Congressional supporters of biofuels, mainly corn-based ethanol and soybean-based biodiesel, are continuing to negotiate with their colleagues in an effort to extend expiring tax incentives for ethanol and the already lapsed tax credit for biodiesel production. In recent days, these efforts have become increasingly entwined with other tax concerns, such as the big issue of extending the 2001 and 2003 Bush tax cuts and reforming estate taxes before the end of the year. It now appears that the ethanol subsidies, and a revival of the currently dead subsidies for biodiesel, would be extended in the compromise tax package.
Also in the proposed package is a reform of the estate tax that would provide for a $5 million exemption and a top tax rate of 35 percent. The proposal is not going down well with many Democrats who would prefer a less generous estate tax. These Democrats look favorably on an earlier proposal by Senate Finance Chairman Max Baucus (D-Mont.) that would provide a permanent extension of the 2009 top estate tax rate of 45 percent and an exemption level of $3.5 million.
Unless Congress acts to change the estate tax, its key provisions in 2011 would include a $1 million exemption and a top tax rate of 55 percent.
To help entice work on the tax incentive extenders –– which besides biofuels would likely include provisions such as the research and development tax credit and a one-year fix for the alternative minimum tax to help middle-class tax payers avoid it –– Democrats will seek Republican support for additional months of extended unemployment benefits.
Ethanol proponents continue to promote a two-year extension at the current rate of 45 cents per gallon, but the White House and some key lawmakers support extending the tax credits at a lower rate, to 36 cents or even 30 cents. It now appears that the 45-cents-per-gallon tax credit for ethanol, the 54-cents-per-gallon tariff on imported ethanol and the $1-per-gallon tax credit for biodiesel all are included in the proposal.
Senate Finance Committee ranking member Chuck Grassley (R-Iowa) says that all these tax issues, including the ethanol tax credits, should be extended at their current level. "If you want to change the policy, do that next year," he said. "We ought to take existing tax policy and change the date."
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