[This guest post is by Christopher Prandoni, the Federal Affairs Manager for Americans for Tax Reform. It is a response to Myron Ebell’s May 7 post, “A Response to Conservative Defenders of Tax Credits.”]

Americans for Tax Reform asks every candidate running for Congress to sign the Taxpayer Protection Pledge, a promise to their constituents that they will not raise taxes on Americans or their businesses. The Pledge, signed by 235 Members of the House and 41 Senators, reads:

I___ pledge to the taxpayers of the state

Of___ , and to the American people that I will:

ONE, oppose any and all efforts to increase the marginal income tax

rates for individuals and/or businesses; and

TWO, oppose any net reduction or elimination of deductions and

credits, unless matched dollar for dollar by further reducing tax rates.

The Pledge is by no means a panacea to America’s tax and spending problems, it is a stopgap which identifies tax increases and looks to prevent them. It is the second clause of Pledge that has caused a limited fuss within the conservative movement and, thus, is worth reexamining. Before we proceed, it is important to make the distinction between two types of tax credits—refundable and nonrefundable—as conflating them can lead to unnecessary confusion. A tax credit is employed to reduce a taxpayer’s tax liability, ie reducing the amount of money they must pay to the government. A refundable tax credit allows the taxpayer to reduce their tax liability below zero, meaning the taxpayer is owed money from the government. The outlay effect caused by refundable tax credits is spending. Americans for Tax Reform has unambiguously opposed outlays resulting from refundable credits. I recommend readers take a look here at which refundable credits trigger these outlay effects.

The second type of tax credit, which is much more common, is non-refundable; it cannot reduce a taxpayer’s liability below zero. When conservatives argue for blanket repeal of these credits—or the non-spending portion of refundable credits—they are arguing for higher taxes—repealing these tax policies means more money for Washington’s appropriators. ATR has consistently advocated for the repeal of any number of credits, as long as repeal is offset with identical or greater tax cuts. Offsetting the repeal of energy tax credits and deductions is incredibly easy as most are worth a few billion dollars.

Why is offsetting the repeal of a tax credit, thereby preventing a tax increase, so important? Prohibiting tax hikes draws a line in the sand between supporters of big government and small government. Democrats have no interest in reducing America’s historic spending levels and will only do so when tax hikes are off the table. With the highest corporate tax rate in the world and a high personal income tax rate, raising rates is, thankfully, a heavy lift. Realizing this, Democrats pivoted and are now trying to raise revenue by repealing tax credits and deductions.

Although conservatives are arguing for repeal of particular tax credits and deductions for different reasons—namely market efficiency—they should of wary of supporting the Left’s unambiguous goal—more of your money. Once conservatives begin supporting tax increases through blanket repeal of tax breaks, it becomes enormously more difficult to prevent other tax hikes—like those proposed by the Simpson-Bowles commission, President Obama, and the Gang of Six.

ATR does not universally support or oppose tax credits, which is why we are opposing HR 1380, the New Alternative Transportation to Give Americans Solutions Act. Otherwise known as the Pickens Plan, the NAT GAS Act further obscures America’s already convoluted energy sector. To remedy the overregulation problem in America’s energy market, Congress should be looking to peel back policies that to skew consumer choice, not add additional complexity.

There is an ongoing ethanol spat between Senator Coburn (R-OK) and Grover Norquist, President of Americans for Tax Reform. The dispute is over conservative support for a bill that would repeal the ethanol tax credit, which has the effect of raising an industry specific tax. Americans for Tax Reform comes down hard on any effort to increase taxes. The Wall Street Journal added their two cents in favor of Senator Coburn:

Our readers know Mr. Norquist as the plucky author of the no-new-taxes pledge, which has helped to make tax increases a red line in Republican politics. In a letter to Mr. Coburn, a deputy of Mr. Norquist writes: “Repealing the ethanol credit is the right thing to do, but other taxes must be reduced in the same legislation by at least this much to prevent a net tax increase.”

We understand the larger principle that Americans for Tax Reform is trying to defend. Axing every credit, exemption and deduction in the tax code, while leaving tax rates high, would result in a higher general tax burden and more money for Washington to spend. A true tax reform would trade such tax loopholes and subsidies for lower rates.

Coburn’s amendment (which would have been attached to a larger bill) is dead, so the fight is in recess and will reappear before the end of the year. It seems that it would be much harder to pass legislation that would kill the VEETC and also lower taxes, rather than solely ending the VEETC. It also raises the question of which other taxes should be lowered. The VEETC goes back to oil refiners, though some of the savings are passed onto consumers.

This issue came up in 2010. Americans for Tax Reform clearly articulated their position here:

In recent days, Americans for Tax Reform’s opinion on extending the Volumetric Ethanol Excise Tax Credit (“VEETC”)has come into question.  Below is our position on the issue:

1. VEETC is poor energy policy. Encouraging inefficient fuels which accomplishes neither reductions in carbon—its purported impetus— nor monetary gains for American families is bad energy policy.
2. The VEETC is a tax credit which expires at the end of 2010.  There is no obligation on the part of pro-taxpayer elected officials to vote to extend an expiring tax credit which they believe is bad policy.  In the past, the question has been the elimination of the VEETC while it was still in force.  This affirmative tax hike would have been a violation of the Taxpayer Protection Pledge, but that issue is not applicable to this debate.
3. Therefore, Americans for Tax Reform neither supports nor opposes extending the Volumetric Ethanol Excise Tax Credit.