Congressional Republicans will take a hard look at repealing or modifying the Inflation Reduction Act's clean energy subsidies as US House and Senate negotiators seek alignment on a budget resolution calling for up to $4.5 trillion in tax cuts, a panel of tax policy experts predicted Feb. 26.
But whether Republicans employ an "ax" or "scalpel" approach to the Inflation Reduction Act's (IRA) tax credits for clean energy generation and advanced manufacturing remains to be seen, panelists said during a policy forum convened by the American Council on Renewable Energy (ACORE).
The trade group hosted the event in Washington, DC, a day after House Republicans narrowly advanced a budget reconciliation resolution intended to deliver on President Donald Trump's "energy dominance" agenda, among other priorities.
The House resolution — passed by a 217-215 vote — sets in motion a process for Republicans on individual committees to develop more detailed legislation that complies with their topline budget instructions.
Republicans appear to be coalescing around House Speaker Mike Johnson's one-bill budget reconciliation approach for addressing Trump's top legislative priorities, which include extending the 2017 tax cuts the president signed into law. The Senate passed its own $340 billion budget resolution on Feb. 21 that would only address Trump's policy priorities on immigration, national security and US energy production.
Under congressional budget reconciliation rules, the House and Senate must pass identical budget resolutions. Reconciliation procedures, used by Democrats to pass the IRA in 2022 and Republicans to pass the Tax Cuts and Jobs Act (TCJA) in 2017, allow the Senate to avoid the chamber's 60-vote filibuster threshold.
House resolution lacks 'breathing room'
Pressure on Republican tax writers to raise offsetting revenues "will phase up or down, depending on what the ultimate budget resolution answer is," William Davis, a partner at Capitol Tax Partners, said during the ACORE event.
Davis, previously tax policy counsel to former Rep. Tom Reed (R-NY), noted that 18 House Republicans wrote to Johnson last summer warning that full repeal of the IRA's clean energy subsidies would threaten ongoing construction projects in GOP congressional districts.
He said Republicans are currently grappling with actions that could raise energy costs for consumers, such as the repeal of tax credits affecting power generation or energy component manufacturing.
"Staff are hard at work thinking through all the various implications and what the impacts on the economy and on the energy sector would be should they go down that road," Davis said.
Travis Cone, a partner at the public relations firm CGCN, said the House budget resolution's instruction to the Ways and Means Committee to produce $4.5 trillion in tax cuts over 10 years does not leave much "breathing room" for policy changes beyond simply extending the TCJA.
"President Trump spoke on the campaign trail about waiving taxes on Social Security, tips, and a whole host of other things," said Cone, who joined CGCN after 13 years as a Republican staffer in the House and Senate. "Those are very expensive big-ticket items, and right now they've given them enough headroom to essentially extend TCJA and nothing more."
Alice Lin, former deputy assistant secretary at the US Treasury Department during the Biden administration, recommended thinking about potential repeal of the IRA's tax credits as "not a separate political end unto itself."
Repeal considerations will be "an exercise in figuring out how to bridge that gap between what you want to spend on and what the [budget] instruction is," said Lin, who was previously a tax adviser in the House and Senate.
"When I think about all the equities across the various credits, it's a question of what is going to fulfill that goal with the least pain in terms of actually stitching the votes together on the floor," Lin said.
Hill staff eye repurposing, consolidating credits
Cone predicted that the IRA's prevailing wage and apprenticeship requirements for bonus tax credit rates would likely be "gone" under a final GOP reconciliation bill. The Treasury Department's IRA tax credit guidance, finalized in June 2024, encourages union labor agreements.
"It's a Biden initiative, it drives up some of the costs, and Republicans hate it," Cone said of the Treasury guidance.
Meanwhile, Republicans could seek to repurpose the IRA's production tax credit for carbon-free electricity to reward baseload power generation, Cone added. Sen. Ron Wyden (D-Ore.) led the effort to transition the IRA's carbon-free production tax credit to a more technology-neutral approach starting in 2025.
"A lot of the conversation I've heard on the Hill right now is, 'Well, we may actually co-opt Wyden's idea of a tech-neutral credit, but we'll just change the criteria for meeting it,'" Cone said. He suggested that such criteria could hinge on metrics such as a power plant's annual capacity factor and domestic content "vis-à-vis supply chains."
Cone stressed that those ideas are hypothetical until the House and Senate reach consensus on an overarching budget resolution.
Anna Taylor, deputy leader of Deloitte's tax policy group, put the odds of Republicans passing a final reconciliation bill before the end of the year at "more likely than not."
The question of repealing IRA clean energy subsidies "will not be put to these members in a vacuum," said Taylor, who was previously tax and trade counsel to former Senate Majority Leader Charles Schumer (D-NY).
"Are you going to be willing to stand in the way of your president's agenda because you don't get what you want in this space?" Taylor said during the Feb. 26 event. "I think ultimately, you're going to have a lot of members who are asked that question, who are supportive of the [IRA] credits, and we'll see."
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