Capitol Hill Recap: Constructive Debate on Energy Credits

Not for the first time, President Donald Trump recently singled out on social media a member of his own party—in this case, Chuck Grassley, the 91-year-old Republican senator from Iowa.

Trump blasted the long-serving lawmaker for failing to speed up the process of confirming Trump's judiciary nominations.

But the two prominent Republicans also have a lower-profile dispute over the sunsetting of energy credits, as recently amended by the One Big Beautiful Bill Act. While not as flashy, it could end up determining whether millions of dollars in new energy projects go ahead, or are stopped in their tracks.

Grassley entered a statement into the Congressional Record on July 23, praising the "sensible compromise" that allows some wind and solar projects to use Section 48E and Section 45Y clean energy credits after a new 2027 sunset, if they begin construction within 12 months.

He also notes that the legislation codifies previous U.S. Treasury Department guidance on how to define when construction begins, and urges Treasury officials to implement the law "in accordance with the statute as written and consistent with congressional intent."

Grassley's statement follows a White House July 7 executive order, which directed Treasury to create guidance within 45 days to "enforce the termination" of the 48E and 45Y credits, including the beginning of construction rules. The order specifically calls on Treasury to ensure those rules aren't circumvented, "including by preventing the artificial acceleration or manipulation of eligibility and by restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built."

In theory, Trump and Grassley's statements aren't contradictory—they're both calling on Treasury to enforce the law. But there are always some ambiguities between the words of statutes, and the OBBBA's beginning of construction rules are no exception. Trump's order seems to imply that Treasury will impose rules stricter than prior Treasury guidance. And, while Grassley is correct that this guidance was codified into law by the OBBBA, that language is in a different section of the law, and it’s unclear whether it would apply in those cases.

These are the crucial decisions which will be made over the next months and years about implementing the new tax law--and Treasury will likely face strong pressure from many sides on how to proceed.

Recent Tax Pieces:

How Much Will the Prohibited Foreign Entity Rules Change Energy Credits? – Marie Sapirie, Tax Notes ($):

In retrospect, changes like these were predictable. Successive budget bills have imposed more restrictions on energy credits that are meant to pursue specific policies related to the domestic energy market. The Inflation Reduction Act added prevailing wage and apprenticeship requirements to many credits and FEOC restrictions to the revamped electric vehicle credit, and now the OBBBA has added FEOC rules to many of the credits. It’s worth noting that the tightening of the FEOC requirements in the OBBBA was also foreseeable — even former Sen. Joe Manchin complained that the original FEOC rules in the section 30D EV credit were too laxly implemented.

Who Gets ‘No Tax on Overtime’? It’s Messy. – Richard Rubin, The Wall Street Journal:

Under the law, the only overtime compensation that qualifies for the new deduction is the extra wages—the “half” of “time and a half” pay—required under the federal Fair Labor Standards Act, or FLSA.

That definition excludes overtime paid to airline employees, railroad workers and other transportation laborers covered by separate overtime laws. It doesn’t include some payments under agreements outside FLSA or workers specifically exempted from FLSA. And it excludes payments required under state laws like California’s, where overtime starts after eight hours daily instead of 40 hours weekly.

Treasury Secretary Says Trump Accounts Could Pave Way to Privatizing Social Security – Alan Rappeport and Andrew Duehren, The New York Times:

The future of entitlement programs like Social Security, which are funded by workers through payroll taxes, has long been considered one of the most fraught topics in American politics. Social Security faces a stark financial challenge as a growing share of the population retires and starts collecting benefits. The costs of the program have outpaced the revenue collected from payroll taxes, a shortfall that could result in an automatic benefit cut as soon as 2033.

Suggestions of trimming benefits or raising the retirement age to make the programs more financially sustainable have been nonstarters with older voters, who reliably show up at the polls. Mr. Bessent’s comments alluded to an idea popular among some conservatives to push more Americans to rely on financial investments, rather than government payments, to fund their retirement.

SALT Cap Complexity Could Rewrite Tax Planning Strategies – Stephen K. Cooper, Law360 Tax Authority ($):

The expanded SALT cap primarily helps taxpayers in high-tax states like California, New Jersey, Illinois and New York, especially those facing large property tax bills or those with a complex mix of personal and business income. With its five-year window and phaseouts for higher earners, on top of the existing wide variability in state conformity with federal tax law, the new regime presents more complexity for those navigating the mix of state-level pass-through entity tax workarounds, tax experts warn.

Casinos’ Push for Trump Tax Law Fix Gains Traction in Congress – Daniel Bunn, Bloomberg Tax:

The gambling bill’s backers are looking for other legislation they could hitch a ride on. If Republicans undertake a second partisan tax-and-spending bill that could be one option, as could a bipartisan health care or tax-extenders package that could take shape before the end of the year.

Fortunately for the gamblers and the gaming industry, time is on their side. The provision takes effect next year, meaning gamblers seeking to deduct their losses won’t face the tax hike until they file their 2026 taxes in early 2027, giving Congress time to navigate these challenges.

Capitol Hill Recap: Constructive Debate on Credits

Alex Parker