals—Jim Baker, George Shultz, Martin

Feldstein, Greg Mankiw, Hank Paulson, Elon Musk, Gary Cohn,


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Kevin Hastert, Rex Tillerson, and Art Laffer have said that they

would favor a carbon tax because they feel that this will grant the

kind of revenue-neutral monies that we need so that we can take

care of some of the emerging concerns that so many of your industries have.

Would you support a carbon tax? Mr. West.

Mr. WEST. In conjunction with this or separate?

Mr. LARSON. In conjunction with?

Mr. WEST. Certainly.

Mr. LARSON. Mr. Lazio.

Mr. GAGE. I would have to take that back to our membership.

Mr. LARSON. Take it back to your membership?

Mr. WEIDIE. I would have a difficult time supporting a carbon

tax unless it was going to be applied equally across the board. And

if it is so, it should be based on the carbon intensity of the fuels,

and natural gas and propane ought to be pretty low.

Mr. LARSON. Even if it was, would you support it?

Mr. WEIDIE. Not particularly excited about additional taxes.

Mr. LARSON. So you want to go to heaven but you do not want

to pay to get there. I get it. Okay. Go ahead, Mr. Dungan.

Mr. DUNGAN. We would certainly support looking into that.

And again, carbon intensity in our view is an important——

Mr. LARSON. Mr. Diamond.

Mr. DIAMOND. Yes. We have supported a gas tax in the past

because it is true that we should not pick winners and losers and

it is the best way to do it. But unfortunately, the Government has

been unwilling to put the fair price on the externalities and then

let the market choose. But seeing that we are not willing to do

that, we should definitely have tax credits.

Mr. LARSON. According to Mr. Baker, Mr. Shultz, and Mr. Feldstein and others, this produces about $1.8 trillion. The tax bill was

$1.5 trillion. But when you look at all the costs that are added to

it, it ends up being a cost to the American taxpayer of about $2.3

trillion.

I am a strong supporter and head of the—one of the co-chairs of

the fuel cell—what are other nations doing with respect to fuel cell

automobiles, Mr. Markowitz?

Mr. MARKOWITZ. Well, I would like to tell you that they are

actively involved in not only the manufacturing but the deployment

of vehicles. In the EU, especially in Germany and the Netherlands,

there is a growing government support for the buildup of infrastructure, and in the support of the purchase of the vehicles.

As an example, in Denmark—you know that is a very heavily

taxed——

Mr. LARSON. I thank you for that, but I just wanted to add, because I know my time is running out. So I think it is safe to say

that you all want to make sure that you get part of the equity that

is involved in a major tax cut, but nobody wants to pay for it.

Chairman BUCHANAN. Mr. Blumenauer, you are recognized.

Mr. BLUMENAUER. Thank you, Mr. Chairman. And I appreciate having this panel walk us through a variety of aspects of our

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nology, and how it relates to other competitors in the marketplace.

Each one appears to be a little different. And I look forward to

being able to understand better the implications of what you are

talking about.

This is part, though, of a bigger picture that I hope our Committee is able to deal with. It is not just parity, winners and losers,

how we accelerate technology implementation. But we are facing a

transportation crisis in this country. We are not paying enough

now to support our transportation infrastructure, and many of

these disrupt.

We have not raised the gas tax in 25 years, and many of these

technologies are disruptive in the short term because they are not

paying into a trust fund that is woefully inadequate and getting

worse. And broader applications of some of the technologies are

going to accelerate that. I mean, self-driving cars are all going to

be electric.

How do we maintain the infrastructure of today while we finance

the infrastructure of tomorrow and be able to have the technological applications that are necessary to have cleaner, more efficient vehicles, cleaner air, and be able to have a position of

strength when we deal with our energy future?

I was disappointed when the chairman of our Committee said he

was interested that the Transportation Infrastructure Subcommittee had a hearing on paying for our infrastructure and he

was looking forward to hearing their recommendations. That is our

responsibility. And I would hope that we could incorporate what we

are hearing today with the broader picture of how we pay for

America’s transportation where we are falling apart and we are

falling behind.

I would hope that we would have a week or two of hearings that

allow us to deal with issues of parity and application, but also, how

do we keep the system going? What are the essential elements of

infrastructure that we—not just the roads and bridges, but there

are fueling issues for all of these technologies that are, in the intermediate term, are going to require some sort of public support to

be able to come to scale and take advantage of it.

And I hope, Mr. Chairman, that that is an opportunity that we

could have a broader conversation amongst ourselves, not wait for

some other Committee to handle our jurisdiction because these are

very significant subjects that I think are worthy of our debate and

maybe even taking some action.

Thank you very much.

Chairman BUCHANAN. Thank you.

I am going to just go to some questions. And I guess the big

thing—these extenders, our goal is to try to improve on what we

did. The bill is not perfect. There is more work to be done. That

is why we are trying to deal with extenders.

And I had been in business 30 years before I got here. I cannot

imagine having a deal wait on an extender—you might get it,

might not get it at the end of the year. Many times it rolls into

January. It makes no sense.

So our goal, frankly, is to see how many extenders that we need

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come part of permanent law. But I guess that what I would ask

all of you quickly is why?

If you are in a profitable industry, if your business is profitable,

corporations got a 43 percent tax cut. Pass-through entities, which

a lot of them are, smaller businesses, maybe the propane dealers

or whatever, they are a pass-through entity. They got 25 percent

when you add it up, the tax cut. You got fully expensing. If you

are in the business where you have got to buy trucks, you can

write it all off, 100 percent.

So the question is, why do you need more tax incentives? Because we do need to pay the bills. The next panel is going to talk

about America is going broke. We have had $10 trillion in debt in

the last 10 years, roughly. Plenty of blame to go around on that.

But the bottom line: Why is it that you need these additional incentives or tax breaks or consideration? And that is what we are

all looking at. It is not even a Democrat or Republican. Really, both

sides, I think we somewhat agree on this. If it is that good, let’s

put it in maybe permanent law and consider it.

But I have got to believe a lot of these things we have to take

a hard look at. How much is enough? And I am not referring to

just you, just in general, because we have a lot of public companies

who were paying 35. Now they are paying 21, 43 percent cut. They

are competitive in the world.

But I don’t know why we need additional incentives. They have

got plenty of incentives. So maybe your business is different. Your

industry is different. I would be the first to admit I don’t know everything about your industry. So I just pose that question to you.

When you look at what the new tax law is doing starting January 1 of this year, the benefits that you are going to take advantage of, why do you need this? And Mr. West, maybe you can talk

to the industry, or if you represent your company——

Mr. WEST. Outside of the parity, clarity, and certainty argument, it is we are emerging since 2013 with a dedicated engine to

fuel our technologies and to push these NGVs to the next level.

Class 8 vehicles are going to work and our businesses have 20-year

investment horizons on the infrastructure component.

So we do not have public money like Tesla and $1.5 billion commitments like electric does per company. So we are looking at this

to incentivize our customer base to adopt this technology. That is

why we asked for five years. We do pay Federal excise tax credits

at the State and Federal level, so we do pay tax liabilities to fund

the roadways, and electric vehicles, weights and measures has not

even come up with a unit measure for it.

So it is because we are not—this is not going to big companies

that are very profitable. This is an emerging bunch of people in the

value chain that are building out this great technology, and we are

at that tipping point. So I really do believe——

Chairman BUCHANAN. Yes. And I realize I don’t know the

background of all the companies here or industries being represented.

Mr. WEST. It is a lot like us.

Chairman BUCHANAN. But I would like to get that sense of it.

I am just—the industries that I have been involved in, we make

money. And I think there has been more than enough considerVerDate Sep 11 2014 07:08 Mar 19, 2019 Jkt 033797 PO 00000 Frm 00101 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33797\33797.XXX 33797

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ation, I think it has been more than fair, with companies across

America. But again, it might be different.

Mr. DIAMOND. Can I—just because a national security economic

pointed to this. So oil is a special——

Chairman BUCHANAN. Everybody will get a minute or so. But

go ahead, Mr. Diamond. Yes, go ahead.

Mr. DIAMOND. Yes. I was just going to say that oil is a special

commodity, right? So first of all, we are 100 percent dependent. It

is traded by a cartel. So in 2014—so the price is actually, in 2005,

$60. China starts using so much more it drives to $147, driving our

auto industry into bankruptcy. Goes down to $20 because of the recession. Then starts going up because shale, and Saudi Arabia decides to flood the market in 2014, which drives 200,000 jobs out of

the oil patch.

So if you are a company and you are dealing with oil, it is a very

different type of thing. And that is a national security risk. So we

might produce more oil today. Have we changed one thing in our

6th, 7th fleet? We have not changed anything. We are still paying

for that.

Two is, there is a chicken and egg problem with all the industries here.

Chairman BUCHANAN. Let me say one thing. When I got here

10 years ago, it was all about how are we going to get off foreign

oil. We have come a long way, in a sense, my understanding in the

last 10 years.

Mr. DIAMOND. So I—absolutely. I am all for domestic production. But there is a global price, and that price is volatile. And

what they decide in Vienna as a cartel would be illegal in the

United States of America, and they are doing it all the time and

telling us they are doing it.

So these people are fighting a battle with their hands behind

their back because at a time when even they can deploy, the price

can be dropped because Saudi Arabia floods the market. So I just

think that oil is unique because it powers the global economy. It

is 92 percent our transportation system. There is no other alternative.

But two, there is a chicken and egg problem. So everyone here

has a problem because they are dealing with an incumbent, once

again very volatile and not traded in a free market. But also, they

need infrastructure and they need the vehicles. So if you need that,

chicken and egg problem, you need infrastructure incentives to

help drive the infrastructure. Then people buy the vehicles. So I

think it is unique to buildings, which we just heard about, because

there is this sort of dual sides of this equation.

Chairman BUCHANAN. Okay. I am going to give everybody

about a minute, if you want a minute or so, because we have got

a time frame here. But whatever—Mr. Dungan, yes. Anybody take

a minute, whatever you want.

Mr. DUNGAN. Thank you. To answer your question directly,

Chairman Buchanan, I represent an early-stage company in an

emerging industry. And we look at this as a way to continue to propel innovation. Two of our companies in the U.S. are based in Ohio.

One is based in Oregon. We just had legislation passed in Florida

to allow the permitting to change for our type of facilities.


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This is a way to de-risk these startup companies and get us up

on our feet. And maybe in five, six years we do not need the support any more. We are just asking to participate.

Chairman BUCHANAN. Is it the way for you to attract capital?

Is that part of it?

Mr. DUNGAN. It de risks us from an off-take perspective so our

fuels that we produce are more attractive to the petroleum industry.

Chairman BUCHANAN. Thank you.

Mr. WEIDIE. Very briefly, if we want to be more energy-secure

and we want to have cleaner air, these alternative options make

a lot of sense, not only in the five-year period but perhaps beyond.

And if anybody can tell us that oil is not going back to a hundred,

I would like to know so I can make some future transactions.

From a business perspective, our company operations with alternative fuels in 45 states. Our experience is we are providing a

three, four payback on the investment in putting the conversion

equipment on the vehicles. Unfortunately, a lot of people in this

realm are only interested in a 24 month or less payback——

Chairman BUCHANAN. Let me ask you, the equipment that you

are putting on the vehicles, under the new tax law can you not

write it off 100 percent the first year now?

Mr. WEIDIE. That will be a benefit to the consumer, the customer, the fleet customer, respond——

Chairman BUCHANAN. This is not a benefit to the——

Mr. WEIDIE. There will be a benefit here.

Chairman BUCHANAN. Is that a benefit to the companies that

provide the service and the equipment they are adding?

Mr. GAGE. The vehicles are 25 percent more.

Chairman BUCHANAN. Yes.

Mr. WEIDIE. If there are increased sales, they will be a benefit

to the providers of the technology.

Chairman BUCHANAN. But if they are making money, they are

paying tax on the money, right? And they are going to get a tax

reduction.

Mr. WEIDIE. Oh, yes. Sure.

Chairman BUCHANAN. I am just trying to—I am telling you

what I get hit with; when we talk about extenders, people ask me,

right?

Mr. WEIDIE. But the business decision process is usually in this

type of realm, a 24 month or less payback. And that is what our

experience has been while they were in place and when they have

not been in place.

Chairman BUCHANAN. Mr. Gage.

Mr. GAGE. I would just say very simply that there are a lot of

alternative options, right? When a fleet is looking to upgrade or invest in new equipment. And for us, our members are incredibly appreciative of the tax reform. As the year progresses, they will find

out more and more just how beneficial that piece of legislation will

be to them.

But when they look at what alternatives are available, there is

not parity in terms of tax policy for natural gas as compared to,

say, biodiesel or for electric. And that is a bottom-line decision,

right? It is dollars and cents. And when you can get a dollar with


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biodiesel and only 50 cents for natural gas, it has an impact. And

it has an impact, and our goal is to try and get these fleets to convert over to natural gas.

Chairman BUCHANAN. So when you are talking about your industry buying, did you say trucks?

Mr. GAGE. Yes, sir.

Chairman BUCHANAN. How much are those trucks?

Mr. GAGE. Well, it all depends. A typical class 8 truck could cost

anywhere from—usually about 125- to $150,000. But when you the

natural gas component, it could be another $50,000.

Chairman BUCHANAN. So they might buy four or five trucks a

year?

Mr. GAGE. Some of our members are very small fleets. We also

represent fleets like Waste Management and UPS that are buying——

Chairman BUCHANAN. Let’s say they buy five trucks. That is

$500,000. They finance it over 10 years. So they get 10 percent out

of pocket and they got a $500,000 deduction, which they are saving

25 percent on that. I mean, it seems like that is a pretty good benefit.

Mr. GAGE. Many of our members, especially the larger members,

are looking for—they keep the vehicles for between two and three

years. So as was just referenced, that return is—they are looking

more on a payback of between——

Chairman BUCHANAN. Oh, just ask all of us because we do

have to pay the bills up here, too.

Mr. GAGE. Yes, sir.

Chairman BUCHANAN. Just take a look at what you are getting

and then the incentive you are asking us to address because at the

end of the day, we want to make sure this works for the American

people. We are running these massive deficits, and these are the

questions that I get asked from people on tax extenders or any

other incentives: Have they not—a lot of people say, have they not

got enough? Maybe not referring just to your industry, but just in

general.

So I think it is something you need to talk to the membership

about and just ask the because you represent a lot of different big

and small, and see how badly do they need that, considering what

they just are going to get, they just got.

Mr. Markowitz.

Mr. MARKOWITZ. Chairman, I want to give you a little different

twist on what you are talking about. Also, some of the companies

are being required by either Federal or State mandates to meet

certain performance standards, which requires them to build products that are transformational and new to the marketplace.

But a lot of those transformational products are also very expensive or more expensive than the incumbent technology you are trying to replace. So to make this sort of technology attractive for consumers to policy, you need sometimes that incentive to provide

some sort of financial equity for the purchaser.

In addition to that, what we were talking about is when you deal

with transformational technologies, you should not pick winners or

losers. For instance, I could give you a long list of products, whether it was flat screens that came out with plasma and LCD. By havVerDate Sep 11 2014 07:08 Mar 19, 2019 Jkt 033797 PO 00000 Frm 00104 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33797\33797.XXX 33797

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ing just one tax break for one technology, not providing it for the

other, you may be going all in on the wrong technology.

Chairman BUCHANAN. Yes. Let me ask you, just in concluding,

I would like to have you think about this. I asked the last panel,

if you were here: If we were to work with you in terms of permanent law, what are you willing to give up? What is the industry

willing to give up in exchange, maybe, for what you are looking for

today in an incentive? It is a possibility.

It is just something—I do not have time today because we are

running out of time. But send me a note or send our staff here a

note a just think about that. Is there something in the industry

that you are getting as an incentive that is not much of an incentive—maybe it was eight, 10 years ago when we went a period of

2008 and it was a disaster the next three or four years. All of us

lived through that. And just take a hard look at it.

And also, just let me say thank you for your testimony. We appreciate the opportunity to work with you and continue working

with you. I would say tax reform, our goal, is to try to improve on

it. We want to make sure it makes sense, it is fair, and we want

to make sure these extenders are permanent law, which ones, because they will not all make it but some of them might be considered. And that is our goal.

Thank you. And let me just mention, we will adjourn now and

then try to come back right after votes or 2:00. So this portion is

adjourned. Thank you.

[Recess]

Chairman BUCHANAN. The subcommittee will come to order.

Welcome back. For those of you in the Subcommittee on Tax Policy

hearing post Tax Reform evaluation of recently expired tax provision, I would like to welcome our third panel for the discussion of

a broader economic and policy considerations to be taken into account to evaluate these expired provisions.

First, we will hear from David Burton, senior fellow in economic

policy at The Heritage Foundation. Secondly, we will hear from

Richard Phillips, senior policy analyst at the Institute on Taxation

and Economy Policy. Thirdly, we will hear from Ryan Alexander,

president of Taxpayers for Common Sense. Fourthly, we will hear

from Maya MacGuineas, president of the Committee for Responsible Federal Budget. Finally, we will welcome Seth Hanlon, senior

fellow at the Center for American Progress.

Thank you again for being here today. The Committee has received each of your written statements, and they will be made part

of the formal hearing record. Each of you will be recognized for 3

minutes for your oral remarks.

We are going to have votes in here, so we are going to try to get

through your testimony. That is kind of our goal. We will take

votes and then come right back.

But, Mr. Burton, you are recognized for 3 minutes.

STATEMENT OF DAVID BURTON, SENIOR FELLOW IN

ECONOMIC POLICY, HERITAGE FOUNDATION

Mr. BURTON. Thank you. My name is David Burton. I am a

senior fellow in economic policy at The Heritage Foundation. I

would like to express my thanks to you, Mr. Chairman, Ranking


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Member Doggett, and Members of the Committee for the opportunity to be here. The views I express in this testimony are my own

and shouldn’t necessarily be construed as representing any official

position of The Heritage Foundation.

Tax preferences distort the economy by picking winners and losers. They alter relative returns or the cost of capital of different investments and induce taxpayers to make suboptimal economic decisions that they would not have made but for the tax preference.

They make the economy less efficient, so that a given amount of

inputs produces less output.

In economics terminology, tax preferences reduce the production

possibility frontier. In plain English, they reduce the incomes of the

American people.

Let me quickly address some of the 26 provisions being considered by the Committee. All 13 of the energy tax provisions are unwarranted tax preferences. The only possible economic justification

for these provisions is that they are designed to address a negative

externality.

A tax subsidy for politically favored interests with strong lobbies

will be fairly far down the list of efficacious means of addressing

the problem of negative externalities. To achieve the desired effect,

the policy designed to address the externality must be calibrated

to accurately internalize the actual costs of the externality.

In the case of the expired provisions being considered by the

Committee, the subsidy with various alternative energy sources is

only tangentially related to the externalities that may exist, and

there is little reason to believe that the tax preferences are effectively addressing whatever externality the tax preferences are

meant to address.

In principle, all capital expenses should be deductible when incurred; in other words, expensed. The various cost recovery provisions at issue are highly targeted provisions that would shorten recovery periods and provide for expensing for narrow interests.

Although there is no particular reason to believe that the class

lives in the current asset depreciation range system adopted in

1971 are correct in every respect. Those seeking targeted changes

to capital cost recovery allowances should be required to provide

persuasive evidence that their property is misclassified under current law.

A tax deduction should be accorded for outlays made for the purposes of earning future income. The primary reason that people

pay tuition is to enhance their future earnings capacity. Therefore,

allowing a deduction for qualified tuition expenditures has a sound

policy rationale.

A well-designed tax system should generally treat similarly situated taxpayers in a similar fashion. Thus, those with the same

level of consumption or income should pay roughly the same tax.

This concept is sometimes called horizontal equity. Tax preferences

or loopholes violate this principle and are one of the central reasons that the tax system is viewed as unfair.

The Committee should keep this principle in mind as it deliberates. I address other tax preferences or expired provisions in my

written remarks. Thank you.

Chairman BUCHANAN. Thank you, Mr. Burton.

[The prepared statement of Mr. Burton follows:]


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Chairman BUCHANAN. Mr. Phillips, you are recognized for 3

minutes.

STATEMENT OF RICHARD PHILLIPS, SENIOR POLICY

ANALYST, INSTITUTE ON TAXATION AND ECONOMY POLICY

Mr. PHILLIPS. Thanks. Chairman Buchanan, Ranking Member

Doggett, and Members of the Committee, on behalf of the Institute

on Taxation and Economic Policy, or ITEP, I would like to thank

you for holding this hearing to evaluate the recently expired tax

provisions also known as the Tax Extenders.

It is long past time for the tax extenders to be evaluated and either be allowed to expire or to be paid for and made a permanent

part of the Tax Code. Congress’ tradition of passing short-term extensions of these provisions has long been detrimental to the creation and maintenance of a fair and sustainable tax system.

While a lot of excuses are given for this, the true reasons behind

this practice are clear. First, the goal of passing tax breaks on a

temporary basis is to hide their true long-term fiscal costs. While

increasing the deficit for these tax breaks a couple years at a time

may create the appearance of fiscal prudence, the reality is that

their continual extension is increasingly costly and fiscally imprudent.

Secondly, there is a problematic relationship between lawmakers

and the special interest backers of these provisions. The former director of ITEP, Bob McIntyre, rightfully referred to the tax extenders legislation as the Tax Lobbyist Full Employment Act.

We need to remove the special interests from the tax policy-making process, and one of the most important first steps to accomplish

this would be to end the tax extenders tradition once and for all.

To this end, lawmakers should initiate a detailed analysis of each

of the recently expired tax provisions at issue in today’s hearing to

determine whether or not they serve a compelling public interest

in a cost-effective manner.

If a provision does not meet these standards, it should be allowed

to remain expired. And if a provision does prove to be effective,

then it should be made a permanent part of the Tax Code. But at

the same time, it should be paid for.

It is critical to note that creating permanency in the Tax Code

goes well beyond dealing with the tax extenders. Rather than clearing out the Code of temporary provisions, the Tax Cuts and Jobs

Act has created a series of temporary tax provisions that are many

times the size of the tax extenders that are the focus of today’s

hearing.

Some lawmakers may argue that the answer to this problem is

to make all of the temporary provisions of the Tax Cuts and Jobs

Act permanent. But the problem with this is that it would not

make the Tax Code sustainable and would not guarantee any real

permanency in the Tax Code.

The United States faces a deficit of roughly $12.3 trillion over

the next 10 years, which means that current tax law will have to

change substantially to prevent a historic increase in the national

debt. Making all the Tax Cuts and Jobs Act provisions and other

temporary provisions permanent would make the Tax Code even


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more unsustainable by increasing the projected deficit by an additional $1.2 trillion.

To create permanency in the Tax Code, Congress should embrace

a real tax reform effort which would set the Code on a fiscally sustainable path and end the use of temporary provisions.

Thank you for your time. I look forward to answering any questions.

Chairman BUCHANAN. Thank you.

[The prepared statement of Mr. Phillips follows:]


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Chairman BUCHANAN. Ms. Alexander, you are recognized.

STATEMENT OF RYAN ALEXANDER, PRESIDENT, TAXPAYERS

FOR COMMON SENSE

Ms. ALEXANDER. Thank you for the opportunity to testify

today.

Taxpayers for Common Sense is a national nonpartisan budget

watchdog. We have long catalogued tax extenders and welcome this

hearing as one of the first instances of oversight on this topic. In

the last decade, short-term extensions of expiring tax provisions

have added hundreds of billions of dollars to the federal deficit.

Tax extenders undercut the goals of providing certainty, providing a predictable flow of revenue, and encouraging future behavior. In almost every case, the hodgepodge package of unrelated extenders are attached to a must-pass bill without full offsets for lost

revenue.

The practice adds complexity and results in Washington picking

winners and losers. In the last decade, 6 out of 7 extender bills

have been at least partially retroactive, subsidizing past, not future, actions.

On the very same day the most sweeping tax package in a generation passed the Senate in December, Finance Committee Chairman Hatch introduced the Tax Extenders Act of 2017. Most of the

tax breaks in that bill have been extended several times in the past

and were retroactively extended in the Bipartisan Budget Act last

month.

Excluding them from the December tax package either means

they were unimportant or lawmakers couldn’t shoehorn the costs

into the 1.5 trillion deficit permitted by the reconciliation package.

The December tax package also set the stage for a whole new

round of tax extenders by including many provisions that expire,

like the new break for craft beer, which expires in 2019.

Taxpayers for Common Sense also has concerns on the merits of

many of the provisions we are talking about today. Section 168E3A

provides 3-year depreciation for certain racehorses and has been

extended 4 times. Other than political influence, how did this become a tax policy priority? Are racehorse investors’ profits critical

to the country’s economic health?

The NASCAR tax break or the 7-year recovery period for motorsports entertainment complexes has been extended 6 times since

its establishment in 2004 at a cost of more than 300 million. It is

a perfect example of a special interest lobbying successfully for special treatment.

Special expensing rules for film and television, Section 181.F, a

perennial favorite, received retroactive extension through last year.

And the December package includes a new provision for bonus depreciation for film, television, and theater that may have greater

value than Section 181.F.

More than half the provisions included in the BBA 2018 relate

to the energy industry, many of which were created to provide incentives to less established sectors as a counterweight to longstanding tax preferences for mature industries.

But the December tax package left the legacy energy expenditures in place, thereby renewing emerging industries’ demand for


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extenders. So continues the cycle of adding rather than subtracting

subsidies.

Again, thank you so much for inviting me today. Taxpayers for

Common Sense is pleased that you are holding this hearing on individual extenders, but we believe the entire process has to stop.

And I am happy to answer questions you have.

Chairman BUCHANAN. Thank you.

[The prepared statement of Ms. Alexander follows:]


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Chairman BUCHANAN. Ms. MacGuineas, you are recognized for

3 minutes.

STATEMENT OF MAYA MACGUINEAS, PRESIDENT, COMMITTEE

FOR RESPONSIBLE FEDERAL BUDGET

Ms. MACGUINEAS. Thank you so much for having me here

today to discuss tax extenders. I am Maya MacGuineas. I run the

Committee for a Responsible Federal Budget, and I am pleased to

have the opportunity to join you, but I am also disappointed we

continue to have this discussion.

The PATH Act and the recent tax reform effort were meant to

end the practice of making tax policy 1 year at a time.

I would like to make 4 points. Our Tax Code has too many tax

breaks, even after tax reform. Temporary tax extenders are a bad

way to do policy. Retroactive tax extensions are basically a giveaway, and our fiscal situation necessitates that any extensions be

paid for.

The over 1 trillion a year—a year—in tax breaks in our Code,

even after tax reform, makes our often—which are oftentimes inefficient, ineffective, expensive, regressive, distorting, and pick winners and losers, are not a good way to do tax policy.

They are worse when they are temporary, which makes it hard

for businesses and individuals to plan and invest. There are times

when they make sense, like if to deal with an economic downturn,

to test the effectiveness of something, or to provide transition relief.

But generally they are an outright gimmick to make the cost of

legislation look cheaper, just like the expiration of the just-passed

tax bill, which creates a host of new extenders that could add over

a trillion to the debt, or 1.6 trillion if you include all the other tax

extenders that you are considering.

That is more than the cost of the entire tax bill. Tax incentives/

extenders are particularly problematic when they are extended

retroactively. Since they have little or none of their intended effect,

they are just paying people to do what they have already done.

Congress almost always extends these tax breaks without offsets.

Since 2012, Congress has passed 4 extender laws that added more

than $1 trillion to the deficits. And right now our debt is at near

record levels. Debt relative to the economy is twice the historical

level. It is twice where we were when we went into the downturn

of 2008. We need to be in better fiscal shape than that if and when

we enter the next downturn, so that we are able to respond.

We are on track to have trillion-dollar deficits a year starting

next year forever. And after the irresponsible spending and tax legislation that we have just passed in the past few months, we are

likely to have debt as high as the entire economy within a decade.

So I think it is worth noting that most of the people who are

pushing to extend the tax extenders are going to benefit from it—

their companies, their industries, their self-interest.

And here you have a panel that is unbelievably diverse. I would

bet we couldn’t agree on much of anything except we are all here

with no skin in the game saying, ‘‘This is not a way to do a tax

policy. This is not a way to keep extending things. This is not a

way to borrow for something when the fiscal situation is so bad.’’

So thank you so much for having me today.


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Chairman BUCHANAN. Thank you.

[The prepared statement of Ms. MacGuineas follows:]


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Chairman BUCHANAN. Mr. Hanlon, you are recognized.

STATEMENT OF SETH HANLON, SENIOR FELLOW, CENTER FOR

AMERICAN PROGRESS

Mr. HANLON. Mr. Chairman, Ranking Member Doggett, Members of the Committee, thank you for the chance to testify today.

My testimony will discuss the extenders in the context of our overall fiscal challenges and the recently enacted tax bill.

I have 3 points I would like to emphasize today, but my main

point is the first one, and that is continuing to renew tax extenders

without offsetting their cost would drain needed revenue, making

it harder to meet our fiscal and economic challenges.

Demographic changes are putting increasing pressure on the federal budget, and existing levels of revenue will not be enough to

fully meet our commitments to Social Security and Medicare over

the long term. And at the same time, the U.S. has substantially

underinvested in critical priorities like infrastructure, education,

and child care, even as we face new challenges like the opioid crisis.

The tax legislation enacted in December substantially worsens

our fiscal situation, adding $11⁄2 trillion to deficits over the next 10

years according to the official estimate.

According to the Administration, revenues will be just 16.3 percent of GDP in the coming year, well below historical averages, and

corporate tax receipts will average only 1.2 percent of GDP in the

coming years, and that is 50 percent less than the average over the

past 3 decades.

The tax legislation also creates a host of new tax extenders, including nearly all of its individual tax changes as well as delayed

revenue raisers. In this respect and others, the legislation that was

billed as a historic tax reform has made the Tax Code even less

stable.

The remaining tax extenders should be considered in this context. Having enacted an extremely costly, and I would argue irresponsible, tax bill that will put even more pressure on programs

and make it harder to address unmet needs, Congress needs to

stop digging an even deeper hole.

Extending the provisions that were extended for 2017 would add

$921⁄2 billion to deficits, according to Joint Tax. They should be addressed at least on a revenue-neutral basis by offsetting their costs

or by keeping them expired. If there are provisions that merit becoming permanent, there is ample room in our Tax Code to offset

their costs by closing other loopholes or otherwise raising revenue.

Secondly, as Maya mentioned, renewing extenders without paying for them undermines the agreement that Congress made in the

PATH Act of 2015. The PATH Act was supposed to end the yearly

ritual of extending tax breaks 1 or 2 years at a time, and the intent

was clear: that the remaining extenders would be addressed in a

comprehensive tax reform or be allowed to expire. Sliding back into

Congress’ old habits would be bad for both our budget and the stability of the Tax Code, and it would open up new opportunities for

budget gimmicks.

And thirdly and finally, extending tax breaks retroactively is the

worst of all worlds, serving no purpose other than conferring a


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windfall for certain taxpayers without incenting economic activity

or influencing decision-making in a positive way.

Retroactive tax changes also increase confusion and filing burdens for taxpayers and further stretch the IRS’s already stretched

resources. Thank you.

[The prepared statement of Mr. Hanlon follows:]


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Chairman BUCHANAN. Well, thank you all for your testimony.

We will now proceed to questions and answers session. They did

call votes, but we are going to try to get a couple in.

I will defer my questions to the end of the question period. I now

recognize Mr. Renacci for his questions.

Mr. RENACCI. Thank you, Mr. Chairman. I want to thank the

speakers for being here, and I—and, look, we do agree with a lot

of things. I agree with a lot of things you are saying, not about the

tax bill but about extenders. As a general matter, I find tax extenders to be terrible policy.

In the aftermath of tax reform, we need to determine which provisions should remain expired, which should be phased out, and

which should be made permanent. I am for ending this process of

temporary extensions. I am a business guy. You have to have permanency. You have to know what your future is. You can’t just

keep guessing and hoping that the government extends things.

However, it is critically important to me that we avoid picking

winners and losers in the process. So in the earlier panels, I

brought up examples of, you know, extending the fuel cell vehicle

credit included in Section 30B. Currently, the plug-in battery credit

contained in 30B provides incentives up to $7,500 for qualifying

plug-in battery electric vehicles.

While I support 30B, it doesn’t seem fair that the purchaser of

a zero-emission fuel cell vehicle receives no credit. So I would just

like to hear your thoughts on—it is easy to just say let’s end them.

The problem is, if you end them today, you are picking winners and

losers because some credits have extended already and others

haven’t.

So I would love to hear your thoughts on how do we bring this

plane down slowly, which is the way we should do things, and end

them all or make them permanent but be fair between businesses

and make sure that we are not picking winners and losers.

So anyone on the panel that wants to.

Ms. ALEXANDER. I think that—a couple of thoughts. One, and

this is probably not exactly what you had in mind, but I think that

if you took all of the expenditures and the individual breaks in the

corporate code as well as the temporary provisions and tried to

kind of look at transitions out of all of them, a) that would raise

a lot of revenue. The tax bill would be much closer to paid for.

And because the corporate rate was reduced so significantly because of the, you know, depreciation and expensing and passthrough rules, you know, people aren’t necessarily going to feel the

pain of losing an individual break at this moment when they just

got a significant rate reduction.

So I would say this is a good time to start landing the plane

slowly, and it may not be—if you wait 5 years, you will probably

have to land it a lot more slowly than you would if you did it now.

Mr. RENACCI. Well, I am not saying land it—I am not saying—

maybe you forget, we still have ones that we have already extended

to 2017. So now if you don’t extend—if you don’t keep par, you

have—we do pick winners and losers. So I am trying to figure out

a way to make sure that we can keep this—we shouldn’t be picking

winners and losers.

Ms. ALEXANDER. Right.


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Mr. RENACCI. Just because they got a credit extension—by the

way, the other thing is, some businesses already relied on that

2017 credit being extended.

Ms. ALEXANDER. Right. No. And, I mean, I hear you and I

think that is—I mean, it is certainly the case that people were relying on it because they could, because it has always happened in the

past.

But I think that given the significant changes to the corporate

code, if you took all of expenditures and individual breaks in the

permanent code, already extended, and the ones that recently expired, and said, you know, let’s figure out quickly which ones really

have to be part of the permanent code because probably most of

them don’t. They just got a significant rate reduction, and this is

the time when they could afford to lose a break.

Mr. RENACCI. Mr. Chairman, I yield back.

Chairman BUCHANAN. I now recognize the distinguished Ranking Member, Mr. Doggett, for any questions he might have.

Mr. DOGGETT. Thank you for the valued testimony of each of

you. I think, in short, any preference or credit or tax break that

is worth having that really serves the public interest is worth putting in the permanent Tax Code and worth paying for.

I want to salute each of you for your leadership and testimony

today, but I particularly want to focus on Ms. MacGuineas and the

Committee for a Responsible Federal Budget, because when the Republican deficit hawks flew south for the winter, when they engaged in what I think is total hypocrisy by adding trillions more

to our national debt, you continued to advance staunch principled

advocacy for fiscal responsibility.

You conveyed the facts, not just the myths, about the true cost

of this Republican Trump tax monstrosity. As you say in your written testimony, this tax law quote ‘‘made an already bad fiscal situation stunningly worse.’’ And so now we reach today, and in addition to coming here to testify this morning, Chairman Brady apparently also announced that he and President Trump will soon attempt to force through another 4- to $500 billion of unpaid tax elixir that will make the situation even worse.

We know that for years large multinationals with armies of tax

lawyers, lobbyists, and political action committees have exploited

loopholes to strip profits out of America and have them magically

reappear in some island tax haven. We have had estimates of

offshoring and tax dodging costing as much as $100 billion every

year.

The joint tax staff demonstrated that the Republican tax bill had

no effect on this. Not only did it not raise any revenue by closing

these loopholes, the Republican bill actually expanded the loopholes

and added another $14 billion in lost revenue from these international loopholes.

Mr. Phillips, I would ask you whether or not it is correct that the

Trump Republican tax bill, by establishing a tax rate for international investments made in other countries, that is seldom more

than half the rate that is charged for investments here in America

and often may be zero, and the second provision that establishes

an arbitrary 10 percent tax-exempt rate on overseas tangible inVerDate Sep 11 2014 07:08 Mar 19, 2019 Jkt 033797 PO 00000 Frm 00142 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33797\33797.XXX 33797

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vestments, whether all of that doesn’t significantly increase the incentives for offshoring both profits and American jobs.

Mr. PHILLIPS. Yes, absolutely. On the one hand, it incentivizes

moving profits offshore because the lower rate means that companies, if they can shift their profits over there, can pay the lower

rate.

And then, also, I think more disturbingly is that it actually creates an incentive to move more jobs offshore, because if you actually move those tangible assets offshore and actually make a new

factory offshore, then you can actually get a tax break for that.

Mr. DOGGETT. And, Ms. MacGuineas, you wanted to add a

word in response to the last comments that were made?

Ms. MACGUINEAS. Oh, thank you. I thought in many ways we

had picked the winners and losers when we decided what we were

going to do in the tax bill, and we created sort of winners for everybody, and I suppose losers were the national debt and the future

and economic growth.

But we made those decisions in the PATH Act. We made those

decisions in tax reform. So I was going to take issue with that now

is when we are making those decisions, but I would say I have no

judgment that I am sharing at the moment on each individual tax

extender.

Some make more sense than others, but the ones that you decide

you want to keep, by all means, if you pay for them. But the whole

point is when your debt is where it is right now, growing faster

than the economy, we can’t continue to do things that we put on

the national credit card.

Mr. DOGGETT. Well, thank you. We are going to take a quick

recess. We have got to go vote, and then we will be right back and

we will pick it up from there. Thanks.

[Recess]

Chairman BUCHANAN. I call the meeting back to order.

Mr. Reed, you are recognized.

Mr. REED. Well, thank you, Mr. Chairman, and thank you for

allowing me to participate in this Subcommittee, not being on the

Subcommittee this session.

But I appreciate the opportunity to address the panel and to specifically focus in on a provision that I know has caused some concern by members of the panel in regards to the motorsports speed

track depreciation bill that we have been a proud supporter of,

with Watkins Glen being in the district, I can tell you first hand,

having experienced that race weekend, looking at the economic impact statements from the facility generating $81 million worth of

economic activity.

And for an area of western New York like us, that we represent,

being a poor, rural area, primarily agriculturally based, having $80

million-plus in an economic activity in our backyard is something

I am very sensitive to, not only because of that economic impact

but the jobs that are located—associated with that weekend as well

as throughout the year that that track represents.

And I know there has been some concern raised by this panel,

Mr. Chairman, about the need for an extender such as motorsports,

but I will tell you, having looked into this industry in very close

detail, and when I see an investment, for example, in the Daytona


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track, that represented 1 percent of the entire U.S. steel output, of

United States steel, going into that investment to the tune of millions of dollars, and the jobs that are associated with the steel production of 1 percent for 1 type of project; and to see and hear an

argument, Mr. Chairman, raised that individuals making these investments should not get what I think was a cornerstone of tax reform, which was the immediate ability to write off your investments as an economic catalyst, as an economic growth in regards

to that depreciation schedule going down to immediate write-off

and encourage that type of investment.

When we see an investment such as what we saw with Daytona,

with 1 percent of the steel going into that thing, I think it is only

right that we treat these types of investments just like we do and

encourage the other types of investments across America when we

are able to write off their entire investment in the first year.

And so I come here today to be an advocate for this provision in

particular, as well as if the tradeoff is is to make this permanent,

I am all for it. I am all for making all tax extenders permanent and

making it part of the Code so that we have the ability to plan, that

we have the ability to rely upon a Tax Code rather than go through

the extenders process that we have historically engaged in here.

So I appreciate the sentiment of the panel, and I am just concerned. Does anybody have any response to the concern that I

would raise that by treating these individuals differently, by having them have such a long-term depreciation, you lose that economic impact that we are trying to encourage with the full and immediate expensing provisions of tax reform.

I know my time has expired, so if you can respond to our inquiry

in writing, I would greatly appreciate it.

Mr. BURTON. I can do that.

Mr. REED. I am out of time, but I will defer to the Chairman.

Chairman BUCHANAN. Thank you.

Mr. Larson, you are recognized.

Mr. LARSON. Thank you, Mr. Chairman. I want to thank the

panelists again. And I got an opportunity to speak with them just

before I was—we were leaving for the vote, and I especially appreciate their concern about the national debt.

In one of the previous panels, I said it seems like everybody

wants to go to heaven, but nobody wants to die. Everybody loves

a tax cut, but nobody likes to pay for it. And so I was saying to

them before the break that we have a number of prominent Americans, including Jim Baker, George Schultz, Martin Feldstein, Greg

Mankiw, Hank Paulson, Elon Musk, Gary Cohn, Rex Tillerson, Art

Laffer, to name a few who favor a tax on carbon.

I wonder what the panelists think about that, and I will start

with Mr. Hanlon. Would you favor it, yes or no?

Mr. HANLON. I would. I mean, I think it—oh, sorry.

Mr. LARSON. Ms. MacGuineas.

Ms. MACGUINEAS. Yes.

Mr. LARSON. Ms. Alexander.

Ms. ALEXANDER. Yes, we have been in favor of a carbon tax

for 23 years.

Mr. LARSON. Yes. Mr.——


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Mr. PHILLIPS. Yes, especially if it was offset for low-income people.

Mr. LARSON. Yes. Now, so 4 out of the 5 of you would favor it

because it does produce the kind of revenue that Mr. Baker and

Mr. Schultz and others recognize. You know, whether it is revenueneutral or not, we can’t keep on the current course that we are.

And the primary concern that I have—and I want to get back to

something Mr. Hanlon raised—is that I may have been born at

night, but not last night. Or as me Irish grandfather would say,

‘‘Trust everyone but cut the cards.’’ When it comes to this tax cut,

it seems like we are going to be in a position where we are out of

revenue and unable to, voila, fund Social Security and Medicare at

a time of its greatest need.

And so, therefore, I think it vitally important that we come up

with a means of funding programs that otherwise will get cut. I

think that was your point, Mr. Hanlon. Am I correct?

Mr. HANLON. Yes. And certainly don’t make the problem even

worse by enacting new tax cuts or extending new tax cuts without

paying for them.

Mr. LARSON. I wonder what The Heritage Foundation thinks

that we are going to do with 10,000 baby boomers a day retiring—

10,000 a day—and we have our head in the sand on the other side

of the aisle with respect to what we are going to do, other than cut

their benefits and raise their ages.

This, to me, is not a solution for the American people. That is

a sentence. And at a time when we find so many Americans that

are underwater for a number of reasons, not the least of which are

working women in this country who are retiring into poverty, and

we find the Committee that can correct it sitting silent here, making enormous cuts for the very wealthy in our country.

But for working women, I don’t think we can do Social Security.

We are going to—you know, for you, we will raise your age and we

will lower your benefits. That seems to be the path we will go.

Mr. BURTON. That is not the path that The Heritage Foundation has recommended, although we certainly believe that a central

aspect of addressing our budgetary problems is entitlement reform.

But core to what I believe——

Mr. LARSON. Excuse me. Entitlement? Is Social Security an entitlement?

Mr. BURTON. Yes, Congressman.

Mr. LARSON. It is called FICA, right? Is that Federal Insurance

Contribution? A contribution is an entitlement? Whose contribution? The people of this country’s contribution. You guys call that

an entitlement. That is a fraud. People pay for this insurance, and

then you tell them it is an entitlement.

Mr. BURTON. Well, Social Security is a relatively tractable problem and can be addressed. Medicare is——

Mr. LARSON. That is right. And it is not an entitlement. Would

you admit that for the record?

Mr. BURTON. No, because——

Mr. LARSON. Faced with the facts, that—is FICA not a Federal

Insurance Contribution Act, where it comes from?

Mr. BURTON. The benefits are tangentially related to the contribution.


ralbany on LAP520R082 with HEARINGS
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Mr. LARSON. Tangentially? When it comes out of my paycheck,

that’s tangential?

Mr. BURTON. No. There is——

Mr. LARSON. That is very specific. It comes out of my paycheck,

and I do it every single week or biweekly or monthly, and you say,

‘‘Oh, no, it is an entitlement.’’

Mr. BURTON. I believe that you are probably aware the benefit

formulas do not correspond to——

Mr. LARSON. And why is that so? Because it hasn’t been

actuarily adjusted since 1983.

Mr. BURTON. That is——

Mr. LARSON. In the private sector, in the insurance sector,

which I know a little bit about, they would have adjusted it. We

didn’t. That is government’s responsibility.

Mr. BURTON. I guess we probably can agree that it needs to be

adjusted. I guess I don’t understand why liberals and conservatives

can’t find common ground in reforming Medicare, Social Security,

and some of the other programs, so that affluent people have to pay

close to the cost of providing the benefits.

Mr. LARSON. I would agree with you on common ground. Thank

you, sir.

Chairman BUCHANAN. Thank you.

Ms. DelBene, you are recognized.

Ms. DELBENE. Thank you, Mr. Chair, and thanks to all of you

for being with us today.

I am deeply concerned that we are sitting here talking about a

host of narrow tax extenders while, as noted, Republicans have, in

essence, created a host of new ones in their tax bill that will impact

American families directly.

Mr. Phillips, in your testimony, you state that, quote, ‘‘If Congress were to make permanent all the temporary tax provisions

today, fiscal reality will force them to overhaul the Tax Code again

in a few years to raise more revenue.’’

So let’s be very clear. What you are saying is that Republicans

and President Trump chose to give corporations a massive permanent tax cut, and they have now boxed themselves in a situation

where American families will ultimately face a tax increase because someone has to pay for all the debt that is piling up. Is that

correct?

Mr. PHILLIPS. Yes, absolutely. There is no way we can sustain

trillion-dollar deficits into the future without raising taxes.

Ms. DELBENE. Now, Chairman Brady just today said that the

Committee would consider—actually, his quote was that while the

tax cuts for families were long term, they are not yet permanent,

so that we would—we are going to address issues like that going

forward. So wouldn’t that make the situation even worse, given the

tax cut that has already been granted to corporations?

Mr. PHILLIPS. Yeah. I think that the current tax cut has already made the situation relatively dire, and adding more tax cuts

on top of that would be absolutely disastrous.

Ms. DELBENE. So do you see these same problems as we talk

about tax extenders generally?


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Mr. PHILLIPS. Yeah. I think that they made much larger portions of the Code temporary, and extending those even further is

much larger than the things we are talking about today.

Ms. DELBENE. So you would agree that we should be making

decisions on tax policy and actually look at the long-term impacts

of those decisions, so that we are making smart decisions that

would impact the fiscal situation for our country over the long

term.

Mr. PHILLIPS. Absolutely. I think we should evaluate each of

these extenders, but I also think we should evaluate the much bigger provisions that are a permanent part of the Code.

Ms. DELBENE. And wouldn’t you agree for long-term—for the

long-term health of our economy that making smart decisions today

actually impacts families and businesses going forward versus

making decisions that short term may provide a tax cut, but long

term actually really make our economy weaker?

Mr. PHILLIPS. Absolutely. And debt service is one of our biggest

expenses, and this will only make that worse.

Ms. DELBENE. Thank you.

Thank you, Mr. Chairman. I yield back.

Chairman BUCHANAN. Thank you.

Mr. Blumenauer, you are recognized.

Mr. BLUMENAUER. I appreciate you being here. I found it very

useful to listen to your testimony. Particularly, Ms. Alexander and

Ms. MacGuineas, I appreciate your consistent voice in terms of

talking about challenges and seeking an opportunity for us to be

more intentional about these tax policies.

I appreciate your calling out a few of the provisions that really—

like racehorses or whatever, but the Code is replete with them.

Do you envision, either of you, with the work that you have done,

an opportunity for us—because you have done different things in

the public space to try and highlight some of these challenges, do

you have some thoughts about a way that we might be able to engage the public and Congress dealing with specifics that probably,

if they were in the spotlight, would not withstand scrutiny?

I mean, I appreciate what the Chairman is doing, asking people

to come in and justify various extenders. We don’t do that, and I

am wondering if you have any thoughts about a process that might

help us over that hurdle.

Ms. ALEXANDER. I mean, I really wish I could solve the big picture problem with a sentence. But, I mean, I think that our experience, and I know, Congressman Blumenauer, you know our work

at Taxpayers for Common Sense is that you—you know, you can

engage the public through examples because the numbers are

numbing.

And, you know, people understand, you know, the bridge to nowhere and they understand, I mean, you know, we are not going

to go bankrupt as a country because of the racehorse tax break.

But there is no chance that it was a prior—a decision made based

on priorities, and people can then understand the larger problem.

The question is how to move them towards thinking that there is

a solution that can be bipartisan and enduring and that people—

that will last.


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And I think that is where I think we are all looking for ways to

find a way to——

Mr. BLUMENAUER. Let me give you another view of——

Ms. ALEXANDER [continuing]. Public effectively on that.

Mr. BLUMENAUER [continuing]. Because you referenced the

deficit that is going to be fundamentally different. Ms.

MacGuineas, you talked about the stage set for a $1 trillion a year

deficit starting next year in perpetuity. Might the deficit be a hook

that we can engage people to go at this slightly different?

Ms. MACGUINEAS. I do think trillion-dollar deficits may turn

out to be a wakeup call. To have trillion-dollar deficits during a

time of economic prosperity is obviously unprecedented, and the situation is only going to get worse.

One thought I had about your question was—and this is something that should have happened before tax reform, but if you will

remember Simpson-Bowles, they had an idea where they would get

rid of all tax expenditures, and then you would go through and you

would evaluate each one, and they would bring rates down as low

as you could, and it would have been like 8 and 12 and 18 percent.

Super, super low on the individual side, corporate rate of higher

than it is today, but it would have been lower.

And then you would decide which tax expenditures were worth

buying back. If you want the home mortgage interest deduction or

the healthcare exclusion or racetrack subsidies, is it worth the fact

that you would have to pay for them in higher rates?

And I think the problem is that we have no tradeoffs in our

budget right now. If you just put everything on the national credit

card, it seems to be free. And so I think we have to do the whole

tradeoffs in order to evaluate the situation.

I think we also have to learn to have civil discourse in all of this.

We are going to disagree. And I am just going to say it. Congressman Larson, I really—I give you credit on your Social Security bill

because you have a bill that addresses the problem, and there are

so many people who have ignored it.

But I also think it is not fair to yell at somebody who disagrees

with you. I think we have to have a more civil—and you are going

to yell at me; I am sorry for saying it. But I want us to have a civil

discussion.

Mr. LARSON. I am not going to yell at you because what happens, when you only have 3 minutes, and you can’t even get——

Chairman BUCHANAN. You had 4

1

⁄2.

Mr. LARSON [continuing]. It causes frustration.

Ms. MACGUINEAS. I understand that. I do really——

Mr. BLUMENAUER. This was my time.

Ms. MACGUINEAS. And I do thank you for having the Social

Security bill, which is what we need more of. You have been one

of the people who have talked about that we do need to address it.

Mr. BLUMENAUER. I appreciate your summary point about

there are no tradeoffs as long as it is on the national credit card.

And we have just been through 2 episodes of that.

Ms. MACGUINEAS. That is right. We have this kind of fiscal

free lunch attitude that everything will pay for itself, or we don’t

have to offset anything. And now I am afraid we are going to keep


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doing it until something stops us and says, ‘‘If it is worth doing,

it is worth paying for.’’

Ms. ALEXANDER. I think the one thing I would add is that I—

when I travel, I very frequently hear people say, ‘‘Well, they passed

the Budget Control Act, and so they did something.’’ And not once

has Congress lived by the limits that they set for themselves.

You know, it is just about making the choices; not promising to

make the choices or promising to make the cuts or raise the revenue. We have just got to do it.

Chairman BUCHANAN. Okay. I am going to try to wrap it up.

We are talking about budgets, so it is something that I was motivated about coming here as my number 1 issue. And I ran in the

2006 cycle and got elected in 2007 with about $9 trillion in debt,

8.7 I kind of recall. If you go back to it, you can check it.

We have run $10 trillion in the last 10 years. So when we talk

about, you know, where we are at in the budget and where we are

going forward, we had 1 percent, 1

1

⁄2 percent growth, slowest economy in 10 years. So there is a lot of blame to go around.

We have run trillion-dollar deficits the last 10 years. And if you

look back in the last 50 years, we have balanced the budget 5 times

out of the last 50, yet 49 out of 50 governors have a constitutional

balanced budget amendment. The first bill I filed here, the first

week I was here, is a constitutional balanced budget amendment.

Why? Because we are incapable of dealing with the spending problem that we have got up here, and you can tax, spend, however you

want to get it.

My point is, being from Florida, if you have a bad economy, a

tough economy, like 2008, 2009, 2010, you make the adjustments.

That is what you do in business. But, unfortunately, we don’t do

it up here. We just blame each other. And we should find a way

we can work together, but the best way we can work together is

we have got to get a constitutional balanced budget amendment

that simply means you don’t spend more than you take in.

You make the hard choices. If you want to spend more, you go

to the taxpayers and make your argument. That is what we should

be doing up here. That is the way everybody else on the planet, or

at least in America, that is the way they operate. That is why, you

know, mayors and governors, you know, we had a tough budget

this time they had to make some tough choices on where they are

going to park their money.

So short of that, and I think in terms of tax reform, just my opinion, what we have been doing hasn’t worked. One, 1

1

⁄2 percent

growth, the last 50 years of slowest growth we have had in 50

years, the idea is, can we get to a 3 percent growth, add some GDP.

They claim the tax bill, nonpartisan group tax foundation, claims

it will create another 5 trillion in economic GDP growth in the next

10 years, with the average of 2.9 percent. So we will see.

But my point is, more important than that, we need a constitutional balanced budget amendment that we should do together, and

make us make those difficult and hard choices, because there are,

as someone mentioned over here, 10,000 people a day turning 65.

My mother-in-law is staying with me. She is 99. Her sisters are

101 and 103. These programs have been put in place in the 1930s

and the 1960s.


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There is a good friend of mine said to me, Democrat leader said,

‘‘We have got to get in the boat together. We have got to deal with

these challenges.’’ And I kind of agree in terms of Social Security.

That is something not only he pays in, but a lot of people forget,

because I was an employer for 30 years. He pays in half; his employer, as a part of his fringe benefits, is paying the other half. And

that is his money.

So, but as look at Medicare and health care, you know, that is

whole other subject in terms of the cost factors of where that is

going forward.

So I could spend time on that, but the bottom line, I know all

of you are attune to that.

Let me ask any of you, and I think a lot of us feel, Democrats

and Republicans, in terms of these tax extenders, the tax reform,

as I said earlier to earlier groups, we got a 43 percent corporate

tax cut. You got 25 percent, when you add it up, on the passthroughs. Most companies in America, 90 percent, are passthroughs. You got full expensing. Why do you need extenders? So

the thought is, that is why we are doing this. We are going to take

a look at all of these extenders, figure out there are probably some

that might make some sense, make it permanent law, and get out

of the extender business.

That is why we are doing these hearings, looking to try to improve this. So let me ask you, put you on the spot a little bit, have

you looked through the 28 or 30 extenders? Some of you have. Are

there any in there that should be permanent law, in your opinion,

or would you just say none of them should be? But I would be interested in any of the panelists, any thoughts that you might have

on this issue.

Mr. BURTON. I have looked through all of them. I think the—

in terms of ones that have a reasonable policy rationale, the primary one would be the tuition deduction, above-the-line deduction,

because the primary reason that people pay for tuition is to increase their future earnings capacity.

I also understand entirely, although it is not a tax policy reason,

why you don’t want to send a massive tax bill to an insolvent

homeowner because some of their mortgage was discharged. And in

point of fact, a large portion of that would probably ultimately be

discharged in bankruptcy in any event.

As to the capital cost recovery ones, that is an empirical question. Ultimately, both modified ACRS and ACRS tee off of a series

of decisions made by the Nixon Treasury Department in 1971, the

so-called asset depreciation range classifications.

And there is no reason to believe that they got every decision

right. There may be some mistakes in classification, particularly as

the economy has evolved over the past roughly 40 years. But any

targeted provision with respect to capital cost recovery like that

should be held to a high evidentiary standard.

In point of fact, Treasury got it wrong in the 1970s. But that

doesn’t mean that there necessarily—the interest involved is necessarily wrong. They should just have to prove it.

Chairman BUCHANAN. Well, someone mentioned on the panel

today, I thought, the extenders, about $1 trillion. I don’t know if

that is what it was. I think it is what it was. It might not be so


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much today because some—a few things have changed ideally. But

I don’t know if that is a true case or not, but I think obviously that

is—we want to look at all of these extenders, make sure they make

sense.

I don’t want to see personally myself people double dipping. I

think it is more than fair that—what has been put in place. However, there might be some things that do make a difference, but I

don’t want someone that just cut their tax bill by a third and then

coming back and say they need an extender, you know, the large

corporation or anybody else or a medium-sized pass-through, or

whatever it might be.

Mr. Phillips, you got—everybody, I will give you a minute or two

just to think about it. Are there any extenders that you have

looked at that you think deserve some consideration? I am sure

there are some, but maybe you might say no, but I am just curious

as a wrap-up on the panel.

Mr. PHILLIPS. So I don’t have a strong opinion on the ones before the Committee today, but I think that every single one of them

should absolutely be paid for. And I think that if you are going to

get rid of all of them, I think you have to look at some of the provisions that are actually permanent.

And I agree with you, we cut the rate down to 21 percent, and

I think that means that a lot of tax breaks that didn’t get cut

should be cut.

Ms. ALEXANDER. I think I said in my remarks that I think that

you should look at all of the expenditures in the corporate code

along with the extenders. I think it is going to be—I think we are

going to see whether or not some of those breaks that are on the

permanent books are duplicative of the reduced rate. They may

have lost their value or—but they may still have value, in which

case they are——

Chairman BUCHANAN. I think there are some that have lost

their value. I don’t know.

Ms. ALEXANDER. So, I mean, I think it is really looking across

the board, particularly for—you know, we are creating subsidies to

counteract other subsidies. So just get rid of them all.

Chairman BUCHANAN. Yeah. Go ahead.

Ms. MACGUINEAS. When I look through them, I could probably

find justifications for a number of them, certainly not all of them.

But I would also point out that the ones that I tend to find most

sympathetic, which are for things that we want as a nation, not

necessarily here, though there is—the education expense is one.

But when we create subsidies for housing or education or things

that we think are good, we ultimately end up driving the cost of

those things up. So tax expenditures have—the subsidies have perverse effects, where you make the things you are trying to make

more affordable ultimately more expensive. Healthcare exclusion is

the biggest example of that.

So as I look through these, these are more helping the industries

do their jobs. And I am a level playing field kind of person. I would

be quite comfortable dropping all of them.

Chairman BUCHANAN. Okay.

Ms. MACGUINEAS. And, again, I would reinforce your point; we

just had a massive tax cut. Massive tax cut. I don’t think now is


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the moment to think about the need for more tax breaks. There are

other more pressing priorities.

Chairman BUCHANAN. Mr. Hanlon.

Mr. HANLON. I mean, if I had to choose, I think the ones that

serve the most compelling public purposes are the ones that promote energy efficiency and renewable energies, because they promote, you know, energy independence, and also, you know, help our

climate.

So if I were to choose some with the most merit, I would choose

those. I definitely agree with the other panelists that, you know,

to the extent that we want to extend them or make them permanent, we should definitely pay for them. And I think the best way

to make them pay for them is to look at the permanent special tax

breaks in the Code, including the ones like for fossil fuels that have

been around for decades and decades.

And also, the new special tax breaks that were created by the

new tax law, like the Section 199.A deduction that really deserves

much greater scrutiny.

Chairman BUCHANAN. I want to thank all of the witnesses

today. And if you can excuse yourselves, we will bring up the

fourth panel.

[Recess]

Chairman BUCHANAN. I would like to welcome our fourth

panel, who will finish us off today in terms of the hearing. First,

we are going to hear from Cal Meyer, Group Vice President and

Chief Operating Officer for Ag Processing, Inc.

Secondly, we will hear from Michael McAdams, President of Advanced Biofuels Association.

Thirdly, we will hear from Edward Hubbard, General Counsel for

Renewable Fuel Association.

Fourthly, we will hear from Judy Petry, Chair of the American

Short Line and Regional Railroad Association.

And finally, I would like to welcome Barry Grooms from my District, from Bradenton and Sarasota, Florida. He is a realtor and coowner of SaraBay Real Estate, Inc.

Thank you all for being here, again, today. The Committee has

received your written statements, and they will be made part of the

formal hearing record. Each of you will be recognized for your oral

remarks.

Mr. Meyer, you may proceed. You have got 3 minutes.

STATEMENT OF CAL MEYER, GROUP VICE PRESIDENT AND

CHIEF OPERATING OFFICER, AG PROCESSING INC., ON BEHALF OF THE NATIONAL BIODIESEL BOARD

Mr. MEYER. Good afternoon, Chairman Buchanan, Ranking

Member Doggett, and Members of the Committee.

On behalf of the National Biodiesel Board, the leading biodiesel

trade association, thank you for allowing me to testify today on the

role of biodiesel tax incentive.

My name is Cal Meyer. I serve as Group Vice President and

Chief Operating Officer at AGP. We are located in Omaha, Nebraska, and we are an agribusiness. We are also a member of NBB.

We have facilities in eight states, and we employ over 1,100 employees. AGP is a leading producer of biodiesel. Biodiesel is a reVerDate Sep 11 2014 07:08 Mar 19, 2019 Jkt 033797 PO 00000 Frm 00152 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33797\33797.XXX 33797

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newable, clean-burning, diesel fuel made from a diverse mix of resources.

History has shown that a well-crafted and efficient tax incentive

can be powerful policy in mechanisms for new energy resources like

biodiesel. In 2004, before the credit, our industry only produced 25

million gallons. Now, the market has climbed to 2.9 billion gallons.

And the public policy benefits of this tax incentive are clear.

First, biodiesel creates jobs and helps grow the economy. In many

rural areas of the country, biodiesel plants are a driving force for

the local economy. The biodiesel industry supports 64,000 jobs,

$11.42 billion in economic impact, and $2.5 billion in wages paid.

Secondly, biodiesel adds value to other sectors of the economy,

like agriculture. Biodiesel allows farmers to be more competitive in

the global protein market as demand for biodiesel supports U.S.

soybean processing and export opportunities.

Lastly, America benefits from fewer toxic pollutants and improved air quality. Biodiesel reduces hydrocarbon emissions by 67

percent and lifecycle greenhouse gases by 86 percent. This leads to

health benefits, such as lower rates of cancer and asthma.

These benefits, however, will be jeopardized without the reinstatement of the biodiesel tax credit. Last year, Congress passed

comprehensive tax reform, but failed to address the renewable energy. The limited retroactive extension of biodiesel incentives for

2017 was a useful first step, but we urge Congress to renew the

biodiesel blender’s tax incentive through 2018, at a minimum,

while considering a multi-year approach.

Doing so would drive new investment and establish market certainty for U.S. farmers, ranchers, petroleum marketers, blenders,

and fuel retailers.

In conclusion, the biodiesel blender’s tax incentive has helped

achieve the desired goal of expanding domestic production of American energy resources and jobs here at home. It is a worthy reinstatement.

Thank you, again, for the opportunity to testify today, and I am

happy to answer any questions you may have.

Chairman BUCHANAN. Thank you, Mr. Meyer.

[The prepared statement of Mr. Meyer follows:]


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Chairman BUCHANAN. Mr. McAdams, you are recognized for 3

minutes.

STATEMENT OF MICHAEL MCADAMS, PRESIDENT, ADVANCED

BIOFUELS ASSOCIATION

Mr. MCADAMS. Chairman Buchanan, Ranking Member Doggett,

Members of the Committee, thank you for the opportunity to urge

the extension of the tax incentives for biodiesel and renewable diesel.

Today I have the unique opportunity to testify on behalf of the

Advanced Biofuels Association, the National Association of Truckstop Operators, the National Association of Convenience Stores, the

Petroleum Marketers Association of America, the Independent

Trucking Association, the Gasoline Marketers of America, and the

American Trucking Association.

Together, these organizations represent every segment of the biodiesel supply chain from feedstock growers to producers, to blenders and retailers, as well as the largest fuel users in the United

States.

I want to thank Representatives Diane Black and Ron Kind for

their strong support in introducing legislation last year that created an extension of the current law.

I also want to thank Congressman George Holding for his support.

Consistent with the legislation introduced by Representatives

Black and Kind, our coalition supports continuing the credit as

blender’s credit with the ordinary phase-down.

First, the credit works as intended when it is prospectively in

place for the market. The credit has helped create a success story

under the Renewable Fuels Standard Program when combined

with the mandates and the RIN values.

When the credit expires, the industry must either reduce investment or risk additional capital in anticipation of a retroactive extension. Currently the industry is badly in need of the renewal of

this credit as quickly as possible. The RIN value for biodiesel and

renewable diesel is currently at a level that is below the production

cost for many of the people making biodiesel in the United States

today.

The cycle of lower RINs awaiting on the tax credit must be broken, and prospective certainty must be present so that the credit

can achieve its true economic punching power.

Since the credit’s inception, the market has responded as Congress intended. We have built a biodiesel and renewable diesel industry with a distribution system that has driven consumer acceptance of these new fuels. The credit has been passed on to the consumer in the form of lower transportation fuels and heating oil

prices. That is why the American Trucking Association, which

moves two-thirds of the freight in the United States, supports this

credit.

Our coalition is aware that the Ways and Means Committee, in

examining other expiring incentives, has determined to phase them

out rather than simply abruptly terminate them. While we believe

the biodiesel and renewable diesel tax incentives should be made


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permanent, we understand that there may not be consensus to do

that.

Clearly, a longer time frame would help the transition of these

markets with a softer landing, especially for smaller companies,

like Viesel that is right in Fort Myers, Mr. Chairman. That is why

our coalition supports phasing out the credit over a period of years.

However, it is imperative that the credit, at the minimum, be extended for the $1 for 2018. Given that Congress has frequently extended the credit retroactively, most recently in 2017, the market

participants having already reasonably relied on the credit being

retroactively extended, this year has been no different.

I thank you for the opportunity to be here, and we urge that you

extend the credit.

Chairman BUCHANAN. Thank you.

[The prepared statement of Mr. McAdams follows:]


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Chairman BUCHANAN. Mr. Hubbard, you are recognized.

STATEMENT OF EDWARD HUBBARD, GENERAL COUNSEL,

RENEWABLE FUELS ASSOCIATION

Mr. HUBBARD. Thank you. Good morning, Chairman Buchanan,

Ranking Member Doggett, and Members of the Subcommittee. My

name is Ed Hubbard, and I am the General Counsel for the Renewable Fuels Association.

On behalf of RFA’s membership, I am honored to come before

you and testify in support of several key tax incentives that have

been critical to the growth and evolution of our Nation’s biofuel industry.

For more than 30 years, the U.S. ethanol industry has worked

to provide Americans with clean, renewable, and cost-competitive

biofuels, and today American made ethanol has grown to become

the lowest cost, highest octane fuel additive in the world.

While the U.S. grain-based ethanol industry has matured into an

efficient and highly competitive fuel supplier, the second-generation

sector is much younger and has struggled to overcome immense financial and commercial obstacles.

But in recent years, with the help of federal tax incentives, the

U.S. second-gen. sector has finally been able to actually produce

second-gen. biofuels at a commercial-skill level.

Recently, our members have been successful in employing ‘‘bolton’’ technologies that have allowed existing gain biorefineries to

produce ethanol from the cellulosic fiber waste found in the corn

kernel. Given the success, other biorefineries have been looking to

invest and expand into this new technology. However, if we hope

to continue this technological growth and innovation in the U.S.

second-gen. industry, it is critical that investors perceive a steady

and reliable tax policy.

Two tax incentives supporting the growth of the second-generation ethanol industry are the second-generation production tax

credit and the accelerated depreciation allowance for second-generation biomass property.

These two incentives, which were enacted in 2008, expired at the

end of 2013, and the industry has been forced to accept short-term

extensions with the hope that a long-term extension would be addressed in time as part of a larger tax reform effort.

In February of this year, Congress approved a one-year, retroactive-only extension of these incentives. While it was better than

nothing, what the industry needs is an extension that looks into

the future.

Therefore, we urge you to extend the second-generation PTC and

accelerated depreciation rules for at least 2018, and subsequently,

to consider enacting a longer term, more effective incentive.

In addition, we are calling for Congress to modify and extend the

alternative vehicle refueling property credit. In order for our industry to compete with petroleum at the pump, drivers need the ability to choose between alternatives, using market-based drivers,

such as price, miles per gallon, octane, et cetera.

However, it has been difficult to encourage many cash-strapped

fuel retailers to invest in infrastructure upgrades. To encourage

them to make these upgrades, the alternative vehicle refueling


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credit provides them a tax credit in an amount equal to 30 percent

up to $30,000 of the cost of these upgrades.

We believe this credit has not kept up with grade trends in retail

fueling business. To improve the effectiveness of this credit, Congress needs to be focused on expanding eligibility and focused on

higher level blends.

Another much needed modification would be to allow the credit

for dual-use property. This would allow for the continued growth

trend toward the use of blender pumps.

Once again, I thank you for the opportunity to voice our industry’s proposals on these important issues.

Chairman BUCHANAN. Thank you.

[The prepared statement of Mr. Hubbard follows:]


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Chairman BUCHANAN. Mr. Petry, you are recognized.

STATEMENT OF JUDY PETRY, CHAIR, AMERICAN SHORT LINE

AND REGIONAL RAILROAD ASSOCIATION

Ms. PETRY. Thank you.

I am the President of Farmrail, a 349-mile short line railroad in

Oklahoma, and I represent the Nation’s 600 small railroads. We

operate one-third of the Nation’s rail network, and we are the only

connection for much of rural and small-town America.

The short line tax rehabilitation credit was enacted in 2004 and

has been extended six times. Each time it has been one of the most

heavily cosponsored and bipartisan pieces of tax legislation.

The current legislation, which would make the credit permanent,

has 256 cosponsors, including nine of the 15 Members of this Subcommittee.

The credit allows us to spend more of what we earn rebuilding

previously neglected branch lines held for abandonment. The investment needed to make our infrastructure capable of handling

the modern 286,000-pound rail car is almost $11 billion.

The industry reinvests, on average, 25 to 33 percent of our annual revenues, making us one of the country’s most capital intensive industries. The 45G credit has been instrumental in supporting that investment.

Using Farmrail as an example, over the last 5 years, we spent

just over 40 percent of our revenue on track improvements, and almost a quarter of that came from the tax credit.

You asked: what is the value of this credit? Number one, keeping

shippers in rural communities connected to the national freight

network.

Number two, shippers receive substantial competitive benefits.

On my railroad, the cost of moving freight from Clinton to Enid is

$2.24 per mile versus $3.75 per mile for comparable truck service.

That is a 41 percent savings that stays in the local economy.

Multiply that by the 10,000 shippers across the country, and that

benefit is huge.

Number three, virtually everything we buy, the steel rail, the

wooden ties, the stone ballast, it is all made in America.

You asked: why is the credit still needed? The new Tax Code

benefits the economy, but short lines do not expect tax reform to

replace the need for 45G, and here is why.

Number one, we have massive track investment requirements.

Even before tax reform, most of that could be immediately expensed.

And, number two, the nature of our industry serving customers

in small towns who begin by shipping small volumes leaves the industry with little tax liability, and therefore, little benefit from a

lower tax rate.

But, most importantly and lastly, if you believe in strong markets, in small business, and in small-town America, if you truly believe in buying American products and in rebuilding American infrastructure, then you must make 45G permanent.

Thank you for your time, Mr. Chairman.

Chairman BUCHANAN. And thank you.

[The prepared statement of Ms. Petry follows:]


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Chairman BUCHANAN. Mr. Grooms, welcome to D.C., and you

are recognized.

STATEMENT OF BARRY GROOMS, REALTOR AND CO-OWNER,

SARABAY REAL ESTATE INC., ON BEHALF OF THE NATIONAL

ASSOCIATION OF REALTORS

Mr. GROOMS. Thank you, Chairman Buchanan, Ranking Member Doggett, and the Members of the Subcommittee.

I really appreciate the opportunity to be here today. I am a local

business owner. I also am testifying on behalf of the National Association of REALTORS, as well as every homeowner across this

great land.

The question is whether the exclusion for forgiving mortgage

debt should be permanent. In Florida, the exclusion has been vital

in saving families from financial devastations. Residents of the

Sunshine State suffered through some of the darkest days in the

Great Recession. However, at the time there was plenty of despair

everywhere, not just in Florida.

At its worst, as many as 25 percent of mortgaged homes in the

United States had negative equity. Just because one home goes

under water does not necessarily mean that it will lead to a mortgage default.

But consider this. The financial trouble we have seen since 2007

is not unlike the flu epidemic. The virus is all around us, and almost everyone is susceptible. In the case of those who lost their

homes, they were hit by a double whammy: first, by a drop in equity; then by a job loss or some other catastrophe in their lives.

This left many in foreclosures or short sales, and often some mortgage debt was discharged.

As a realtor for approaching 20 years, I have often seen what can

happen when a family experiences this first-hand. You see, these

individuals are not deadbeats looking for a handout. Rather, these

are good people faced with a very bad situation. If they have to pay

taxes on mortgage debt that is forgiven, they will suffer and likely

have no choice but to leave our communities. Everyone would lose.

This is just one example of how many across the country of these

families simply do not have the cash to pay these taxes.

I would like to make another point. The exclusion from mortgage

debt cancellation also delivers a huge dose of fairness. When the

investment in a home goes up and owners sell it, capital gains. The

Tax Code generously waives the capital gains up to $500,000, when

it happens and things go sour, equity is lost and the family is

forced to short sell.

Up through the last year, the exclusions stepped in and relieved

an often impossible tax burden. If the exclusion is allowed to expire, however, we will be left with a tax policy that rewards good

fortune, but piles on when the tables are turned. This is neither

fair nor smart.

Yes, the home equity situation in America is much better today

than it was in 2010, but there are likely 2.5 million homes currently under water across America. There are likely thousands of

them in your respective districts.

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tive home equity will ebb and flow, and they flow as well even with

the stronger economy. This is why we need a permanent exclusion

to minimize the damages to families and neighborhoods in our community.

And I thank you.

[The prepared statement of Mr. Grooms follows:]


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Chairman BUCHANAN. Well, thank all of you for your testimony.

We will now proceed to questions and answer session. I will defer

my questions to the end of the question period.

Now I recognize Mrs. Noem.

Mrs. NOEM. Well, thank you, Mr. Chairman.

And for those who have followed me during my time in Congress,

they know that I am a lifelong farmer and rancher. I am from the

State of South Dakota. So there are two of you whom I am going

to focus on today, and it is regarding the biodiesel tax credit and

the short line rail credit, as well.

Mr. Meyer, I would like to have you quickly respond, if you

would. You talked specifically about what it meant to have this tax

credit. I would like you to address what it means to agriculture and

our national security as far as growing our food and our fuel here

in this country and what biodiesel brings to the table.

Mr. MEYER. Well, what biodiesel has done for our group here

is given us an outlet for soybean oil, and with that we have raised

prices for soybeans because it is directly related to our industry

and how many bushels we process.

So if you look at a basic supply and demand table, there are hundreds of millions of bushels that are being processed today and

value added into soybean meal and also soybean oil.

And in addition, a portion of that soybean meal is exported. So

when we talk about trade deficits and what we do to supply product into the Pacific Rim, another benefit is the fact that the protein

that we grow and develop here, it goes into the meat industry, and

the most value-added product we can export in agriculture is meat,

and we do a lot of that also.

Mrs. NOEM. No, I appreciate that because it is important that

we recognize a change in policy is going to impact commodity

prices, which right now, if you follow the agriculture industry, we

are in a crisis situation. We have got farmers across the country

going broke every single day.

So a change in policy to not getting this tax credit re-extended

again is going to be dramatic and have an impact on them, and

that those byproducts that we have after producing biodiesel has

an industry that is counting on those as well to be out there and

available.

Ms. Petry, I wanted to ask you a question about the short line

tax credit because it impacts agriculture as well in the fact that it

impacts our basis and our transportation costs.

And there is so much invested into these rail in order to keep

them upgraded and fully functional, and a lot of times those costs

could get passed on to people that are using your rail line, and

what it means to have a lower basis cost is critically important.

But we have seen in South Dakota a lot of investment in maintaining these rail, and all of our industries are so reliant on making sure. They cannot be successful unless these rail lines are successful.

Could you speak a little bit about what that means to rural

America?


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Ms. PETRY. I certainly can, and you are correct. We are vitally

important to the shippers, but the shippers are vitally important

to the railroads. We fit hand in hand together.

Rural America is served by small short lines who inherited track

that was neglected and was going to be abandoned. So we have

track that is hundreds of years old.

We have a bridge on the north end of Oklahoma that is 115

years old. It is 184 feet long, and it has to be replaced.

Ninety-pound rail, and I brought an example. My industry has

been at this. This is 90-pound rail, little, tiny stuff. This is 115-

pound rail.

It costs virtually $500,000 per mile just to replace the rail. That

is not the ties. That is not the ballast.

But that being said, why is it important? It is important because

we are moving the rural economy.

Mrs. NOEM. Yes, you are moving the economy.

Ms. PETRY. We are moving.

Mrs. NOEM. And, Mr. Chairman, if this tax credit is not in

place, that cost is going to go right on to all of these industries in

the economy and damage them right at a time when we are trying

to help them grow.

With that I will yield back.

Chairman BUCHANAN. Thank you.

And I will recognize the distinguished gentleman, the Ranking

Member, Mr. Doggett, for whatever questions he may have.

Mr. DOGGETT. Thanks so much, Mr. Chairman.

I appreciate the testimony of each of you. Each of you has pointed to the problems that the uncertainty over these tax provisions

presents, and I am very sympathetic to that concern.

I believe these tax provisions should be paid for, but you either

need to be included in the code or excluded. I am for at least some

of the provisions that have been described here certainly. I have

seen people, Mr. Grooms, who face the situation that you described

on their home, and they certainly do not think the fact that they

are able to survive in that home is a taxable activity.

At the same time, what we are focused on today is such a small

part of the uncertainty that exists with taxes. Mr. Chairman, I

would ask unanimous consent to put in the record a recent

Bloomberg article called ‘‘No one’s sure who qualifies for this $415

billion U.S. tax deduction.’’

Chairman BUCHANAN. I agree.


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Mr. DOGGETT. And whatfthis article is about is the great uncertainty that was created last year in rushing through an unpaid tax

bill that includes provisions like the new pass-through provisions:

$415 billion, much more than what is at stake at this panel or

what is at stake in today’s entire hearing.

I believe that that $415 billion tax deduction that is provided

there is directed to the so-called pass-through provisions, some of

which have merit, but seem to be focused, particularly after the

conference committee in secret completed its handiwork, as primarily benefitting real estate moguls like Donald Trump and Jared

Kushner.

Republicans claim that they wanted to help small businesses on

pass-through. According to the Small Business Majority, the majority of the benefits will go to the largest 2.6 percent of pass-through

businesses.

Now, maybe the Bloomberg analysis wrong, and maybe the estimates of the Small Business Majority are wrong. But we will never

know because there was never a single public hearing on that provision to allow people like you from the real estate industry or otherwise to come forward and discuss the issues involved.

And that really goes to the core of the problem because today we

have the chairman of this Committee out saying, ‘‘Well, we need

another four or $500 billion of borrowed tax breaks,’’ borrowing

from afar to have more tax breaks, and we do not know if there

will be any hearing on that, but we have not had a hearing or an

understanding of the impact of the last $2 trillion.

I think a responsible committee process calls for us taking a

thorough look not only at these modest provisions, as important as

they are to you, but that we look at the pass-through provision; we

look at all of these international corporate tax dodges and consider

one by one what the handiwork is that this Committee has already


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done in the past; and those may provide some of the pay-fors that

can pay for legitimate provisions that have been left out there, extended and suspended.

Thank you, Mr. Chairman.

Chairman BUCHANAN. Thank you.

Mr. Reichert, you are recognized.

Mr. REICHERT. Thank you, Mr. Chairman.

Thank you for your testimony today.

My home State of Washington has been the beneficiary of biodiesel plant investments that employ hundreds of Washingtonians.

Mr. Meyer, what is the impact of the expiration of the biodiesel tax

credit on the market?

Mr. MEYER. It absolutely has created uncertainty. In addition

to that, we have had the marketplace speculating whether it would

be reinstated or not, and that has actually created some real difficulty in product distribution throughout the United States because some of our customers become long product or short or what

have you.

And so the expiration, and again, like you have all described here

today, just unknowingly it is here; it is not here; and it makes it

difficult to make those investments both for our customer and our

company that represents the biodiesel group.

Mr. REICHERT. So it causes speculation and uncertainty and

leads to some problems in product distribution. Can you describe

what you mean by that?

Mr. MEYER. Well, basically, like if you have an expiring program, the potential for building up supplies at the end of the calendar year expires. So the first quarter of the next year, maybe

four months the industry does not run. So it is up and down.

We truly have not had the opportunity to see this work since you

made some good decisions here in Washington on stopping the

dumping from South America into our marketplace. So we truly

have not even seen the full RFS RINs and the tax credit work like

it could.

But they are definitely providing some good jobs. This is good

legislation that you have.

Mr. REICHERT. Appreciate it. Thank you.

The key to the success of Washington State’s economy is the

movement of goods. By connecting customers to the national freight

railroad network, short line railroads play an integral role in getting goods to the market.

For several Congresses I have played a role in this and am proud

to be a cosponsor of a bill to make 45G permanent, along with Representative Jenkins, and she has been a leader on this also.

So, Ms. Petry, can you discuss the role of 45G in the new Tax

Code?

Ms. PETRY. Yes, sir, I can. As I remarked earlier, 45G is vital

in order for us to sustain our railroads and to continue to grow our

railroads. We have got to get to the point where we are handling

286,000-pound cars.

Most short lines can only handle 268,000. So what we have done

in the past is we have taken the money, our own money, and invested it into the track, and with the help of 45G, we are able to


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take those additional funds, those additional tax credit dollars and

turn that back into the track.

So we continue to reinvest our own money. Traditionally, the

work that we have done has been maintenance, and so it is expensed completely. So the tax reform is excellent, but it does not

move the dial in the needs that the short lines have because we

are already expensing the maintenance.

Where we need help is to help us rebuild, and we are not asking

for a handout. Instead, we are asking you for a hand up. Help us

to be able to continue to spend our money, our funds, at a greater

level than what we would traditionally spend, and then to turn

around and reinvest that money, the tax credit money, right back

into the track.

You are making a big difference every time that you enact 45G.

Mr. REICHERT. Thank you, Mr. Chairman.

Chairman BUCHANAN. Thank you.

Mr. Larson, you are recognized.

Mr. LARSON. Thank you, Mr. Chairman.

And I want to thank the panelists. I want to thank Mr.

McAdams for your testimony in terms of a soft landing; Mr. Hubbard for your comprehensive view.

Ms. Petry, I think that both Mrs. Noem and Mr. Reichert make

a very compelling case, and, Mr. Grooms, no one could be more passionate in terms of an understanding for the situation that,

through no fault of their own, people find themselves in.

And I would say, Mr. Meyer, as well, with regard to biodiesels,

these are all areas that I think should be made permanent, and I

think it would have a lasting impact on the economy, provided that

we are willing to pay for it.

And herein lies the problem with Congress, and what I have

been saying to the panelists throughout is that there are many individuals though who have suggested that, you know, the tax cut,

the bill itself was $1.5 trillion, but some estimated it is $2.3 trillion, and there have been many leading American figures, most of

whom I dare say are Republican, who have stepped forward and

said we ought to look at a revenue neutral carbon tax that would

allow us the opportunity to either utilize the money in a way that

we would be able to fund infrastructure projects, that allow us to

invest back into the economy, to allow the permanency or certainty

that all of you are requesting, and whether it is in terms of a burden placed on a homeowner or whether it is the ability to

incentivize biodiesels in a way that is going to impact the economy

long term, that we are not just off-loading debt on the American

people, but we are actually working together in order to rebuild the

Nation.

I think that is in everyone’s interest. Mr. Blumenauer has argued this more eloquently than anyone on our panel. He has talked

about a gasoline tax, but whatever the vehicle is, I wish more people when they come forward not only understanding that what you

have is a very good cause, but also would say, ‘‘You know what?

We have to pay for this.’’

You know, I said to a panel everybody wants to go to heaven, but

nobody wants to die. You know, I am not asking you to die. I am

just asking people to, when they pass the basket on Sunday, everyVerDate Sep 11 2014 07:08 Mar 19, 2019 Jkt 033797 PO 00000 Frm 00201 Fmt 6633 Sfmt 6602 I:\WAYS\IN\33797\33797.XXX 33797

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body has got to contribute in order for us to succeed, and we have

not been willing to do that.

We operate in a mythical country where we can wave a magic

wand. In this case it happens to be a tax break that everybody desires, but long term, and everybody on this panel knows it and both

sides are guilty, we just cannot continue to do this. We have to pay

as we go.

And I thank you all for your testimony, and I would support your

initiatives. I hope you will support pay-fors like a carbon tax.

Chairman BUCHANAN. Thank you.

Mr. Rice.

Mr. RICE. Thank you.

Mr. Meyer, you quoted some figures where you said that you

were producing I think you said 25 million gallons of biodiesel before the tax credit was allowed.

Mr. MEYER. That was in 2004. Those are the statistics that we

had from then.

Mr. RICE. And then 2017, what is it now?

Mr. MEYER. The market currently has grown to 2.9 billion gallons.

Mr. RICE. So that is about 1,000 times as much.

Mr. MEYER. It has gone up significantly.

Mr. RICE. And you think that the subsidy we provide has a lot

to do with that?

Mr. MEYER. I think when our customers, the oil company——

Mr. RICE. How much is the subsidy per gallon?

Mr. MEYER. Well, when you look at the dollar credit and you

divide that by seven, you are looking at $1 per gallon subsidy off

the cost of the biodiesel for a customer.

Mr. RICE. If you did not have that $1 a gallon subsidy, would

it be economically viable?

Mr. MEYER. The marketplace, obviously we all know in this

room, oil goes up and down and a number of things, but I have got

to tell you to——

Mr. RICE. What is the cost of production per gallon?

Mr. MEYER. It runs right around, when you look at cost of production, we would say in oil terms we are looking at about 600

points in oil, and I am thinking in soybean oil terms.

Mr. RICE. Can you get me to a gallon figure? I am running out

of time.

Mr. MEYER. I can do that. Can I have just a minute please?

Mr. RICE. Here is the thing. I mean, I understand it creates

jobs, and it is important for farmers. I certainly do not want to

hurt them, and I know their corn prices are down, but if I want

to open a cotton candy stand and the Federal Government is going

to give me $1 a sleeve of cotton candy, I can create a lot of jobs.

That does not mean it is viable. That does not mean I can make

money. So just the creation of jobs by itself, I mean, if the Federal

Government is going to give you money to create jobs, then that is

not any magic, right?

This thing needs to be economically viable.

I am sorry. I have got 1 minute left, and I have got to go to the

ethanol guy, Mr. Hubbard.


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Mr. Hubbard, I have read report after report after report after

report. Ethanol drives up the cost of gasoline. It is not environmentally friendly. I have had to rebuild several carburetors in my

ATVs because of it. It drives up the cost of food.

So again, I know farmers have relied on this, and they have

changed the use of their land, and I know it creates jobs in that

regard, but should we not get a glide path and look for a way to

get off of this subsidy instead of continuing this?

Mr. HUBBARD. I want to make a big distinction here. When we

are talking about ethanol in general, we are speaking about the entire industry as a whole, and ethanol is the lowest cost, highest octane fuel additive on the planet. I said that in my remarks.

We initially became an industry in an effort to try to address oil

price shocks in the 1970s, and then we had oil shortages and oil

crisis issues in the early 2000s.

Mr. RICE. And that was before fracking, and now we have got

100 years right here in the United States.

Mr. HUBBARD. But what we have learned over the years is our

true value to the oil and gas market, to the fuel system. We do not

displace oil and gas. We displace other fuel additives, such as benzene, toluene, and xylene.

We used to have MTBE, methyl tertiary-butyl ether, that we

used as an oxygen and an octane enhancer. When ethanol took off,

it was when it was discovered that MTBE was so toxic it had to

be removed from our country’s underground storage tanks.

So the challenge for our industry——

Chairman BUCHANAN. We are going to have to keep this moving. Are you all right?

Mr. RICE. I would be happy to append that.

Chairman BUCHANAN. Thank you. I appreciate that.

Mr. Blumenauer, you are recognized.

Mr. BLUMENAUER. Thank you.

I appreciate, Ms. Petry, your being here on behalf of the short

lines. I must say that working with your industry over the years

has been a great learning experience for me, and I think it is one

of the successes.

The current legislation that Representative Jenkins and I have

has 256 cosponsors, a majority of the Senate. This is broadly supported, and it is broadly supported for a reason, and I appreciate

you referencing it, but you might elaborate.

The short line industry has inherited vital transportation links

across the country. These are rail lines that were abandoned by the

Class 1s for a variety of reasons, and they were not keeping them

maintained.

These are links to little factories, little mills, small towns that

do not provide the volume or the revenues to justify the capital expenditures, and even though you can deduct it, it is not enough to

get over that process.

And I would hope that maybe we could just take a moment to

elaborate a little bit. It is in your testimony, but I think, Mr. Chairman, it is a very important point that these lifelines, these small

farms, mills, factories, have got to get into the system before they

can take advantage of broader transportation networks.


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Do you want to just elaborate a little bit on the situation you face

and some of the people that you serve?

The stories of some of these literally Mom and Pop operations,

whether it is a husband and wife, a nephew and a cousin who

bring these things back to life, can you talk about your situation?

Ms. PETRY. I would love to. That is actually my favorite thing

to talk about.

So about three years ago we had the great pleasure of opening

a rail station known as Erick, Oklahoma. I am sure that I am not

the only person in this room who remembers a guy named Roger

Miller, ‘‘Dang me, dang me, ought to take rope and hang me.’’

Erick, Oklahoma is home to Roger Miller, has probably about 1,500

residents; had not seen a train in 30 years.

I remember the last time a train ran there because it was in my

first year of employment at Farmrail, and it was a grain train. We

pulled grain out, and it was five or six rail cars.

So we were fortunate enough that we were able to reopen this

Town of Erick, and we brought in a frac sand transloading facility,

a multimillion dollar facility into a town of 1,500 people, and the

town woke up and began to breathe again because there was vitality brought back.

And Roger Miller’s old music was not the only ones being played

in the background. Erick, Oklahoma was destitute, and then someone took a chance on Erick, Oklahoma, and it has made a huge difference.

Another story. A little customer started on us in 2013. They were

moving frac sand.

Mr. BLUMENAUER. I notice my time has elapsed.

Ms. PETRY. Oh, I am sorry.

Mr. BLUMENAUER. But, Mr. Chairman, suffice it to say there

are story after story about this effort, and it would not have been

possible without the tax credit.

I appreciate the conversation, but I think this will meet the test

that you are challenging us in terms of why it should be there and

why it should be permanent.

We can get more examples if the Committee likes.

Chairman BUCHANAN. Thank you.

Mr. Smith, you are recognized.

Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman.

Thank you to our panel for this exchange here today. I think it

is productive, and, Mr. Chairman, thank you for facilitating this.

I think it is very interesting when we talk about renewable fuels.

I think there is a fantastic story to tell in terms of diversifying our

energy sources. I think in terms of newer technologies that are always more efficient than older technologies.

Sometimes I think that the criticism of biofuels is levied using

old information, actually information from a time when biofuels enjoyed a lot more political support than it might today, but I think

it is important to note that we want an affordable way to hit the

octane levels that are currently required, but I also think that it

is pretty darn cool when you break down either a kernel of corn

or a soybean or what have you in terms of what all can be extracted from that, even more than the fuel itself, whether it is feed,

whether it is even other products.


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Mr. Meyer, could you elaborate a bit more? You touched on it before in terms of feed to livestock, but can you break down even further the added value that the processing can facilitate and the various products of that that can result as well?

Mr. MEYER. Well, one of the benefits through the growth of this

industry has been the co-products that we do, like you mentioned.

One is glycerin. Many, many years we have had a lot of imported

glycerin come into the United States, and now with our production

here in the United States, we are able to supply that product, and

it is further refined, and it is in the health care and a number of

different products. It may be in the radiator in your car.

So it is a green, renewable product in the glycerin market, and

so that has been a growth for us in the co-product area.

Mr. SMITH OF NEBRASKA. Does anyone else wish to comment

on that?

Touch on your button. Thanks.

Mr. HUBBARD. Certainly, the importance that this industry has

provided is really based on what it is replacing in the market. Our

fuel system requires an oxygenator in order so that we have a

clean burn out the carburetor. As a result of that, we get cleaner

air.

In addition to that, oil and gas manufacturers need octane in

order for these things just to run efficiently. So when we are looking at ethanol as an input in our fuel system, we are replacing

more expensive additives, and we are ultimately cleaning the environment.

So the value of ethanol, it not only exists from the growth that

it provides to the value add from the farming community, but also

to the consumer.

And just to go back to another particular issue, the issue of cost,

as an octane enhancer, as an oxygenate, ethanol is generally running 60 cents to a dollar cheaper than all other alternatives. So to

the question or to the comment that it drives up cost for consumers, that is not entirely true.

In fact, ethanol and higher ethanol blends are providing savings

to consumers, and this is being done without the help of tax incentives for the traditional grand based, conventional part of the industry.

But the real issue that we are talking about here is the second

generation, the emerging technologies that are existing out there

that need some sort of treatment and some sort of help in order

to develop.

Mr. SMITH OF NEBRASKA. Thank you.

My time has expired, but I think also my E15 bill to allow the

sale of E15 year round would be a great way to go forward, as well.

Thank you.

Chairman BUCHANAN. Thank you.

Mr. Kelly, you are recognized.

Mr. KELLY. Thank you, Chairman.

Thank you all for being here today.

I actually want to talk to two of the witnesses, and maybe we

can go through this. The three minutes is not nearly enough that

you need to explain your business models.


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First, Ms. Petry, I am not sure that most of America, some of us

do, but not a lot of us understand what a short line is. In my district in Pennsylvania, there is an 18-mile regional railroad in Butler County. At the end of the branch, there are two petrochemical

firms that are major domestic manufacturers of high quality ingredients used in numerous, widely used personal care products.

Both rely on service by our smaller railroads to compete in what

is a very competitive global market for the products they produce.

Between these two companies alone, they employ more than 400

industrial sector jobs.

Now, I know a local railroad is working to upgrade this branch

line to handle heavier freight cars and that such cars will help

these two companies compete, but if you can, would you tell us

what other types of products are carried on the short lines in general and the economic impact?

I think sometimes we miss the total economic footprint of what

it is that you all do and how it adds to tax revenues.

Ms. PETRY. Certainly, I will be happy to do that.

Our railroads move a lot of wheat. We live in hard red winter

wheat country. So the short line, my short lines, move wheat to

large grain facilities where the grain is unloaded and later reloaded

into a train that is hauled out by the Burlington Northern, a unit

train.

And that wheat then goes to other States for different products.

It also goes to export markets.

You know, think of it this way. The major railroads, the Burlington, the Union Pacific, whatever, they are the main arteries in

our network. The short lines are the veins. We are the capillaries.

We handle generally the first mile or the last mile. Pretty much everything starts on or ends on us, whether it is wheat or sand.

We are important to the economy because we employ so many

people, and our customers employ so many people.

Mr. KELLY. I do not want to cut you short, but if you can get

back to me in writing on that because it is really critical, but I only

have another minute left, and I wanted to ask Mr. McAdams.

Certainty in commercial markets is obviously important, particularly when it comes to taxes. Can you describe how the domestic

biodiesel industry, including producers such as HERO BX, would

have responded if Congress had provided longer term certainty of

the tax incentive over the past years or going forward?

I think that is what we are trying to get to. If we have the certainty, you could bring a business plan.

Mr. MCADAMS. Congressman, that is a great question. Let me

say it is broader than just the producer of the biofuel, too. It is the

guys that put the blending equipment in on the street so that you

can actually put it into the truck.

So I represent Love’s and Pilot Flying J, two of the large 15 billion gallons of diesel a year that are sold, and they would love to

buy HERO’s biodiesel and put it into the trucks that come into

their truck stops because they sell 30 percent of all the diesel sold

in the United States.

But without this credit, they do not get remuneration for the investments they make for the blending equipment which create the


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RINs, which allow the refineries to be able to comply with the RFS

to start with.

One of the things this Committee did very well was harmonize

the tax credits under the code for all five of the biodiesel credits,

the second-generation credit, the alternative fuels credit, with what

the RFS was doing so that you had a policy that was built on each

other that delivered great, great value and performance particularly in the biodiesel fuel.

Mr. KELLY. I mean this. There is just not enough time to cover

this. You are getting your day in court, but it is not really a day.

It is 3 minutes.

The economic impact of what it is that you do, your business

models are so critical to this country, whether it is the short line

with Ms. Petry or whether it is the biodiesel people. This is an incredible economic impact on the country. I wish we had more time

to talk about it.

Would you please get back to us and let us know what else, and

I also want you to all talk about what you pay in taxes, how you

support Social Security through wage taxes, all of your real estate

taxes, all the other things that you do that provide revenue in the

communities that you work in in this great country.

So thank you so much for being here. I am sorry we do not have

more time, but thank you all for your time.

Chairman BUCHANAN. Thank you.

Mr. LaHood, you are recognized.

Mr. LAHOOD. Thank you, Mr. Chairman.

And I want to thank the witnesses for your valuable testimony

here today and your advocacy.

I represent a district that is a heavy agriculture district. I think

it is the eighth largest in the country in terms of corn and soybean

production, and I have been a strong supporter at the State level

and the Federal level of renewable fuels, and I have seen first-hand

the technology and the efficiency and the creativity and the jobs

that have been created by renewable fuels and the downstream effect throughout our rural Midwest and in my district in central and

west central Illinois.

Mr. Meyer, I wanted to ask you. When we think about the biodiesel tax credit, tell us how it has achieved its policy goals.

Mr. MEYER. Well, the three things you look at is that we have

got clean air jobs in support of farm prices. Definitely soybean

prices have gone up, and our company has an estimate out there

of about 60 cents a bushel. We currently produce about 4 billion

bushels a year in this country. So you definitely have an offset according to the farm economy there.

Mr. MCADAMS. And the credit gets shared with the people filling up the tank.

Mr. LAHOOD. Yes, explain that a little bit.

Mr. MCADAMS. So the dollar credit gets shared in the transaction between our members that produce the fuel and those members that buy the fuel. And it is significant.

And one of the issues with this credit not being in place is under

the RFS, you have a RIN that goes with the fuel, and that RIN has

a price with it. That gets priced into the fuel as well.


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When the credit has expired, what happens is this gambling

game in the industry goes on about is the credit coming back. If

they think it is, then the price of the RIN stays low, and so now

we have got people like this gentleman here who have to produce

a fuel below the cost waiting for the credit to come back.

So of all the things you can do that retroactivity piece is helpful,

but we really need it prospectively, not retroactively because, like

I said, you lose the bang economically that you are trying to get

out of the credit.

Mr. LAHOOD. And, Mr. Meyer, how have taxpayers benefitted?

Mr. MEYER. Well, you have economic development. We have

hired a number of folks over the years as we have expanded our

business, and these are family wages, and you are talking about

rural, whether it is in Missouri or it is in Iowa. Basically, these are

good jobs for families, and we have expanded in that area.

We also employ whether it is the railroads, whether it is the

trucking businesses, the local communities, and the taxes paid

there. So it is a definite shot in the arm for rural development.

Mr. LAHOOD. And in terms of biodiesel facilities, we tend to

think that they are located in the Midwest. Can you talk a little

bit about the geographical diversity of these facilities?

Mr. MEYER. There are facilities in the Carolinas all the way to

California. So they are throughout, and we heard earlier Washington State. So there are a number of States that have biodiesel

facilities in them.

Mr. LAHOOD. Thank you.

Thank you, Mr. Chairman.

Chairman BUCHANAN. Mr. Kelly, would you like another 3

minutes?

Mr. KELLY. I wish we could spend a lot more time than 3 minutes. I would just encourage every single Member of Congress to

go and visit these places.

Listen. I have been to Genesee & Wyoming. I know what these

folks do, and too many people do not know.

When you talk about short line, I am telling you some people

know. I know about it because my grandpa was a conductor on the

B&O.

When we talk about the biodiesel, I know because I have been

to those plants, and I see what they have done, and you have to

actually know what it is you are talking about before you can come

before people and say, ‘‘Answer this question for me. Answer that

question for me.’’

I want to thank you all for what you do. You provide a heck of

a lot of revenue to help run this wonderful country of ours, and we

have to give you permanent tax strategies so that you can actually

develop a business plan that makes sense.

I do not think that retroactive tax policy is good for going forward. That is just me, but I do not know anybody in business today

that says, ‘‘You know, I know what I did last year. I can depend

on what I did last year. I know going forward where I am.’’

That is a very dangerous way to approach the future. So, no, Mr.

Chairman, I really appreciate you giving me enough time because

you have got to see what these folks do, and you have got to be


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there for them. You have got to understand what all they do for

our community.

So anyway, I am all for many of these programs.

Chairman BUCHANAN. All right. You have been patient. Let me

ask you, Mr. Grooms, in terms of the issue that you brought forward.

A lot of people were talking about the railroads. You were talking

about they do not understand different markets are different, but

at least in our region, probably in a lot of different parts of Florida,

we have boom-bust real estate. Real estate is one of our biggest industries.

But after 2008, there was a lot of people if you bought in 2006,

you pay at the top end of the market, and then come 2009, 2010,

2011, if you had to get out of the house or you lost your job with

the economy, many houses in Lakewood Ranch and a lot of different places fell in half. They paid 500 and now it is worth 250.

They cannot make the payment.

So maybe you could expound on that a little bit.

Mr. GROOMS. The worst effect that it has on an overall community?

Chairman BUCHANAN. Yes. I am just talking about the extender that you are here talking about today.

Mr. GROOMS. Well, the primary extender that we are talking

about is the only analogy that I can think of is you do not want

to buy fire insurance when your house is on fire, and that is really

what we are looking at with this.

We have been advocating since 2000, before the bust in the market. Two thousand ten was an incredible year in a very negative

way to the real estate industry. Not only did it affect the housing

prices, the neighborhoods around it, but it created a ripple effect

going into how do we value properties going forward.

How do we measure distressed properties against current properties that are not distressed? And it created a lot of challenges for

both the banking industry and the appraisal industry.

So it is not just the fact of that because it is not an income. The

deficiencies in the two are not an income. An income you can pay

your debt with. An income you can put your kids through school

with. This is not an income. This is a great loss to the community.

I wish Mr. Larson was still here because he asked the question:

you want to go to heaven, but you do not want to die. Well, in the

current tax bill, actually there were sacrifices in it for the American people, and that comes in the way of the mortgage income deduction and also the caps on real estate taxes.

So there is a skin in the game by the people that we are looking

at. The disparities that we have in the market are great. I know

we have given you statistics and analytics that are from very smart

people, much smarter than me, but I will also challenge you that

there is a shadow inventory of these properties out there.

In my opinion, by not making this permanent in the Tax Code,

what you are going to be doing is penalizing the people who have

not had the short sale or foreclosure yet, that with one little blip

in their lives—I have a nephew and a niece, a firefighter and a

nurse, who are up to here with the value of the home and it needs

repairs. If anything happens in their lives and they experience a


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job loss, they will be homeless. We will lose a quality firefighter

and a quality nurse from our community. That is the great impact

of it.

Chairman BUCHANAN. Let me ask this question, pose this

question I did to the first two panels. Tax reform, the new law that

got put in place January 1 of this year, it cut corporate taxes 43

percent. We cut pass-throughs when you add it up 25 percent. We

went to full expensing.

So the thing I get questioned with, and I do not know exactly.

You know, everybody is a little different, and when you are in rural

communities, it is a little bit different. But we want to take these

extenders and get rid of a lot of them, but also make some of them

permanent law so that we can get out of the extender business.

At the end of the year, you have got to figure out whether you

are going to pass an extender or not. It is not the way to do business. It makes zero sense.

So I guess the question I would pose to all of you: maybe not

your industries, but a lot of industries are getting substantial benefits. Corporate America, 43 percent, like I said; pass-through entities, which make up 90-some percent of the entities, get a 25 percent cut this year. Full expensing is a big deal.

So my point is that what we are going to look at, a lot of us, is

we do not want people double dipping, not to say you are or your

industries because, to be honest with you, I do not know enough

about the industries. But I do want to give you all a minute or so

or whatever time you need just to talk about: is this something

that your industry needs, despite the substantial cuts that got put

in place at the first of the year?

Mr. Meyer, what about you? Everybody, take 30 seconds or a

minute or something real quickly.

Mr. MEYER. Mr. Chairman, the tax reform, obviously, is very

stimulative to the economy. You know, our requesting the tax credit to be reinstated in biodiesel is really a targeted program for improving, again, a continued success in improving air quality, farm

prices, and jobs.

So, in essence, I look at those as two separate things in our area.

Mr. MCADAMS. Mr. Chairman, I would give you an example of

somebody that did not benefit from the tax bill. That is a pre-revenue company, and so in the second-generation industry for the

second-generation cellulosic credit and the depreciation, I have two

members that are about to build two of the most innovative plants

in the world, one that uses wood, the other that uses solid waste

to make diesel and jet fuel.

Yet they have no revenue, and that dollar helps buy down their

competition against the incumbent industries. So really key, they

cannot double dip.

We only have 13 million gallons of liquid transportation fuels

from cellulosic today, and we were supposed to have 6 billion under

the RFS. So that is an area where we could have real development

all over the country using new feedstocks that would bring jet fuel

and drop-in fuels that we have always wanted and never had.

Chairman BUCHANAN. Maybe the term is not ‘‘double dip,’’ but

the thought is if you get substantial benefit——

Mr. MCADAMS. They need revenue.


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Chairman BUCHANAN. My point is that.

Mr. Hubbard.

Mr. HUBBARD. For most of our industry, we are pre-commercial. So many of our companies operate in a net operating loss situation.

When we are looking at investment and improvement and technological innovation, we are all going after the same energy dollar,

this same energy investment dollar. But when these investors, private equity funds are looking at our industry, they are looking at

first the oil and gas industry, which has permanent tax credits.

Then they are looking at other industries that have longer term

credits, and then there is the second-generation biofuel industry,

which has essentially a one-year extension.

So we are not providing any sort of certainty for those investors.

Chairman BUCHANAN. So in terms of your industry, how big is

it dollar-wise? Your industry.

Mr. HUBBARD. The traditional grain-based ethanol industry, we

are producing 15 billion gallons, but the second-generation ethanol

industry at this moment——

Chairman BUCHANAN. What is the dollar amount? What does

that extrapolate to? Just a ballpark.

Mr. HUBBARD. Forty billion.

Chairman BUCHANAN. Forty billion, 30 billion, and you are

saying nobody makes any money? Is that what you are saying?

Mr. HUBBARD. No. Specifically, with respect to the second-generation ethanol industry, and that is really what we are talking

about. These are first time movers, moving in not traditional grain

based technologies, but moving into new technologies that are first

of its kind and have not had the opportunity to kind of develop production efficiencies.

Really, when we are going after the dollar, we use the secondgeneration production tax credit and the accelerated depreciation

when we are trying to secure financing. Now, that is certainly

something that we look at at the outset, but once these practices

are starting to mature——

Chairman BUCHANAN. I ask the question: if you are not making much money, why do you need the write-offs?

Mr. HUBBARD. Because there is great opportunity there. We

certainly see a profit. As the ethanol industry, we think that the

same thing that has occurred with the traditional grain-based industry can also occur with the second-generation industry.

It is not a matter of not making money. It is a matter of improving performance, improving production efficiencies, and eliminating

the waste, and dealing with some of the commercial obstacles that

first-time movers have to face.

Chairman BUCHANAN. Thank you.

Ms. Petry.

Ms. PETRY. Thank you.

As I mentioned earlier, our industry is very capital intensive. We

literally take the money that we make——

Chairman BUCHANAN. I think it is a big issue in your area. My

sense of it, rural communities’ rail, I do not know, but I have got

to think it is a big factor. So go ahead.


ralbany on LAP520R082 with HEARINGS
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Ms. PETRY. It is huge. It is huge, and 45G has been instrumental in getting us to where we are today, but we have had 100

years to make up for. So we have been behind the eight ball for

more 100 years.

And as we need to change our market base, as we need to increase our market base, that means we need to move to a bigger,

heavier railcar and we cannot do that with the infrastructure. I

mean, look at the difference in this rail.

But one of the things that helps us is when we know ahead of

time. I mean, in Oklahoma, we might not get any rain. So we may

not have a profitable year, but I still have to reinvest back into the

track. Forty-five G has been instrumental in helping to do that.

Chairman BUCHANAN. Mr. Grooms, do you have anything to

add? I mean, you kind of had a chance.

Mr. GROOMS. Just briefly. You know, we are very unique with

the panels here today, and I have been watching it all morning,

and the difference, I think, primarily when it comes to the housing

is we are dealing with people. We are dealing with the American

dream. We are dealing with what we have all known and what we

have all grown up to believe is the most important thing in life is

home ownership.

Many of the people that have had to sacrifice because of a short

sale or foreclosure, they do not get tax breaks. They do not have

any money. That is the bottom line on it. To think of it as an income is absolutely ridiculous. Again, we have supported this.

Ours is a little unique in the sense that we have identified a

problem that we had in the year 2000 when there was not a problem, and again, I make that statement. I want people to think

about that. You are from Florida. You will get it. You are not going

to get hurricane insurance when the eye of the hurricane is over

you.

Chairman BUCHANAN. I read in the paper, USA Today, I think,

a year ago, six months ago, 62 percent of Americans do not have

$1,000 in the bank. So what that tells me, they are living paycheck

to paycheck, and that is why if you have one blip, someone loses

a job in a bad economy, your house goes in half and you cannot pay

the payment. I know that is a big deal because I have lived

through multiple recessions, 1980, 1990, the one we just had. There

are a lot of things there.

I do want to close with one other point that has been made. You

said you watched it all day. There has been a lot talk about debt

and deficits, and I would just say what we have tried to do in this

package of tax reform is grow the economy, create a bigger pie.

Instead of growing at 1, 1.5 percent, the slowest growth in 50

years, try to grow it at 3 percent. So if we are right in what we

are doing, what we have got in the last 10 years has not been

working. We have created $10 trillion in debt, the slowest economy

in 50 years.

So what our vision is we want to grow this economy instead of

at 1, 1.5 percent, 3, 3.5, with the idea you get a bigger pie and you

get more revenues, and at the end of the day, what tax cuts there

are, they pay for themselves because you have got more money

coming into the Treasury.


ralbany on LAP520R082 with HEARINGS
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We are losing a lot of our companies going offshore because there

are more friendly tax environments in the world. So 21 percent corporate tax, we have not done tax reform since the late 1980s. It has

been 30-some years ago, and the world has changed. The global

economy has changed.

So the thought is what we have got is not working. Let us see

if we cannot figure out a way to stimulate and grow this economy.

That is the purpose on our side of the aisle that we are trying to

do.

And I always find it amazing because all of a sudden now they

want to talk about debt and deficits, but the reality is we have run

up $10 trillion in debt. We have gotten more debt in the last 10

years than we have got since George Washington to George Bush.

Now all of a sudden it is about deficits.

So our goal is to try to grow our communities and make America

the best place in the world to do business.

So with that, I would like to thank our witnesses for appearing

before us today.

Please be advised that Members will have 2 weeks to submit

written questions to be answered later in writing. Those questions

and your answers will made part of the formal hearing record.

And with that, the Subcommittee stands adjourned.

[Whereupon, at 4:52 p.m., the Subcommittee was adjourned.]

[Member Submissions for the Record follow:]


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[Public Submissions for the Record follow:]


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