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RE: P2 Tax Credit



Lynn

Burton's economic analysis is essentially correct but it isn't strictly
an economic motivation that is involved in giving tax credits.  Often, a
P2 investment is to resolve a compliance issue and the decision maker
doesn't want to do something to address an issue that will be second
guessed by regulators.  It is important to recognize that a
demonstration grant, tax credit or SEP provides the decision maker an
implied regulatory agency endorsement of the chosen technology.  While
the financial considerations may "close the deal" in some cases,
government endorsement through a demonstration grant, tax credit or SEP
is often more compelling than the economic value of the financial
incentive because the regulatory entity is perceived as having a stake
in the decision. The more the gov't is directly involved in
approving/granting the economic incentive the more likely it is to be an
effective tool in encouraging project adoption.  This would work with
low cost loans too if the agency has to approve application.

John Calcagni

-----Original Message-----
From: owner-p2tech@great-lakes.net [mailto:owner-p2tech@great-lakes.net]
On Behalf Of Burton Hamner
Sent: Thursday, June 22, 2006 4:59 PM
To: 'Lynn Corson'; p2tech@great-lakes.net
Subject: RE: P2 Tax Credit

I am looking forward to responses to Lynn's question, especially any
data that shows a tax credit actually motivated *marginal* P2
investments.
Mostly because I doubt such data exists or that tax credits get
significant results, tho I would like to be proven wrong.

I did a global study on financing P2 and clean production for the Asian
Development Bank in 2000-2001, and examined tax credit schemes to
stimulate small business investments in general.

A few important points to consider:

Tax credits are only relevant if you make a profit.  Many businesses esp
small private ones (i.e. 90% of all businesses) do not declare much
profit if they don't have to.  You can avoid declaring a profit by
paying yourself a bonus.  So for them a tax credit is irrelevant (there
are exceptions to the rule of course).  In your target population how
many businesses actually file and pay taxes on their profits?

Credits are only useful to tip the balance for marginal P2 investments,
ones that would not be made otherwise.  This further reduces the pool of
potential applications, to the small number of ones that are not clearly
profitable (if so they'll do it anyway) or clearly unprofitable (no tax
credit will help).  So you are targeting a very small slice of the p2
investment options pie.

Credits are usually not big enough to really motivate people.  Sure they
can tip the balance towards making the investment but there are usually
lots of other non-financial aspects (resistance to change etc) that are
in the way also.

Most small - medium businesses are quite poor - incompetent - at
correctly evaluating profitability of capital investments.  Most just do
simple payback or ROI calculations and don't include lots of real costs.
Asking them to add in tax credit calculations is asking a lot.  How much
of the target population is actually capable of calculating the effect
of credits on their investment return?

So why are tax credits popular?  Simply, it is one of the few things
that legislators can mess around with to give favors and play social
engineers.
They do it because they can, not because it makes a big difference.

All this adds up to:  Before putting a lot of effort into getting a tax
credit passed, make sure it's worth it.

Now the good part:  The most effective tool we found to increase access
to finance is the Capital Access Program concept pioneered in Michigan.

http://polisci.msu.edu/~urbanpol/publications/brief_5.htm

This helps marginal borrowers get loans they would otherwise not get, at
a very low cost to the state, and appears very efficient.  It certainly
can be applied to P2 investments and is very much worth examining.

Thanks, I hope this is helpful.

Burton Hamner
Director, Cleaner Production International Producer,
http://www.CleanerProduction.Com
5534 30th Avenue NE, Seattle, WA 98105
wbhamner@cleanerproduction.com
(206) 526-5308
mobile (206) 491-0945
fax (215) 565-4558   (yes, different area code)

-----Original Message-----
From: owner-p2tech@great-lakes.net [mailto:owner-p2tech@great-lakes.net]
On Behalf Of Lynn Corson
Sent: Thursday, June 22, 2006 12:07 PM
To: p2tech@great-lakes.net
Subject: P2 Tax Credit


The Indiana Clean Manufacturing Technology Institute and its consultants
first proposed P2 Tax Credit legislation in 1995 and it has been
introduced three times since, but has not been adopted by the state
legislature.  We intend to discuss the topic with a legislative
committee this summer.

Does any state currently have P2 Tax Credit legislation that provides
corporate income tax credit for verified, implemented P2 strategies that
resulted in reduced toxics used and/or wastes generated?  If so, do data
exist showing increased tax revenues to the state (from product sales,
business expansion, etc.) as a result of the P2 tax credit?

Thank you for your attention to this request for information.

Lynn A. Corson, Ph.D., Director
Indiana Clean Manufacturing Technology
   and Safe Materials Institute
Purdue University, School of Civil Engineering
2655 Yeager Road,  Suite 103
West Lafayette, IN  47906
Phone:  765-463-4749
Fax:   765-463-3795
E-mail:  corson@purdue.edu
Web:  http://www.ecn.purdue.edu/CMTI

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P2TECH is hosted by the Great Lakes Information Network:
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with the command 'unsubscribe p2tech' in the body of your message. No
quotes or subject line are required.
About : http://www.great-lakes.net/lists/p2tech/p2tech.info.
A map of P2TECH subscribers can be viewed at
http://www.frappr.com/p2tech.

This list is managed by the Great Lakes Regional Pollution Prevention
Roundtable (http://www.glrppr.org), part of the P2Rx national network of
regional P2 information centers (http://www.p2rx.org ).
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
P2TECH is hosted by the Great Lakes Information Network:
http://www.great-lakes.net
To unsubscribe from this list: send mail to majordomo@great-lakes.net
with the command 'unsubscribe p2tech' in the body of your message. No
quotes or subject line are required.
About : http://www.great-lakes.net/lists/p2tech/p2tech.info.
A map of P2TECH subscribers can be viewed at http://www.frappr.com/p2tech.

This list is managed by the Great Lakes Regional Pollution
Prevention Roundtable (http://www.glrppr.org), part of the
P2Rx national network of regional P2 information centers
(http://www.p2rx.org ).