The importance of the tax credit system in the Biden Administration’s Build Back Better (BBB) Act was the topic of a recent discussion on Tax Notes Talk, a financial podcast. During the episode, Beth Viola and Nicole Elliott of Holland & Knight LLP explained that the tax benefits would go directly to the renewable energy sector, helping to green America’s grid. They also delved into how the bill had planned to issue credits, which included: direct payments of the credit amount; bonus credits for meeting the wage and apprenticeship requirements, and further bonus credits for using domestically produced products for manufacturing, like iron or steel.

Why this Matters

The BBB bill stalled in the Senate and while Democratic policymakers consider reconstituting the bill, they are simultaneously promoting its tax-benefit system as an attractive provision. The system is exciting to companies in renewable energy because they guarantee the tax credits for a decade and can provide direct payment. With renewable energy being a crucial part of keeping warming under 2 degrees, passing the BBB Act or similar legislation is imperative.

A "Transformative” Tax Credit System

Direct pay is a particularly important part of BBB’s tax provisions. Direct pay allows credits to be used as income tax payments helping to relieve significant tax liabilities. The bonuses, too, have unprecedented benefits. The production tax credit, for example, gives back a percentage of the energy created. Normally, the tax credit is 0.3 cents per kilowatt of renewable energy generated, but this number could increase by up to five times that amount if companies comply with labor and content requirements.

The availability of these credits would extend to individual taxpayers as well when purchasing electric or used cars, making existing homes more energy-efficient, or building new energy-efficient homes.

"The tax provisions and the tax credits that are in Build Back Better, as currently drafted, would be transformative,” Elliott told Forbes. There is a lot in here about working, enhancing, extending, modifying existing credits that have been really important.”