Virginia-based Dominion Energy
While the fate of those proposed rate hikes and others like them remains to be seen, all Americans face an imminent threat of a utility rate increase pushed President Joe Biden, which congressional Democrats now have the power to enact. Unlike the higher rates being proposed by San Diego Gas & Electric, Dominion, and Louisville Gas & Electric, President Biden’s proposal would lead to utility rate hikes in all 50 states.
In response to the cutting of the federal corporate tax rate from 35% to 21% that resulted from enactment of the 2017 Tax Cuts & Jobs Act, utility companies in all 50 states passed along their corporate tax savings to customers in the form of lower utility rates. Shortly after the passage of federal tax reform, for example, Dominion announced in January 2018 that it was enacting an average 5% rate reduction for its South Carolina customers, “thanks in part to to lower corporate taxes under the new federal tax law in Washington,” Fintech Zoom reported at the time.
That post-Tax Cuts & Jobs Act utility rate cut was intended to “lock in significant and immediate savings…including what we believe is the largest utility customer cash refund in history,” Dominion chairman and CEO Thomas F. Farrell II said of the 2018 rate reduction, which is now poised to be undone during the Biden administration.
President Biden ran on a proposal to raise the federal corporate tax by a third, taking the rate from 21% to 28%. If President Biden gets his way and Congress sends him a bill to raise the federal corporate rate to 28%, that would make U.S.-based companies less globally competitive. That’s because, when combined with the 6.03% average state corporate income tax (according to OECD statistics), the combined corporate tax rate paid by U.S. employers would surpass 32% under Biden’s proposal, slightly above France’s 32% corporate rate, which is currently the highest corporate rate in the developed world and among our major trading partners.
Just as the savings that flowed from the Tax Cuts & Jobs Act’s corporate rate cut have been passed along to ratepayers in the form of lower utility bills, the increased corporate tax rate now sought by President Biden would be passed along to households across the country in the form of higher utility bills. This would result in what is effectively a regressive tax hike that disproportionately harms low income households who can least afford the added cost.
President Joe Biden has pledged to not raise taxes on households earning less than $400,000 annually. Yet the higher utility bills that an increased federal corporate rate would yield represent but one of many Biden tax proposals that would raise costs for households making well below $400,000 annually. The 33% corporate rate hike is not even the only Biden proposal that would raise utility bills nationwide.
President Biden has also endorsed a carbon tax, as has Vice President Kamala Harris and senior administration officials like John Kerry and Neera Tanden. The U.S. Chamber of Commerce recently announced it was open to a carbon tax. Lobbyists for some large corporations recognize they could fare relatively well under a national carbon tax, which would give giant companies a leg up over smaller competitors who are less able to absorb the additional costs. In addition to inflating utility bills, a federal carbon tax, should one be imposed by President Biden, would inflate gas prices in the U.S.
These higher energy costs would be borne by all Americans in the form of higher utility bills and gas prices, adding further stress to families struggling to make ends meet and those living below the poverty line. The regressive nature of a carbon tax is a key factor that has led to the rejection of numerous carbon tax proposals at the state level over the past decade, including in blue states with Democratic-run legislatures that should be most inclined to support a carbon tax.
If recent history is any guide, many on Capitol Hill, even Democrats, will be hesitant to back a carbon tax. Even where carbon tax supporters haven’t been successful, they’ve still faced political repercussions. For example, the recently reelected Senator Susan Collins (R-Maine), well known as a moderate, ran ads throughout her successful 2020 campaign criticizing her opponent, former Maine House Speaker Sara Gideon (D), over Gideon’s support for state legislation that would impose a carbon tax. That Gideon-backed state carbon tax didn’t ultimately pass, as it was pulled by the bill sponsor after constituents voiced overwhelming opposition in a 2019 committee hearing in which only one person testified in favor of the tax and 60 Maine residents testified against it.
President Biden, Vice President Harris, and their allies on Capitol Hill will portray the targets of their tax hikes as wealthy individuals and large multinational corporations. What the Biden administration won’t advertise are the higher energy prices that their tax policies would produce, not as an unintended consequence, but by design.