Yesterday, President Biden announced the new “framework” for his Build Back Better agenda. As we know, his agenda is split into two big bills, one is a so-called ‘bipartisan infrastructure bill’, which focuses on traditional infrastructure like roads, bridges, pipes, transit, and rail projects. This bill totals $1 trillion in spending and when it passed the Senate back in August, it had 19 Republican votes. This was a shockingly high number of GOP votes. The bill, also known as BIP, is still sitting in the House, where progressives have used it for leverage to pass the partisan bill (which I’m going to call BBB from now on).
BBB started off at $6 trillion when it was proposed by Bernie Sanders. This was reduced to $3.5 trillion when it was introduced in the House, and now thanks to Joe Manchin and Kyrsten Sinema, it’s been lowered to $1.75 trillion. On the surface that may look like a huge sacrifice, but this is how things always go. We were never going to pass the Bernie Sanders plan, even if the Democrats had 60 seats in the Senate and 350 in the House, they’d never do something that big. $3.5 trillion, however, has the backing of 48 Democrats in the Senate. In order to get to $1.75T, a number of priorities like paid family leave have evidently been cut completely, while other programs have been shortened or reduced in scale.
That being said, let’s focus on the climate provisions. In total, the BBB has $555 billion for climate provisions, mostly in the form of tax incentives. These incentives are for clean energy like wind, solar, and energy storage, along with incentives to decarbonize industrial sectors like concrete, aluminum, and steel. There are credits for electric vehicles, as well as improving energy efficiency in buildings, and grants for developing new technology.
This framework was specifically designed to win the support of Senator Joe Manchin, who has said publicly that he supports “innovation, not elimination (of fossil fuels)”. Obviously, we aren’t going to innovate our way out of this mess, we need to reduce and eventually eliminate fossil fuels from every sector of the economy, but as long as Manchin is the deciding vote, we simply aren’t going to get that through Congress. The president has to work with what he has, and he’s come out swinging for climate action.
Combined with the energy aspects of the BIP, this would be a big down payment on climate action. It certainly is not sufficient to get us where we need to be, but it would be a huge step in the right direction.
One really important question is whether or not the tax credits are refundable. This is a huge question for equity and equality.
You see, currently tax credits for solar and EVs are not refundable. That means that in order to get the full value of the tax credit, you have to have enough federal “tax liability”. That sounds a little complicated, but it really isn’t.
Let’s look at an example. If you buy a solar system for your home that costs $20,000, you can take the federal tax credit at 26%. .26 x 20,000 = $5,200. However, you don’t get that money from the government, that’s a reduction in the amount of taxes you need to pay. So, if you owe the government at least $5,200 in taxes, you can take the full tax credit. If, however, you only owe $2,000, you can take $2,000 this year and then up to $3,200 next year, as long as you owe that much. Considering that roughly half the US population doesn’t even pay federal taxes, this means that the main solar incentive is unusable for a very large % of the population. Of course, people who don’t pay federal taxes are also less likely to own property, so they can’t take the tax credit anyway since they can’t install a PV system. This is an entirely separate, but equally important issue for a different post.
The bottom line is, under the current system, if you own your home and you pay little to no federal taxes, it’s more expensive for you to buy solar panels that it is for someone with a large tax bill. This means that solar and EVs are largely limited to upper income households. By making the tax credits refundable, we can help alleviate this inequality.
With a refundable tax credit, you always get the full value of the credit. If you owe enough in taxes, you can take the credit the normal way, but if you don’t owe enough in taxes, you simply get the credit as a cash refund. This means that the new tax credits will be accessible to millions of new people, and greatly increase the number of moderate to low income households who can affordably buy solar panels and electric vehicles.
The EV credits are worth $12,500. For economy vehicles, this could make the price of the EV version pretty close to that of the standard version. For example, the Hyundai Kona starts at $21,150 while the EV version lists at $34,000. The Mazda CX 30 starts at $22,500 while the new electric Mazda MX 30 starts at $34,645. The standard Kira Niro starts at $24,690 while the EV version is at $39,990. This is essential if we want EVs to become the norm for most buyers. Most of us aren’t luxury car drivers and we never will be.
Even if this bill passes, there is still an enormous amount of work to be done. The good news is, we know what we need to do, and this massive investment by the federal government would really accelerate things. I won’t celebrate until we’re over the finish line, but I will say that I’m very pleased with the framework that the president has given us. I was very concerned that climate would get cut significantly, but so far the total amount of spending has only been trimmed slightly, even if the programs have been changed.
Tax incentives for popular, high growth sectors seem like they’d be pretty popular, but it remains to be seen if any Republicans will put common sense over partisanship. I’m skeptical, but I’ve been wrong before.
The Mangrove 