Sen Hagel, Rep Matheson and Bipartisan Ethics

By Stanford Matthews originally posted at Blog @ MoreWhat.com In light of a press release from the American Council for Capital Formation and the connection made with Senator Chuck Hagel, some attention should be paid to it. Stating that the US Tax Code is unfavorable to specific investments and trying to draw support by characterizing energy interests as national energy security or environmental protection is nonsense. It becomes even more nonsense when you consider that the two politicians mentioned and quoted in the press release have vested interests that would conflict with an honest assessment on this topic. Senator Chuck Hagel's involvement in business over nearly 30 years includes work as an investment banker in the eighties and the McCarthy Group in the nineties. The accouting firm, Ernst and Young, contributed to his campaign fund as well as Arthur Anderson and Enron. The quantity of energy interests listed on campaign finance disclosures for Senator Hagel are indicative of a biased slant in their favor. And Rep Jim Matheson is the owner of an energy consulting firm according to information at Project Vote Smart. Put this Republican Senator and Democratic Congressman together on this topic and you have definition of bipartisan politics and explanation why it is rarely a good thing. Senator Hagel, Representative Matheson: U.S. Tax Code Unfavorable to Investments Needed for Energy Security and Environmental Protection New Ernst & Young Study Shows U.S. Has Slow Cost Recovery and High Tax Rates Compared to International Trading Partners WASHINGTON, May 2 /PRNewswire-USNewswire/ -- The U.S tax code fails to provide a favorable investment climate for future infrastructure that will be vital to national energy security and environmental protection, according to a new study prepared by Ernst & Young on behalf of the American Council for Capital Formation (ACCF). The ACCF study compares depreciation allowances and effective tax rates for various energy investments for the United States and eleven foreign countries. The U.S. consistently ranked near the bottom internationally when it comes to cost recovery on energy investments. U.S. companies also face much higher tax rates on the profit from their investments than do companies in countries like Canada, Mexico, China, India and Malaysia. Slow cost recovery and high tax rates on investment raise the cost of capital, meaning fewer new projects will be undertaken. "The current federal tax code raises the cost of capital for U.S. firms, putting them at a competitive disadvantage, and makes it harder to provide solutions to our energy and environmental policy goals. This study is another example of the enormous changes needed in the current federal tax code to keep America competitive in the 21st Century marketplace," said Senator Chuck Hagel (R-NE), who headlined an ACCF forum today where the study was released. U.S. energy security and energy prices remain paramount national issues. Strained energy supplies will be exacerbated by continued growth in U.S. population, which means increased demand for home heating and cooling, job growth and transportation. Complicating these challenges are increasing environmental requirements for cleaner, more efficient technology to produce energy while reducing growth in greenhouse gas emissions. To meet these challenges, U.S. industry must make large investments over the next decade; electric utilities, for example, must invest up to $1 trillion by 2020 for new generating capacity, transmission, distribution, and environmental control technology and demand-side management. Unfortunately, the U.S. federal tax code fails to provide a positive investment climate, especially compared to the favorable tax provisions available to our international trading partners. Specifically, the ACCF study found: -- The United States generally has less favorable tax depreciation rules for electric generation, electric transmission and distribution, and petroleum refining than many other countries, including a number of the U.S.'s major trading partners. -- The U.S. generally has slower cost recovery during the first five and ten years after the investment than the comparison countries. For example, investments in electric generation fueled by natural gas, nuclear and coal recovers less than 38% of the original investment during the first five years and 68% during the first ten years in the U.S., compared to 80% and 97%, respectively in Canada. -- When the time value of money is taken into account, the U.S. depreciation rates remain less favorable than most of the competitor countries. Again, an investment in electric generation fueled by natural gas, nuclear and coal has a net present value of depreciation over the entire recovery period of less than 66% of the original investment in the U.S. compared to 84% in Canada. -- Because the United States has the second highest statutory corporate marginal tax rate among OECD countries combined with generally less favorable tax depreciation rules, the differences in effective tax rates are even greater. The corporate effective tax rate on investments in electric generation fueled by natural gas, nuclear and coal is estimated at 27-31% in the U.S., compared to 14% in Canada. -- These findings are consistent across all of the energy assets studied, including different types of electric generation, electricity transmission and distribution, pollution control equipment, and petroleum refining. "Tax policy is an important piece of the puzzle as we consider a comprehensive energy policy in this Congress. I appreciate the effort behind this study and look forward to becoming more familiar with implications of tax policy on energy investment," said Representative Jim Matheson (D-UT) who also headlined the ACCF forum today. "If the U.S. is serious about meeting energy demands and making technology environmentally-friendly, then it needs to take a serious look at making our tax code more favorable toward investment and more on par with our international trading partners," said ACCF senior vice president and chief economist Margo Thorning. The full ACCF study and downloadable bar charts are available at http://www.accf.org. The American Council for Capital Formation (http://www.accf.org) is a nonprofit, nonpartisan organization dedicated to the advocacy of tax and environmental policies that encourage saving and investment. The ACCF was founded in 1973 and is supported by the voluntary contributions of corporations, associations, foundations, and individuals. SOURCE American Council for Capital Formation Related links: # http://www.accf.org