Monday, February 6, 2012

U.S. Paper Companies May Lose Son of Black Liquor Loophole

Senate Finance Committee Chairman Max Baucus is trying to close the Son of Black Liquor tax loophole that has already provided U.S. paper makers with a windfall of more than $1 billion.

The committee's staff estimates the move would save $2.786 billion over the next four years, which Baucus would use to help pay for highway construction and other infrastructure projects. The staff has not revealed the basis for its calculation, a tricky matter because it requires assumptions about the future taxable income of more than a dozen paper companies.

"Black liquor qualified for the alternative fuel mixture [AFM] tax credit and the cellulosic biofuels tax credit," a news release from the committee noted Friday. "Congress never intended for black liquor to qualify for these credits and, in 2010, prohibited the credit for black liquor sold or used on or after January 1, 2010. This provision would prohibit taxpayers from claiming the alternative mixture credit or the cellulosic biofuels credit on any new or amended returns made on or after February 3, 2012."

The committee is scheduled to discuss the Highway Investment, Job Creation and Economic Growth Act of 2012 tomorrow.

Such companies as Domtar, Weyerhaeuser, and Packaging Corp. of America have recorded or estimated they would record more than $200 million each in cellulosic biolfuel producer [Son of Black Liquor] credits for black liquor they burned in 2009. International Paper, the country's largest manufacturer of kraft pulp, could grab an even larger windfall if it returned some of its $2.1 billion in alternative fuel mixture tax credits so that it could claim the more lucrative Son of Black Liquor credits.

But the Baucus provision would close the door on any further payouts. The committee's news release noted that the process of burning black liquor, a pulp byproduct, to generate power "has been used for seventy years to manufacture paper" -- which means manufacturers would have done it anyway even if they hadn't been handed billions in eco-subsidies. In fact, most paper companies never dreamed in 2009 that the black liquor they were burning would qualify for the cellulosic biofuel credits.

“We oppose the retroactive tax increase being proposed to pay for a new highway bill," Donna Harman, President and CEO of the American Forest & Paper Association, said Monday. "The year has closed and companies’ tax returns are not due until March 15. Retroactive tax increases are bad tax policy and harm companies that are trying to make investments to get jobs and the economy going again.”

Baucus was an early critic of the original black liquor loophole, which provided well over $6 billion in AFM payments to paper companies. But the Montana Democrat went silent on the subject in the summer and fall of 2010, apparently to get Sen. Olympia Snowe (R-Maine) to vote yes on President Obama's healthcare legislation.

Democrats eventually blocked Son of Black Liquor credits for any of the pulp byproduct burned after Dec. 31, 2009 and used the $23.6 billion in "savings" to help pay for the healthcare bill.

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2 comments:

Anonymous said...

It takes an lot of nerve to call this a "tax increase." Wow. The Association needs to "know when to fold 'em," and "know when to walk away." (with the multi-billion bail-out they have already received)

Anonymous said...

That is how government works. ONly in government can you spend more in a year then you did a previous year and call it a spending cut because you didn't spend as much as you wanted to spend.