Rent Seeking for Fun and Profit in the Energy Bill

September 1, 2005

Courtesy of MSN Money, a handy how-to guide for taxpayers looking to dive into the trough of tax preferences for solar energy production in the recently passed energy bill:

“For anybody who has ever considered installing a solar system, Washington is telling you to do it now,” says Rhone Resch, president of the Solar Energy Industries Association in Washington, D.C.

The law both increases tax credits for commercial solar installations and offers individual homeowners a credit for the first time in 20 years. (An earlier personal-use solar credit was in effect from 1979 to 1985.)

Homeowners get a … limited credit. They can put in a photovoltaic system (roof panels that take in energy from the sun and turn it into electricity) and/or a solar-powered hot water system (for hot water heaters, radiant floors or radiators), and get a federal tax credit worth 30% of the systems’ cost, up to a credit of $2,000 per system.

…[I]f you install both eligible solar systems in your house, you can knock $4,000 off your federal tax bill.

There are so many economic problems with these tax credits—and with the pork-laden energy bill more generally—that it’s hard to know where to begin. For one, they’re temporary, likely shifting the timing of solar investment rather than boosting it overall in any long-run sense.

Second, they have the potential to dramatically complicate the federal tax code at precisely the time when the President’s Advisory Panel on Federal Tax Reform is supposedly charged with finding ways to simplify it.

Third, they likely reduce overall social wealth as they distort investment decisions in energy production away from methods that make economic sense and toward tax-preferred methods.

For more on the many, many flaws of the recent energy bill, see previous posts here, here, and here.

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