Grassley, Baucus call for retroactive tax extensions

U.S. Senate Finance Chairman Max Baucus, D-Mont., and Sen. Chuck Grassley, R-Iowa, the Finance Committee’s ranking member, have sent a letter to Senate leaders signaling their intention to push in the new year for retroactive passage of tax extender legislation, which includes several tax incentives and benefits set to expire on or before Dec. 31.

Creative Commons photo by turtlemoon via Flick

“These provisions are important to our economy — not only because they help create jobs, but also because they are used to address pressing national concerns. We understand that the expiration of these provisions creates uncertainty and complexity in the tax law,” the men wrote in the letter.

Key among the provisions in the extender legislation for Grassley is the biodiesel fuel tax credit, which at least 15 Iowa plants use to make their product more cost-effective. The $1 per gallon tax credit is set to expire on Dec. 31.

In a letter to U.S. Sen. Tom Harkin (D-Iowa), the Iowa Renewable Fuels Association wrote:

“If the biodiesel tax incentive is allowed to expire — even for a brief period of time — the Iowa biodiesel industry will cease production and many plants will likely not reopen under current ownership. With the tax credit, biodiesel blends are very competitive in today’s marketplace. However, if the biodiesel tax incentive expires, biodiesel blends will be priced out of the marketplace and our customers — the oil companies — will stop purchasing biodiesel.”

Grassley, who agrees with that assessment, used his weekly radio address to push for action on the biodiesel tax credit.

“With our letter, we’re trying to un-do some of the terrible damage that’s been done to biodiesel industry producers by the fact that the leaders of Congress are letting the biodiesel tax credit expire on December 31,” he said.

“It could have passed as a stand-alone bill at any time during the whole year. Instead, its extension has been held hostage by Senator [Harry] Reid and Speaker [Nancy] Pelosi in order to try to get other more controversial tax policy through.”

Members of the U.S. House passed their version of the tax extension legislation on Dec. 9, mostly along party lines. Opposition from Republicans to the otherwise non-controversial tax breaks appears to be the addition of an estate tax, which Democrats believe will be an incentive for charitable giving. That tax is set to expire for a year beginning on Jan. 1, but would automatically go back in place at a higher rate in 2011. It remains unclear if the package Baucus and Grassley plan to introduce will include those provisions.

Grassley, who authored the biodiesel tax credit as chairman of the Senate’s tax-policy committee four years ago, estimates that as many as 23,000 jobs in 44 states could be lost if the incentive is not re-approved and set to retroactively cover the early January gap.

Key provisions within the tax extender legislation are:

• Standard deductions for state and local real property taxes
• Above-the-line deductions for qualified education expenses
• Above-the-line deduction for qualified elementary and secondary school teacher expenses
• The business research credit
• Active financing exception for businesses (Subpart F of the tax code)
• Look-through treatment of payments between related controlled foreign corporations
• Cost recovery period for certain leasehold improvements, restaurant buildings and improvement and retail improvements
• Cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes
• Railroad track maintenance credit
• Expensing of costs associated with associated with cleaning up hazardous brownfield sites
• Credit for training mine rescue team members
• 50 percent bonus depreciation for qualified underground mine safety equipment
• Employer wage credit for activated military reservists
• Five-year recovery period for certain machinery and equipment used in farming
• Special rules for regulated investment companies
• Special rule for percentage depletion for marginal oil or gas wells
• Increased contribution limits and carry-forward period for contributions of appreciated real property for conservation purposes
• Enhanced deduction for businesses contributions for food inventory
• Enhanced deduction for qualified business contributions of book inventories to public libraries
• Enhanced deduction for business contributions of computer equipment and software to elementary, secondary and post-secondary schools
• Tax-free distributions from individual retirement plans for charitable giving
• Special rules for interest, rents, royalties and annuities receive by a tax exempt entity from a controlled entity
• Exclusion of gain or loss from the sale, exchange, or other disposition of any qualified brownfield property from unrelated taxable income
• Extension of Indian employment credits
• Accelerated depreciation for business property on an Indian reservation
• Domestic production activities deduction to activities in Puerto Rico
• Limit increase for rum excise tax revenues to Puerto Rico and the Virgin Islands
• The American Samoa economic development credit
• Tax incentives for empowerment zones
• Tax incentives for renewal communities
• New markets tax credit
• Tax incentives for certain economically depressed census tracts within the District of Columbia (DC Enterprise Zone)
• Special depreciation allowance for certain property within the New York Liberty Zone
• Work opportunity tax credit for hurricane Katrina employees
• Increased rehabilitation credit for historic structures in the Gulf Opportunity Zone
• Election for refundable low-income housing credit for 2010
• Expanded and enhanced casualty loss deduction relating to federal disasters
• Expensing of qualified disaster expenses
• Five-year carry-back period for certain losses in federal disasters
• Relaxed mortgage revenue bond limitations for federal disasters
• Bonus depreciation for qualified disaster property
• Increased small business expensing for expenditures during disasters
• Tax incentives for biodiesel and renewable diesel
• Alternative motor vehicle credit for heavy hybrids
• Tax incentive for natural gas and propane used as a fuel in transportation vehicles
• Special rule for sales of electric transmission property

In total, the House version of the tax extenders bill provides $31 billion in tax cuts and benefits, including more than $5 billion for individuals and $17 billion for businesses.