Despite a Democratic Congressman almost ruining the scheme by committing a cardinal political sin – He told the truth! – the historic healthcare legislation President Obama signed today assumes $23.6 billion in savings from eliminating a mythical black liquor tax credit.
Congressman Scott Murphy, whose district in the Adirondack Mountains of New York includes two operating paper mills (and several closed ones) almost spilled the beans on the bogus savings a few days ago. In an interview with the local newspaper about his support of the healthcare legislation, he made the following statement:
"We worked with IP (International Paper Co.) and Finch. And the language that's in here about the black liquor credit is not something that's going to impact their business. They're not going to be impacted by this in terms of what they were planning to do and what they're doing going forward."
In a similar statement last week crying out for explanation, Bloomberg BusinessWeek said that the loophole closure “would prohibit paper makers such as International Paper Co. from claiming a $1.01 tax credit for producing fuel from a type of pulp-making byproduct called black liquor. While International Paper and other forest product companies said they weren’t seeking the credit, the IRS determined they might be eligible.”
The payouts from the real black liquor tax credit, which expired last year, indicate that International Paper accounts for more than 20% of the country’s black liquor production. (See Black Liquor Scorecard: 21 Companies Earned $6.5 Billion in 2009.) If indeed the healthcare legislation plugged a “Son of Black Liquor” loophole worth $23.6 billion, then IP’s share would certainly be in the billions.
Question: Why would IP and “other forest product companies” not be interested in pursuing such generous tax credits? (After all, skyrocketing pulp prices could lead to hefty profits, and a hefty tax bill, for some of the companies this year.)
Answer: Because they knew they could never collect Cellulosic Biofuel Producer Credits, even before passage of healthcare reform. Those credits are only for EPA-approved motor fuels and additives. Executives at pulp-making companies understand that no one's going to put black liquor into their gas tank.
(News Media and Congress Are Confused About Black Liquor Subsidies explains further why, despite the IRS memo, black liquor would not qualify for the credits. How Google Could Help the Democrats By Buying a Pulp Mill explored black liquor's role in the healthcare debate.)
By the way, I’m sympathetic to some other aspects of the ObamaCare legislation, such as government help for the uninsured. But seeing how part of the program is allegedly being paid for with these bogus black-liquor savings make me wonder what other surprises are lurking in the law.