WASHINGTON, Dec. 17, 2015 - Biofuel producers are breathing a sigh of relief that valuable tax subsidies are safe for another year, but they could face a tougher battle to keep them after that.
The $622 billion tax bill, which the House approved 318-109 on Thursday, will change the political calculus for a variety of tax incentives, including the biofuel measures, in future years and potentially set the stage for broad tax reform that could do away with them entirely. A key House tax writer tells Agri-Pulse he’ll be scrutinizing those tax incentives to see if they should be continued.
The biofuel incentives, which include the $1-a-gallon tax credit for biodiesel, are among dozens of tax measures, known as extenders, that have been renewed every one to two years. This time, however, Congress is making some of the most popular provisions permanent or giving them long-term extensions.An enhanced Section 179 small business expensing allowance, for example, that is widely used by farmers to buy tractors, combines and other equipment would be made permanent under the bill. A bonus depreciation provision would be extended through 2019. Tax credits that subsidize wind and solar power would be extended through 2022 under separate legislation.
He includes the biofuel incentives among the tax measures that will get greater scrutiny now. “We’ll have to look at them, yeah.”
In 2014. all of the tax incentives, including Section 179 and the wind tax credit, were allowed to lapse for nearly the entire year before being retroactively restored in December.
“One of the problems we had is that this was an end-of-year exercise and everything just got shoved down and down into temporary extensions. Now, it forces us to take a full, hard look at all these provisions and get everybody to the table to make a case” for continuing them, said Boustany, R-La.
The biofuel measures that would be extended through 2016 also include the $1.01 tax credit for next-generation, cellulosic ethanol; and the 30 percent investment tax credit for ethanol blender pumps and other alternative fueling infrastructure. Cellulosic ethanol is produced from corn cobs and stalks, wheat straw and other forms of plant cellulose.
A small agri-biodiesel producer credit of 10 cents per gallon also would be extended through 2016 under the bill.
The tax credits that subsidize installation of solar panels and wind farms would separately receive longer-term extensions under the 2016 omnibus spending bill. They would be continued through 2022, but phased down, when carbon controls on electric utilities begin to kick in under the Obama administration’s Clean Power Plan.
In an analysis of the tax package and omnibus, ClearViewPartners noted concerns that extending the wind and solar extensions through 2022 could make it harder for the biofuel credits to get extensions after 2016.
“We would not discount the risk, but we think it could cut two ways. Although a smaller extenders package could be too narrow to garner broad support, fiscal conservatives may be willing to support a smaller package during next year’s ‘lame duck’ session,” the analysts said.
James Lucier, managing director with Capital Alpha Partners, which advises financial institutions on federal policy, said the biggest threat to the biofuel producers is that the permanent tax extensions would make it easier for Congress to do broad tax reform. Under congressional budget rules, making measures such as Section 179 permanent means the cost doesn’t have to be accounted for when Congress rewrites the tax code, a top priority of House Speaker Paul Ryan, R-Wis.
“We are inching closer to a complete overhaul of the tax code that may not happen in 2017, but the pressure is building to do it eventually,” Lucier said. The biofuel subsidies may receive “another extension or two before then, but the end is near.”
If Boustany does hold hearings, the National Biodiesel Board plans to renew its effort to have its incentive converted from a blenders credit to a producers credit that would be limited to domestically produced biodiesel.
The Senate Finance Committee approved the change in a tax package the panel approved this summer, but biodiesel marketers successfully lobbied to keep it out of the agreement that the House approved Thursday.
“With Congress taking a look at our tax credit as well as others they’ll see the benefit of taking it to producers tax credit,” said Anne Steckel, vice president of federal affairs for the biodiesel group.
An estimated 650 million to 750 million gallons of biodiesel have been imported this year from Argentina and Asia. “We have so much underutilized capacity here," she said “There’s absolutely no need to seek fuel elsewhere.”
The Senate is expected to vote on the tax bill on Friday, and both the House and Senate are scheduled to consider the omnibus.
The Section 179 provision would permanently allow a business to expense up to $500,000, up from a limit of $25,000. The $500,000 limit is reduced dollar for dollar after expenditures reach $2 million. The provision also would index both the $500,000 and $2 million limits for inflation beginning in 2016.
Meanwhile, the bonus depreciation percentage would be extended at 50 percent for property placed in service during 2015, 2016 and 2017 and then lowered to 40 percent in 2018 and 30 percent in 2019.