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Tax Law

State Net Capitol Journal – November 19, 2012

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Budget & Taxes

OBAMA FIRES OPENING BUDGET SALVO: At a meeting with union leaders and other liberal activists last week, President Barack Obama announced that he intended to begin budget negotiations with congressional leaders by calling for $1.6 trillion in additional tax revenue over the next decade, along with an extension of the "fiscal cliff"-related tax cuts for middle-income Americans but not for the nation's top earners. He didn't say, however, that domestic programs like Medicare should remain untouched, leaving the door open for cuts Republicans have demanded but many of his fellow Democrats oppose.

White House spokesman Jay Carney said, "The president has put forward a very specific plan that will be what he brings to the table when he sits down with congressional leaders."

"We know what a truly balanced approach to our fiscal challenges looks like," he added.

But Obama's opening gambit was undoubtedly influenced by his re-election victory this month. His new revenue target is more than double the $800 billion figure he and Republican congressional leaders nearly agreed upon as part of a $4-trillion deficit-reduction deal in the summer of 2011 and substantially more than the $1.2 trillion he asked for before those negotiations broke down.

U.S. House Speaker John Boehner (R-Ohio) hasn't specified his own revenue target, but he has said he would be willing to accept new tax revenues in exchange for structural changes to entitlement programs. U.S. Senate Minority Leader Mitch McConnell (R-Kentucky), likewise, said last week, "New revenue must be tied to genuine entitlement changes."

Business leaders gathered last week at the Wall Street Journal CEO Council in Washington, D.C., meanwhile, were just worried about the consequences of another standoff with the fiscal cliff looming.

"I think everyone just has this fear that they just do as they've done the last four years and just lob grenades at each other," said David Crane, chief executive of NRG Energy Inc. (WALL STREET JOURNAL)

HI SOLAR BOOM HAS DOWNSIDE: Less than a decade ago, Hawaii's solar industry barely existed. But thanks to a generous tax credit, the state has experienced a solar boom that has added 2,000 "green-collar" jobs to the local economy and more than doubled the state's solar capacity, making it one of the top 10 solar producers in the nation. Solar system installations now account for 15 percent of all construction in the state.

But the overwhelming popularity of the state's solar incentive - a state tax credit of 35 percent of the cost of installing a photovoltaic system, on top of the 30-percent federal credit - is creating a budget problem for the state. In 2010, Hawaii residents claimed about $43 million in renewable energy credits, primarily from solar installations. This year, that figure is expected to jump to about $174 billion, a sizeable chunk of the state's $12 billion total budget for the year.

Other states have run into the same problem. The cost of Louisiana's 50-percent credit on wind or solar projects has climbed to 18 times the state's initial $500,000 per-year projection. And Oregon actually repealed its credit last year after its cost soared to 40 times original estimates.

Part of the problem is the imprecision of such estimates.

"How do I know how many people would put a solar system on top of their house?" asks Greg Albrecht, chief economist of the Louisiana Legislative Fiscal Office. "I'm just guessing."

In Hawaii, the language of the solar tax credit law also hasn't kept up with solar technology. The introduction of micro-inverter systems has apparently made resident homeowners and businesses eligible for multiple tax credits with a single installation.

The state's Legislature is expected to take a look at the credit when it reconvenes in mid-January next year.

"Everybody is pretty much on board with this clean energy," said Jack Suyderhoud, an economist at the University of Hawaii and vice chair of the state's Council of Revenues. "But people are starting to ask, at what price?" (STATELINE.ORG, STATE NET)

BUDGETS IN BRIEF: The CALIFORNIA State University system and the University of CALIFORNIA both postponed proposed student fee hikes last week. Gov. Jerry Brown (D) urged those actions as a result of voter approval of a tax increase for education (Proposition 30) on Nov. 7 (LOS ANGELES TIMES). • UTAH lawmakers are considering doubling the state sales tax on food, reversing a cut from 4.75 percent to 1.75 percent enacted in 2006 and 2007. State Sen. John Valentine (R) is also proposing both a refundable credit to help defray the cost of groceries and a refundable income tax credit for low-income residents to offset the impact of the sales tax change (SALT LAKE TRIBUNE). • MISSISSIPPI Gov. Phil Bryant (R) has proposed a 1.5-percent budget cut for most state agencies next fiscal year, which begins next July 1 (HATTIESBURG AMERICAN, STATE NET). • NEW JERSEY Gov. Chris Christie (R) said Hurricane Sandy may have hurt October and November revenues enough to throw his "Jersey Comeback" income tax cut into doubt (BLOOMBERG BUSINESSWEEK). • BP PLC said in a statement last week that it was close to a deal with the Department of Justice that would resolve all criminal charges and claims against the oil company by the Securities and Exchange Commission in connection with the 2010 Deepwater Horizon oil spill. The agreement would be subject to federal court approval and would also not likely cover federal civil claims, federal and state natural resources damages claims or private civil claims, the company said (WALL STREET JOURNAL).

Offshore Oil Drilling Rig in Gulf of Mexico

- Compiled by KOREY CLARK

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