Tax Extenders: A Harbinger for Tax Reform?

On April 3, the Senate Committee on Finance moved legislation to the full body to extend expired tax provisions (“extenders”). Included in the energy provisions section of that package was an extension of incentives for biodiesel and renewable diesel. Specifically, the bill extends for two years the $1 per gallon tax credit for biodiesel, and the small agri-biodiesel producer credit of 10 cents per gallon through 2015. The bill also extends through 2015 the $1 per gallon tax credit for renewable diesel. The two-year extension is estimated to cost about $2.6 billion over the course of 10 years.

Unfortunately, having nothing to do with the extenders legislation or biodiesel, the bill has been delayed over 2014 election year politics. Because of leadership on both sides of the aisle, and their unwillingness to make a deal over amendments on other legislation, the fate of this bill, while wildly popular on its merits, having achieved a 96-to-3 vote in May on a major procedural hurdle, may not make it to the president before election day. 

Some have suggested once the November elections pass, this legislation will make its way through both the House and Senate, and then to the president for his signature. As you can recall, this seems to be a pretty common pattern in Washington with respect to extenders.

As the extenders legislation lingers in Congress, one common question by many in industry has been will Congress change the structure of the biodiesel tax credit from a blender to a producer credit? The answer to that question would seem to be no.

With respect to extenders, Congress typically does not change the structure of a tax credit. They rarely address major policy changes or shifts as they currently exist for fear of opening a Pandora’s box. Generally speaking, they are clean extensions of existing statutes, only changing the date from which they expire again.

However, to flip the aforementioned question on its head, perhaps the more appropriate question might be, does any of this have any meaning for the makings of tax reform? The answer may be yes, for a few reasons.

1. If there are going to be wholesale changes to the tax code, such as making the jump from a blender to a producer credit, tax reform would be the most logical place to make that change.

2. The Senate has a relatively new chairman of the Finance Committee, Ron Wyden, D-Ore., and he has indicated on numerous occasions he is seeking to change how tax credits are established. Providing young industries such as biodiesel with uncertainty, having to deal with extenders annually is not good for the economy, and it’s not good tax policy.

3. In the House, we can expect to see a new Ways and Means Committee chairman emerge as well. Might this hint at new ambition that may lead to a generation-changing tax code for the first time since 1986?

4. Deep into the president’s second term, ushering in a new Congress and having two new tax-writing committee chairs, can the two sides of Pennsylvania Avenue reach a deal on broader economic policy, and tax reform? If they do, the biodiesel industry and its stakeholders will most definitely have to fight to ensure there is a biodiesel tax credit going forward. Because at that time, everything will be on the table.

The bottom line is the U.S. needs tax reform that not only cleans up the code, but also provides the American biodiesel industry with some certainty and predictability. The fact is that the biodiesel industry, in the almost 10 years since achieving its first-ever tax credit, has experienced this credit expiring three times. This does little to assure producers, blenders, farmers and other stakeholders the needed assurance to build and sustain an industry.

Author: Mark M. Palmer
President & CEO, Palmer Policy Group LLC
202-297-2596
[email protected]