Grassley Advances Ethanol Excise Tax Reform Proposal
WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, today woncommittee approval – for the second time – of his bipartisan proposal to reshape the ethanol excisetax exemption so that ethanol-blended fuels make the same contribution to the highway trust fundas regular gasoline while also retaining an important incentive to promote the use of domestic,renewable fuels.
“It makes common sense for ethanol taxes to contribute just as much to building highwaysas traditional gasoline taxes,” Grassley said. “It isn’t logical for a smaller portion of ethanol taxesto contribute to highways than the taxes from traditional gasoline. All types of vehicle fuel taxes should contribute equally to highway construction and maintenance.”
Grassley scheduled a Finance Committee vote on his proposal today to ensure the proposalgets a second opportunity for final approval this year. Grassley won committee approval of the legislation earlier this year as part of a broad energy tax incentives bill, which is pending in a House-Senate conference committee on comprehensive energy policy. Grassley said he tied today’s approval to extending the highway trust fund provisions, which are expiring, to encourage fast approval because the comprehensive energy policy bill could take longer to resolve.
The Grassley proposal, co-sponsored by Sen. Max Baucus, ranking member of the Finance Committee, and other committee members including Sens. Tom Daschle, the Senate Democratic leader, and Jim Jeffords, the ranking member of the Committee on Environment and Public Works, restructures the ethanol tax exemption.
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 HighwayTrust Fund transfers 2.86 cents to the Mass Transit Account of the Highway Trust Fund.
Because of the partial excise tax exemption, ethanol-blended gasoline remits 13.2 cents tothe 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.
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. This would ensure that all ethanol blended fuels would make the same contribution to the improvement and maintenance of the nation’shighway and bridge network as regular gasoline.
“Our highway needs are great. Our dependence on imported fuel should decrease,” Grassleysaid. “This restructuring of ethanol excise taxes contributes to both of those priorities. At the same time, it preserves all incentives to use the clean-burning, renewable, domestically produced ethanol,the fuel of the future.”
Grassley has a long history of promoting expanded use of renewable sources of energy. In1992, he authored the first-ever wind energy production tax credit. In 1997, he led the successfuleffort to extend the ethanol tax credit for ten years. In February, Grassley introduced legislation withSen. Blanche Lincoln, of Arkansas, to provide an income tax credit and excise tax rate reduction forbiodiesel fuel mixtures.
“Renewable fuels like ethanol and biodiesel will improve air quality, strengthen nationalsecurity, reduce the trade deficit, decrease dependence on Saddam Hussein for oil, and expandmarkets for agricultural products,” Grassley said.
Grassley’s ethanol excise tax proposal won the support of an historic coalition of highwayand ethanol groups. The text of the coalition’s latest letter to senators follows.
Transportation Investment, Renewable Fuels & Agricultural Organizations Urge Inclusion of Grassley/Baucus Ethanol Proposal
September 15, 2003
Dear Senator:
As Congress works to reconcile the House and Senate versions of national energy policy legislationand reauthorize the federal highway and transit programs, the undersigned organizations urge youto support inclusion of a proposal by Senators Grassley and Baucus to reform the federal ethanol taxincentive in either the final Energy Bill conference report or a short-term extension of theTransportation Equity Act for the 21st Century (TEA-21).
By adding the Volumetric Ethanol Excise Tax Credit (VEETC) Act of 2003, S. 1548, our nation’s transportation infrastructure will be improved because the full amount of user excise taxes leviedwill be collected and remitted to the Highway Trust Fund (HTF). In simplifying the tax collectionsystem, all user excise taxes levied on both gasoline and ethanol blended fuels would be collected at 18.4 cents per gallon; and all excise taxes levied on diesel and biodiesel blended fuels would becollected at 24.4 cents per gallon. On average, S. 1548 would generate more than $2 billion per yearin additional HTF revenue, which would improve the ability of the federal government to addressthe nation’s transportation infrastructure needs.
Secondly, when it comes to renewable fuels, the federal government’s tax collection system will work in concert with the petroleum industry’s and independent terminal’s fuel delivery system. S.1548 creates a simplified system of excise tax collection complemented by a regimented petroleum, renewable fuel and terminal delivery system. In the event renewable fuels are blended with gasolineor diesel at the terminal, the taxes will be recorded and collected at the terminal by the positionholder; and in the event renewable fuels are blended with gasoline or diesel “below the rack,” thenthe tax will be collected before the gasoline or diesel fuel leaves the terminal rack.
In addition to the agriculture, transportation, renewable fuels and local government stakeholderslisted below, S. 1548 is cosponsored by 21 senators, including the Senate Majority and Democraticleaders, and the chairman and ranking members of the Senate Energy and Natural Resources andEnvironment and Public Works Committees. The proposal was approved by the Senate FinanceCommittee April 2.
Senators Grassley and Baucus have worked with tax and transportation fuel delivery specialists inthe petroleum industry, and the transportation and renewable fuels industries to create an effectivesolution to a complicated fuel delivery and tax collection system. This proposal would create anatmosphere where sound energy policy, transportation fuels delivery, and tax and transportationinvestment policy need not be mutually exclusive. We urge you to ensure this “win-win” proposalis included in either the Energy Bill conference report or a short-term extension of TEA-21.
Sincerely,
American Road & Transportation Builders Association
Renewable Fuels Association
Associated General Contractors of America
National Corn Growers Association
American Association of State Highway and Transportation Officials
American Coalition for Ethanol
American Concrete Pavement Association
American Corn Growers Association
American Concrete Pipe Association
American Farm Bureau Federation
American Council of Engineering Companies
American Soybean Association
American Highway Users Alliance
Clean Fuels Development Coalition
American Society of Civil Engineers
Magellan Midstream Partners
American Traffic Safety Services Association
National Biodiesel Board
Association of Equipment Manufacturers
National Grain Sorghum Producers
Associated Equipment Distributors
National Farmers Organization
International Union of Operating Engineers
National Farmers Union
Laborers' Employers Cooperation and Education Trust
National Sunflower Association
Laborers’ International Union of North America
New Uses Council
National Asphalt Pavement Association
Soybean Producers of America
National Ready Mixed Concrete Association
US Canola Association
National Stone, Sand and Gravel Association
National Utility Contractors Association
Portland Cement Association
U.S. Chamber of Commerce
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