Solar Credit – Only the Wealthy need Apply

When most of us talk about income inequality we look at the big things, capital gains tax, treatment of carried interest, etc. But sometimes the little things count too. The Renewable Energy Credit is one of them.

We’re doing a solar project right now and a quick look at the tax credit discloses bias for the wealthy. In our case the cost of our 4kw project is roughly $13,000. As a result of

Here is a look at the Return on Investment. This data is from a more expensive vendor (but they had these nice graphics!) with the same 4kw production. Easy to see the benefits, even if financing in many cases.

that investment we’ll receive a federal tax credit of $3,900 making the final cost to us just $9,100. The payback in ridding ourselves of electric bills for the life of the system (25+ years) is substantial. The investment, while not the coolest thing we’re trying to make happen here, has moved up among our priorities because of it’s long-term payback guarantee. In the end it makes other things more affordable as it pays for itself, then pays us with an offset from electrical bills.

But what f we didn’t already have some money? What if our annual tax bill wasn’t large enough to claim the credit? The project would cost us more, perhaps as much as the full price of $13,000 would come from our pocket.  While the credit is intended to subsidize the development of the alternate energy industry and offset fossil fuel consumption, it is also written with a bias toward the wealthy which can also be called a bias against the poor.

Unlike some tax credits (Earned Income Credit for example) which are refundable credits, the Renewable Energy Credit is not. Instinct may be to downplay this since only tax payers can get a tax credit, but not so fast. The Renewable Energy Credit is a subsidy for the industry, it just passes through the consumer on it’s way to that industry. There is no reason it can’t pass through the poor equally as well as it passes trough the wealthy. In the end the federal tax expenditure is the same, the difference is that the wealthy obtain the long-term cost reduction (investment) for electricity and the poor either cannot or must do so at a greater cost i.e. a greater investment cost thus a much lower return on investment. Coupled with the economy of (investment/consumption) scale and the bias is even greater.  Larger home equals (usually)  larger consumption equals a larger investment which equals a greater tax credit.

Our government at work, creating a plan to help the renewable energy industry which is arguably a good thing, but doing so by offering the wealthy a far greater return on investment than the poor. This is a prime case of where at the same cost to the government, both the industry AND the energy affordability for the poor could be accomplished at the same time, with the same dollars…and not one penny more. A FREE opportunity to aid the poor along with the industry with the re-write of just a couple words.

If the Renewable Energy Credit remains, it should be made a “refundable” credit.

4 thoughts on “Solar Credit – Only the Wealthy need Apply

  1. Anne

    Good info! We’ve discussed installing solar, but it’s not in the budget right now. Maybe with a refundable credit it might be!

    Reply
    1. Steve Post author

      Keep thinking about it as it really does pay for itself. Time flies…we could have two years done already on what I calculate as a seven year payback. Bank and credit unions also offer really good rates while the credits are in place.

      Reply
  2. Kenneth Heathley Simpson

    Good point Steve and it applies to many other credits in the Federal tax code. The fair and most effective subsidy is always a cash grant or at least a cash refund. Of course cash grants are usually reserved for favored corporations in the U.S.

    Glad to here your project will be paying dividends. Ours? Not so much…

    Peace and love,

    k&c

    Reply

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