Kirkpatrick Continues Work To Close Black Liquor Tax Credit Loophole

By Tammy Gray-Searles
   A measure to stop the “black liquor tax credit loophole,” which officials at Catalyst Paper say has given competitors an unfair advantage that could put the Snowflake plant out of business, is moving forward, according to an announcement by U.S. Representative Ann Kirkpatrick.
   According to Kirkpatrick, “a measure she had been demanding to close down the loophole was included in the manager’s amendment to H.R. 3962. This provision, which excludes black liquor from the cellulosic biofuel producer tax credit, marks a great victory that will keep Arizona mill workers on the job and save taxpayers billions.”
   Representatives from Kirkpatrick’s office did not return phone calls prior to press time to clarify the announcement or explain the next steps necessary to close the loophole.
   U.S. Representative Jeff Flake co-sponsored the original bill, H.R. 2967, with Kirkpatrick to close the loophole, but representatives from his office noted that he was not involved with H.R. 3962.
   Kirkpatrick did note that, “Since 2007, kraft paper companies have been misusing the alternative fuels mixture tax credit, claiming between $6 billion and $10 billion in benefits for using the natural wood-processing byproduct black liquor. Last month, the Internal Revenue Service (IRS) released a memo which concluded that the use of black liquor will qualify companies for the cellulosic biofuel producer tax credit as well. Economist Martin Sullivan has estimated that over the next three years, this gimmick could cost taxpayers $25 billion.”
   H.R. 2967 was introduced June 19 after an outcry by local government and business leaders. The tax credits sought to be repealed by the bill were designed to encourage alternative fuels for vehicles, but according to representatives from Cataylst paper mill in Snowflake, they have been misused by certain paper manufacturers to gain an unfair competitive advantage. Since Cataylst’s Snowflake operation is 100-percent recycled, it is ineligible for the tax credits.
   According to information from the Navajo County Board of Supervisors, the Snowflake mill has reduced its work force by about 25 percent, due in large part to competitors receiving significant black liquor tax credits.
   “In 2007, Congress expanded an alternative fuels mixture tax credit to encourage the use of biomass fuels mixed with traditional fossil fuel. The expansion allowed kraft paper mills, which have used black liquor as an energy source for decades, to add as little as .1 percent of diesel to the product and turn the legitimate tax credit into a corporate subsidy,” Kirkpatrick noted. “At the time of enactment, Congress believed the expansion would cost $61 million.
   According to Kirkpatrick’s press secretary, Joe Katz, the bill does not appear to have any retroactive aspects that would prevent kraft paper mills from receiving credits for past use, or to return any of the funds received through the credits.
   “Everyone agrees that the black liquor loophole is unintentional and not in accord with the spirit of the law,” said Kirkpatrick. “We must close this tax loophole now to re-establish a level playing field for the mills, get folks back to work and prevent another billion dollars of taxpayer money from being wasted. Cracking down on fiscal waste is a nonpartisan issue, and I am happy to work with members on both sides of the aisle to save taxpayer money. You do not have to be a Democrat or Republican to want to stop the use of our money to destroy our jobs.”
   Flake noted, “The federal government shouldn’t be picking winners and losers in the economy, and that’s precisely what the black liquor tax credit loophole has done. It has put some paper mills at a disadvantage, has complicated our trade obligations with Canada, and has been an enormous waste of federal money. The black liquor tax credit needs to be repealed immediately.”