Congress and the White House are rattling swords in the coming political war over climate change, while corn ethanol and the federal Renewable Fuel Standard (RFS) are ground zero for an agricultural assault on the politics of biofuels. Meanwhile, Congress is trying to move forward a package of tax breaks, credits, and allowances – including a multibillion-dollar passel benefitting biodiesel/renewable diesel and other biofuels – and it looks as if the tax portion of the energy battle may get caught up in the bigger partisan wrangle. It is, after all, an election year.
A classic legislative strategy is to hold hostage a “must-pass” piece of legislation to force action on a particular party’s priorities before the prisoner is released. So it is currently with 55 federal income tax credits – both business and personal – that Congress traditionally authorizes for a single year knowing they’ll expire, allowing them to expire, and is now trying to “extend” them for the third or fourth time in recent memory, with benefits retroactive to the day of expiration.
The “extenders package” always inspires serious debate. Much of business relies upon them and the back-and-forth over extension prevents any kind of business planning. The bill costs more than a few hundred billion dollars over a decade and it is not paid for, meaning appropriators have not acted to use United States Treasury funds to pay the breaks, nor have supporters come up with cuts in other federal programs to offset the costs of the tax breaks.
For renderers, there are two important families of federal tax breaks. First, there are those that benefit business generally, such as depreciation allowances and the 20 percent research and development tax credit. The second tax credit clan to which renderers pay attention are those that incentivize the provision of feedstocks and the actual refining of biofuels, particularly biodiesel and renewable diesel.
The Senate Finance Committee approved a single bill in April containing all 55 tax breaks; the House is just beginning the process, but has opted to review the package tax break by tax break. The plan is to move them as individual bills and marry all of the approved bills on the floor so as to have legislation to reconcile with the Senate. The problem is House minority leadership is using the tax extenders as leverage to force funding for other issues more near and dear to a Democrat’s heart. This is the hostage-taking scenario referred to above.
This package at one time contained nearly 1,200 parochial federal tax credits, rebates, and so forth, some having been “extended” going back to 1951. Most of these were jettisoned two years ago when Congress got serious about excising the obsolete, the individual company tax breaks, and the like. To have reached just 55 surviving credits is a major accomplishment, and while there are still several tax breaks way too political and parochial, for example, deductibility of losses on a specific Broadway show and a tax allowance for racehorses two years old or younger, all are being challenged.
The current package of tax breaks, most of which expired at the end of December 2013, is halfway to extension. As stated, the Senate Finance Committee acted in April to extend the 55 tax breaks for two years – normally, it’s a one-year lease on life – and yes, the benefits would be retroactive to January 1, 2014. Included in the Senate package are the $1 per gallon blender’s tax credit on biodiesel primarily used in surface transportation fuels and a $1 per gallon blender’s tax credit on renewable diesel used in various industrial applications and as an emerging jet fuel. Also extended is the alternative fuel mixture tax credit, 50 cents per gallon – deducted from corporate excise tax liability – for the use of by-products as heating oil and boiler fuel.
Senator Ron Wyden (D-OR), the newly installed chair of the tax-writing finance panel, made it clear during committee action on the extenders legislation, “this is the last extenders bill this committee will authorize during my chairmanship,” referring to his overarching plan to get the extenders bill renewed so it can be formally part of the next Congress’ planned cage fight over comprehensive federal tax reform.
The Wyden plan on dealing with the long-term fate of the extenders, including those for biofuels, is the same plan from which Representative Dave Camp (R-MI), lame duck chair of the House Ways and Means Committee, is operating. However, Camp decided he would not deal with the extenders package as a single bill or grant them short-term extension. He wants to vet each tax break individually, and those that pass committee would be made permanent and lumped by type of tax break into a single bill.
The most expensive and popular of the tax provisions – the 20 percent research and development tax credit at $155 billion over 10 years – was approved and made permanent by the House Ways and Means Committee in late April, along with five other business provisions. The cost of those additional five credits kicks the total 10-year price tag to $310 billion. Research and development is a huge business priority and while a separate bill to make the credit permanent carried strong bipartisan support, the tax extension was approved on a straight party-line vote.
Democrats who cosponsored the research and development bill walked away because House Democrat leadership pounced on the chance in an election year to use the business-friendly tax extenders package to point out that Republicans are hypocrites on spending, willing to enact billions in tax breaks for business and adding to the deficit, while refusing to enact an extension of unemployment benefits or other social program measures without a cost offset.
House Minority Whip Steny Hoyer (D-MD) used a floor exchange with House Majority Leader Eric Cantor (R-VA) in early May to point out this alleged GOP hypocrisy, adding his party will block the tax extenders measures until unemployment benefits extension and comprehensive immigration reform are dealt with by the House. Immigration was thrown into the mix because Hoyer contends the savings from reform would more than pay for the extenders package.
If this is the summertime pre-election game, then it’s unlikely the extenders package – or much else for that matter – will be approved before the election. However, once election pressures are past, the tax package will likely move during the post-election lame duck session.
So, for our friends in the animal fat-based biodiesel/renewable diesel business – and those renderers who sell feedstocks to the biodiesel/renewable diesel folks – look most probably for a Christmas gift in the form of those on-again, off-again tax credit checks, with benefits retroactive to January 1, 2014.
June 2014 RENDER | back