After a long week of dramatics, House Republicans finally passed their major tax and spending reform package, “One Big Beautiful Bill Act.” The legislation, which now heads to the Senate, puts the country on the road to economic certainty, smarter government spending, and pro-taxpayer policies for families and businesses. All told, it features $1.5 trillion in budget savings and charts a course avoiding a massive $4.5 trillion tax hike that would occur at the end of this year.
With the slimmest majority in recent memory, Speaker Mike Johnson deserves a significant amount of credit for shepherding the bill through the House. From dealing with various factions, individual member demands, and redlines, it’s clear the Speaker’s leadership is unparalleled. Passage last week also keeps Speaker Johnson’s promise of passing the tax bill before Memorial Day to ensure a final bill can reach the President’s desk in early July.
It’ll go underreported, but the House Freedom Caucus and its Chairman Andy Harris (R-MD) also deserve credit for greatly improving the OBBBA. From the very beginning and even until the day of the House vote, the Caucus constantly advocated for as much taxpayer savings and reforms as possible that could pass the House. Some may have seen them as a roadblock, but their focus was always on delivering a package that best serves taxpayers. Thanks to their persistent efforts, they improved the bill without sacrificing the ability to pass H.R. 1 through the House.
Most notably, the Freedom Caucus pushed more aggressive changes to the Inflation Reduction Act, one of the most expensive bills ever enacted into law. That law focused heavily on climate change and renewable energy, with tax credits and other incentives estimated at the time to cost nearly $400 billion. Tax credits in the law were geared toward clean and renewable electricity, fuel, residential energy, and vehicles to incentivize the transition of the power grid and consumer preferences away from traditional fuels like coal, gas, and oil.
NTU strongly opposed the IRA, and, to this day, urges a complete repeal of its components, especially to its tax increases, spending boondoggles, and price controls on prescription drugs.
Specific to the energy tax credits, the expected cost of these subsidies has increased substantially since the time of enactment. For example, Penn Wharton Budget Model (PWBM) estimated the cost of these provisions to be $384.9 billion over a 10-year window at the time of enactment, but later updated this estimate to an incredible $1.045 trillion over that time. Meanwhile, the Cato Institute expects the cost of the IRA’s energy tax subsidies to amount to almost $5 trillion by 2050. Last year, the Congressional Budget Office (CBO) increased the projected outlays for IRA energy credits over the 10-year window by $124 billion, largely due to regulations subsequently released by the Treasury.
There are two major issues with the IRA tax credits. First, tax credits distort the private marketplace and reward certain private developers who build renewable energy projects but not those who construct fossil fuels projects. Markets work most efficiently when the government does not put its finger on the scale, or in the case of the IRA, $1 trillion of subsidies on the scale. Second, the cost of the IRA has ballooned past original projects from the Congressional Budget Office. As mentioned above, the loss in revenue continues to grow and results in higher deficits due to foregone tax revenues.
It’s obviously a significant and costly problem, and Ways and Means Chairman Jason Smith rightly included some phaseouts of the IRA credits in the original OBBBA. While the provisions in the Committee passed bill were positive, NTU argued that they were not substantial enough and warranted expedited and harmonized phaseout to prevent attempts to extend them in a future Congress.” The House Freedom Caucus also recognized that the changes to the IRA credits were not enough and urged further refinements.
Thankfully, Speaker Johnson listened to those concerns and offered a more conservative approach to dealing with the tax credits. This included stronger eligibility restrictions, faster phase downs of production and investment credits, and a requirement that projects start construction within 60 days of H.R. 1’s enactment or be plugged into the grid by the end of 2028, rather than 2031, to qualify. The House-passed bill also eliminates the “transferability” of tax credits that enabled developers to sell them and use the funds to finance their projects’ construction.
These are commonsense changes that we hope will not only remain, but be strengthened when the Senate alters the legislation.
To be clear, NTU supports energy projects that make our grid affordable, reliable, and secure. Renewables such as onshore and offshore wind, and solar can sometimes satisfy those three requirements, but building them should not require federal subsidies and state renewable mandates. And while they can have beneficial impacts in some circumstances, they do not provide baseload power to meet demands when the sun doesn’t shine or the wind doesn’t blow.
The Freedom Caucus and other conservatives in the House are right to push back on the IRA tax credits. The longer these subsidies remain in law, the more expensive they will become and the harder it will be for Congress to remove them. Now it’s up to the Senate to support the Green New Deal Rollbacks.