Senate mulls ethanol incentive, tax


WASHINGTON – U.S. Sen. Chuck Grassley, R-Iowa, advanced a bipartisan proposal to reshape the ethanol excise tax exemption as part of energy tax legislation mark-up in the Senate Finance Committee April 2.

The measure requires ethanol-blended fuels to make the same contribution to the highway trust fund as regular gasoline while retaining an incentive to promote the use of domestic, renewable fuels.

“It makes common sense for ethanol taxes to contribute just as much to building highways as traditional gasoline taxes,” Grassley said.

“All types of vehicle fuel taxes should contribute equally to highway construction and maintenance.”

Grassley chairs the Finance Committee.

His version of comprehensive energy tax legislation – the Energy Tax Incentives Act of 2003 – contains an extension of a wind-energy tax credit and extends a tax credit for biomass production.

The measure also provides an income tax credit and excise tax rate reduction for biodiesel fuel mixtures and creates a production tax credit for electricity generated from swine and bovine waste.

Where the money goes. The ethanol excise tax reform proposal under consideration is significant because under the current gasoline excise tax system, the federal excise tax paid for gasoline is 18.4 cents per gallon.

The full tax is deposited into the federal government’s general fund.

The leaking underground storage tank transfer is deducted at .1 cents. The remainder is transferred to the Highway Trust Fund.

After the 18.3-cent transfer of revenue from the general fund, the Highway Trust Fund transfers 2.86 cents to the Mass Transit Account of the Highway Trust Fund.

Ethanol taxes. Because of the partial excise tax exemption, ethanol-blended gasoline remits 13.2 cents to the general fund. Of that 13.2 cents, .1 cents goes to the leaking underground storage tank transfer.

Generally, 2.5 cents goes to the general fund for deficit reduction. Thus, under current law, the Highway Trust Fund receives 10.3 cents from the excise tax on ethanol-blended gasoline.

Of the 10.3 cents, 2.86 cents is transferred to the Mass Transit Account.

Highway fund drain. Under the current system, an estimated $2 billion a year is lost from the Highway Trust Fund.

Grassley’s proposal would ensure that 18.4 cents a gallon tax would be paid into the Highway Trust Fund on every gallon of gasoline or gasoline/ethanol blends of fuel.

His proposal also would eliminate the 2.5 cents currently withheld by the general fund.

Tax credit. Grassley’s proposal also would create a new ethanol tax credit in a new section of the tax code that allows blenders to take an excise tax credit on the gallons of ethanol blended with gasoline.

This credit would be on the gallons of ethanol used and is based on the current 52 cents per gallon income tax incentive (which equates to 5.2 cents on a 10 percent blend of ethanol with 90 percent gasoline).

In addition, the Grassley proposal would allow for the elimination of “blend rate tiers” (i.e. 5.7 percent, 7.7 percent, and 10 percent) and all future credits will be based on the renewable fuel gallons blended.

This would streamline the tax code and provide refiners with added flexibility to meet regional air quality needs.


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