Energy Tax Act

The energy crisis during the 1970s led the federal government to pass legislation that encouraged renewable energy consumption and discouraged less efficient energy use. Congress passed the Energy Tax Act of 1978, creating incentives and implementing a tax that remains in effect. Many provisions in the act have led government officials to other policy proposals in recent years.

Credits Function

• The Energy Tax Act set up two tax credits: the residential energy credit and the business investment credit to encourage conservation of, or conversion from, oil and gas or to encourage new technology energy. Homeowners receive certain amounts of tax credits, depending on the types of systems they install. Businesses receive similar credits, which they can put toward conservation projects or recycling equipment.

Credit Amounts

• Homeowners, under the Energy Tax Act, could receive tax credits to cover 15 percent of the costs for energy conservation. They could also receive tax credits that would cover 30 percent of the costs to install new renewable energy systems. The credits would award up to $2,000, unless the homeowners spent more than $2,000; in those cases, the act awarded credits covering an additional 20 percent for installation costing up to $10,000. Business could receive tax credits covering 10 percent of their costs for renewable energy projects. Congress intended for the credits to offset tax liabilities for installing energy equipment.

Tax Function

• Along with trying to encourage the buying of renewable energy systems, the Energy Tax Act also tried to discourage buying and manufacturing inefficient systems. To do this, the act implemented the Gas Guzzler Tax, which has remained in effect since Congress passed the bill. The tax does not apply to sport-utility vehicles, minivans or trucks because those vehicles were not commonly used when the bill went into effect, according to the U.S Environmental Protection Agency.

Tax Amounts

• When the tax went into effect in 1980, it would tax vehicle manufacturers as much as $550 per vehicle for cars with low gas mileage. The amount the Internal Revenue Service taxed a vehicle depended on the miles per gallon (mpg). The federal government maintains a schedule of current tax rates for gas mileages. The steepest tax is $7,700 for vehicles with 12.5 mpg or less. The IRS does not tax vehicles that get 22.5 mpg or more.

New Legislation

• The incentives started by the Energy Tax Act died during the 1980s, but the legislation led to other policies. The Energy Policy Act of 2005 reintroduced many of the objectives with similar incentives through programs such as Energy Star. The program covers up to 30 percent of the costs for certain renewable energy systems and equipment. The American Recovery and Reinvestment Act of 2009 has also subsidized programs such as Energy Star.