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Tax bill includes ethanol credit

Late Thursday Senate Finance Committee Chairman Max
Baucus (D-MT) unveiled a bill to extend middle class tax cuts that also
includes a one-year extension of the ethanol tax credit through 2011. The
Volumetric Ethanol Excise Tax Credit, or VEETC, would fall from the current 45
cent a gallon rate to 36 cents.

The bill reflects the Democrats’ goal of extending
Bush-era middle class tax cuts but not the tax cuts for high income earners
that Republicans want to keep, so it’s not expected to pass the Senate, which
may vote on the measure Saturday.

Still, it was greeted by ethanol interests Friday as good
news.

“Investments in ethanol are proven policies that create
jobs and put America firmly on the path to energy self-reliance,” Renewable
Fuels Association President and CEO Bob Dinneen said in a statement. “Senator
Baucus’s approach is a good one, recognizing the importance of this investment
and providing some market stability as good faith efforts to responsibly reform
ethanol tax policy continue.”

Brian Jennings, executive vice president of the American
Coalition for Ethanol, said the fate of the tax credit will depend on
negotiations between leaders of Congress and the White House.

“I think this is very much inside baseball,” Jennings
told Agriculture.com. “If there is an agreement on Bush tax cuts, we have a
chance to be in the game.”

“We stand a slightly better than 50% chance of getting a
one-year extension of VEETC somewhere between 45¢ and 36¢,” he said.

Jennings said that the industry has been helped by an
agreement between four lobbying groups to support reform of the tax credit in
return for support for more access to markets through flexible fuel vehicles
and blender pumps, even though major changes in ethanol support are unlikely in
the short lame duck session of Congress.

“The White House supports an extension (of VEETC). Key
members of Congress support an extension,” Jennings said.

Jennings’ group put out a statement Friday acknowledging
that it would have preferred a 45¢ tax credit, but “based on our recent
discussions with White House and congressional officials, ACE expected this tax
package.  We recognize some may suggest the bill is not good enough for
ethanol, but the hard truth is that given federal budget constraints, national
political realities, and fact that our ethanol tax incentives are scheduled to
expire in less than 30 days, ACE is prepared to support the ethanol provisions
in the tax package.”

Both political parties are split over the ethanol tax
credit. Baucus, a supporter, is among the small group negotiating on the final
tax package, but the Republican senator in the same group, Jon Kyl of Arizona,
is among the critics.

The ranking Republican on the Senate Finance Committee,
Senator Chuck Grassley of Iowa, is another strong supporter.

“Nothing is final yet,” Grassley spokesperson Beth
Pellett Levine said in an email to Agriculture.com.  “Senator Grassley continues to press for the full 45 cent
extension for as long as possible.”

Not everyone is optimistic that the tax credit will be
extended in the lame duck session this month.

“I’m in the camp that says there is no way this can get
through this Congress right now,” said Chad Hart, an Iowa State University
economist who tracks the profitability of the ethanol industry. “This is a
Congress that couldn’t agree on Mother’s Day.”

Earlier this year, Hart estimated that because the
ethanol industry capacity has been growing faster than the federal mandate to
blend ethanol (the renewable fuel standard), that any slowdown in growth caused
by loss of the tax credit could have the effect of cutting demand  for corn by 200 million to 300 million
bushels.

But whether that happens will depend on the price spread
between gasoline and ethanol, Hart told Agriculture.com Friday.

“About half of the time over the past four years you
could have taken away the VEETC and there would have been blending anyway,” he
said. At a 10% blend, the tax credit makes ethanol 4.5 cents a gallon cheaper
than gasoline, if all other market factors are equal.

“The removal of the VEETC does not necessarily mean the
shrinking of the ethanol industry,” Hart said.

Ethanol industry analysts have said that the VEETC is
helping the industry withstand higher corn prices.

And if the industry does need the tax credit in 2011, it
may have to wait a while if it’s not included in the current tax bill. Hart
thinks the new Congress might not be ready to write any tax legislation until
next June or July if it doesn’t extend the VEETC this month.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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