House Moves To End Alternate Fuel Tax Credits For Paper Industry

In the Spring it came out that the United States domestic paper manufacturing industry was receiving massive tax credits from the U.S. Government for using alternative fuels to power their plants. They had traditionally used a byproduct of the production process called “black liquor” to burn and provide steam and heat. A smart man figured out that if a little diesel fuel was added this became an alternative fuel for which they would receive money from the Government. The idea of the tax credit was to spur industry to use alternative fuels to cut back on oil based products.

Some of the companies were receiving more money from this credit then they did making paper. Obviously since they were creating a new fuel that they did not really need they were gaming the system. It showed once again that Congress does not always think things through completely when passing laws. The eyes of the legislators were drawn to this by the Internal Revenue Service (IRS) issuing a memo saying that there may be further subsidies and credits that the paper companies are eligible for.

Now the House leadership has moved to fix this problem. There is proposed language in the health care reform bill passed this weekend that will end the misuse of the subsidy. There had been estimates that the paper industry could receive upwards of $2.5 billion in these subsidies. International Paper (IP) for example had earnings of $24.8 billion in 2008 on which they lost $1.282 billion.

There is certainly a place for the government to encourage the use of alternative fuels by industry. The paper industry was able though to take advantage of this specific subsidy. If there was a legitimate need for the use of the alternative fuel rather then just burning the black liquor then the credit would seem to be justified, but because the addition of the oil does nothing it should not be. The fact that the whole law needs to be looked at and updated illustrates how it was originally not properly written.