Kirkpatrick Works To End Second Tax Credit Loophole

By Tammy Gray-Searles
   The most recent progress made in the fight to close the black liquor tax credit loophole is in attempting to end the most recently identified loophole, not the provision that will sunset on Dec. 31.
   A second loophole was identified through the Internal Revenue Service as part of the cellulosic biofuel producer tax credit. The loophole initially causing concern for recycled paper manufacturers like Catalyst Paper of Snowflake was an alternative fuels credit.
   Congresswoman Ann Kirkpatrick, along with Congressman Jeff Flake, introduced legislation to close the alternative fuel loophole. She also requested that the House Ways and Means Committee exclude black liquor from the cellulosic biofuel credit.
   On Nov. 5, Kirkpatrick announced that the request to close the cellulosic biofuel loophole was tacked on to House Resolution (H.R.) 3962, which is also known as the Affordable Health Care for America Act.
   The provision to stop the cellulosic biofuel tax credit was included in the healthcare bill as a manager’s amendment.
   Kirkpatrick’s press secretary, Joe Katz, explained, “The ‘manager’s amendment’ is for the most part just like any other amendment to a bill. However, manager’s amendments are introduced by the Member of Congress who is in charge of ‘managing’ the debate over a given bill--tracking the time and the order of speakers. Unlike some amendments, manager’s amendments are almost always brought to the floor and brought up for a vote. The manager’s amendment to H.R. 3962 was voted on and passed into the bill, so the amendment, including the shutdown of the black liquor tax credit loophole, was included in the health insurance bill when it passed the House.”
   According to Kirkpatrick, the alternative fuel mixture loophole has cost taxpayers up to $10 billion nationwide and resulted in the loss of more than 100 jobs in Arizona. She noted that the cellulosic loophole could cost taxpayers more than $25 billion.
   “…(K)raft 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,” Kirkpatrick noted. “Last month, the 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.”
   Since the healthcare bill is so complex and its future uncertain, Kirkpatrick noted that she is also preparing a new stand-alone bill aimed at eliminating the cellulosic biofuel producer loophole, which she will introduce in the event the black liquor provision in the manager’s amendment is not passed into law.
   She is still pushing for an early end to the alternative fuel loophole, even though it is scheduled to sunset on Dec. 31.
   “The tax break was an accident that has cost us billions of dollars and burdened an industry that should be growing,” Kirkpatrick said. “This measure will allow us to stop the loophole from growing even larger and wasting even more of our money.”
   The tax credits were designed to encourage alternative fuels for vehicles, but according to representatives from the 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 provided by the Navajo County Board of Supervisors, the Snowflake mill has reduced its work force by about 25 percent, due largely 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 said. “At the time of enactment, Congress believed the expansion would cost $61 million. However, paper companies used tax gimmicks to claim between $6 billion and $10 billion in tax benefits: International Paper alone could receive over $1 billion in 2009.”