If Reed and Whitehouse enact a corporate income tax rate increase, they will have to explain why they just increased your utility bills
If President Biden and Sens. Jack Reed and Sheldon Whitehouse hike the corporate income tax rate, Rhode Island households and businesses will get stuck with higher utility bills as the country tries to recover from the pandemic.
Democrats plan to impose a corporate income tax rate increase to 26.5%, even higher than communist China’s 25% and higher than the developed world average of 23.5%. This does not even include state corporate income taxes, which average 4 – 5% nationwide.
Customers bear the cost of corporate income taxes imposed on utility companies. Corporate income tax cuts drive utility rates down, corporate income tax hikes drive utility rates up.
Electric, gas, and water companies must get their billing rates approved by the respective state utility commissions. When the 2017 Tax Cuts and Jobs Act cut the corporate income tax rate from 35% to 21%, utility companies worked with state officials to pass along the tax savings to customers, including at least three Rhode Island utilities.
The savings typically come in the form of a rate reduction, a bill credit, or a reduction to an existing or planned rate increase.
According to a report published in the trade publication Utility Dive, customers nationwide were to receive a $90 billion utility benefit from the Tax Cuts and Jobs Act:
Estimates derived from 2017 annual SEC 10-K filings indicate that the 14-percentage-point reduction in the corporate tax rate enacted under the 2017 Tax Cuts and Jobs Act (TCJA) resulted in investor-owned utilities establishing significant regulatory liability balances, totaling approximately $90 billion to be refunded back to customers.
Americans for Tax Reform has compiled a 90-second nationwide utility savings video from local news reports which may be viewed here.
If Democrats now impose a corporate income tax rate increase, they will have to reckon with local news coverage noting utility bills are going up. A vote for a corporate income tax hike is a vote for higher utility bills as households try to recover from the pandemic.
Tax Cuts and Jobs Act Impact: Working with the Rhode Island Public Utilities Commission, National Grid Rhode Island, Suez Water and Interstate Navigation Company passed along tax savings to their customers.
National Grid Rhode Island: As noted in this January 11, 2018 National Grid press release:
National Grid Rhode Island announced today that it is reducing its electric and gas base distribution rate proposal with the Rhode Island Public Utilities Commission (RIPUC) by more than $25 million. Last November, National Grid had put forth its first proposal since 2012 asking the RIPUC to adjust its base distribution rates for both gas and electric customers. Since that time, National Grid has been assessing how the newly passed federal tax reform legislation that was signed into law in late December could benefit our customers.
“Today’s announcement is a key indicator of how this new tax law can provide real benefits to National Grid’s customers,” said Tim Horan, president and COO of National Grid in Rhode Island. “We are committed to ensuring that the tax savings of the legislation are fully realized and are used to help our customers in their energy bills.”
Suez Water: As noted in this June 8, 2018 Rhode Island Public Utilities Commission document:
The Company’s Exhibit 4 (Cagle), Schedule 5C contains detail that shows that the Company originally estimated an amount of $129,640 of federal income tax savings from January 1 through September 30, 2018, its estimated effective date of new rates. The Company has reflected that as part of its proposed TCJA-related Regulatory Liability, which the Company proposes to amortize over 50 years. The Company has thus proposed to reduce rate year income tax expense by $2,593, relating to its proposed 50-year amortization of this component of its TCJA-related Regulatory Liability.
Interstate Navigation Company: As noted in this Rhode Island Public Utilities Commission document:
The parties also agreed on a method for crediting ratepayers with the tax savings from the reduction to the corporate tax rate. The Settlement Agreement provided for the creation of a new capital reserve account to be used by Interstate for capital projects including fixed asset purchases such as new vessels and/or overhauls of vessels, buildings, ramps, docks, pilings, etc. The initial funding will be $1,519,701 and the account will accrue interest at the Washington Trust Company money market rate. The following conditions will apply: (1) ratepayers will be credited when Interstate excludes the depreciation on the appropriate portion of any asset paid for from the capital reserve account funds; (2) if only a portion of the asset was paid for from the capital reserve account funds, the depreciation will be prorated; (3) any portion of the assets purchased from the capital reserve account funds will be excluded from rate base; and (4) because there will be no book depreciation on assets purchased from the capital reserve account, to account for tax depreciation, a credit will be added at the end of each fiscal year to the capital reserve account to capture the benefit for ratepayers. The credit will reflect the tax savings from the tax depreciation at the 21% corporate tax rate and will be added to the ratepayer’s portion of the earnings in excess of 12% on each year’s Return on Equity report
Conversely, if Biden and Democrats raise the corporate tax rate, they will add to the burden faced by working families. And any small businesses operate on tight margins and can’t afford higher heating, cooling, gas, and refrigeration costs.
President Biden should withdraw his tax increases.