The three most recent major tax reform proposals offered in Congress could increase solar system installation prices by as much as 58 percent as compared to the current tax regime. A GW Solar Institute analysis, Tax Reform, a Looming Threat to a Booming Solar Industry, found that solar system installation costs would go up in three leading legislative packages primarily because of proposed modifications to the 30 percent Investment Tax Credit (ITC) and the 5-year depreciation schedule under the Modified Accelerated Cost Recovery System (MACRS) which allows companies to deduct economic losses of depreciating solar property from their tax bills at a faster rate.
To better understand how tax reform could impact solar, the GW Solar Institute policy brief, Tax Reform, a Looming Threat to a Booming Solar Industry modeled four potential tax systems with the following politically feasible assumptions:
- “Current” Tax System or No Tax Reform: 35% corporate rate, MACRS, and 10% ITC after 2016;
- “Conventional” Tax Reform: 25% corporate rate and slower, economic depreciation;
- “Middle Ground” Tax Reform: 30% corporate rate and a partially modified depreciation system;
- “Sweeping” Tax Reform: 25% corporate rate, full expensing economy-wide, and an upstream carbon tax starting at $20 per ton of CO2.
Only under “sweeping” reform would solar PV compete as well as under the current tax system after 2016. None of the tax systems alone can match the current tax system with accelerated depreciation and the 30 percent ITC.
The analysis concludes that no matter which other broader changes to the tax system Congress adopts in tax reform, additional energy sector policies would still be necessary to maintain solar’s economic competitiveness relative to current law.