The tax agreement negotiated between congressional Republican leaders and the White House and approved by Congress contains an extension of the ethanol and biodiesel tax credits and an extension of the ethanol tariff at current rates. The measure currently is on its way to the White House for the president's signature.
Ethanol. Under the new law, the ethanol tax credit –– known as the volumetric ethanol excise tax credit, or VEETC –– will continue at its current level of 45 cents through Dec. 31, 2011, and the tariff on imported ethanol will continue at its current level of 54 cents. The "Section 1603" grant program, a program from the 2009 economic stimulus law which allows companies to claim a grant instead of an existing investment tax credit, will be extended for a year.
Biodiesel. The blenders' tax credit for biodiesel expired at the end of 2009, but the new law will extend the biodiesel credit retroactively to cover all of 2010 and through the end of 2011. The law will extend the $1 per gallon production tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon. The law also extends through 2011 the $1 per gallon production tax credit for diesel fuel created from biomass.
Alternative fuels credit. The law will extend through 2011 the $0.50 per gallon alternative fuel tax credit. However, it does not extend this credit any liquid fuel derived from a pulp or paper manufacturing process (i.e., black liquor).
The biodiesel and renewable diesel credit were extended at a cost of nearly $2 billion, and the ethanol credit extension was estimated by the Joint Committee on Taxation to cost $4.9 billion. Another provision extending the use of grants in lieu of tax credits for certain energy projects was extended at a cost of $3 billion.
Estate taxes. The new law includes a two-year renewal of the estate tax at a top rate of 35 percent on estates over $5 million ($10 million per couple), with the $5 million exemption indexed for inflation. House Democrats had sought unsuccessfully to set the exemption at $3.5 million ($ million for couples) and a higher top estate tax rate of 45 percent.
Payroll taxes. The law includes a one-year payroll tax reduction as a way to provide a spur to the economy. The provision will drop employees' portion of payroll taxes, from 6.2 percent to 4.2 percent, for income earned in 2011. However, the employer contribution, which matches the employee tax rate, would remain the same. The $112 billion difference would be made up with money from the federal government's general fund, and the drop would amount to about an extra $1,000 in take-home pay for a worker who makes $50,000 a year.
The package also extends the expiring 2001 and 2003 tax cuts for two years, and provides a two-year "patch" for the alternative minimum tax (AMT) for tax years 2010 and 2011.
Cost. The 10-year cost of the total package is $858 billion. Tax provisions in the package will cost $801.3 billion over 10 years, according to the Joint Committee on Taxation. A 13-month extension of enhanced benefits for the long-term unemployed adds $57 billion. The bill identifies no offsetting cuts in federal spending, so the entire amount will add to the deficit.
Following is a breakdown of what the major provisions would cost:
10-YEAR COST OF THE TAX CUT PACKAGE BILLIONS
• Retain individual income tax brackets $186.775
— 10 percent bracket $ 89.308
— 25 percent and 28 percent brackets $ 36.693
— 33 percent and 35 percent brackets $ 60.774
• Alternative minimum tax relief $136.676
• Payroll tax holiday $111.653
• Retain the child tax credit $ 71.697
• Estate tax relief $ 68.149
• Unemployment benefits extension $ 56.510
• Tax "extenders" $ 55.349
• Retain rates for capital gains and dividends $ 53.151
• Extend stimulus act tax relief $ 44.095
• Extend investment incentives $ 21.829
• Other $ 51,922
TOTAL: $857,806
SOURCE: Joint Committee on Taxation
