Grassley Advances Ethanol Excise Tax Reform Proposal


? Sen. Chuck Grassley, chairman of the Committee on Finance, today won committee approval ? for the second time ? of his bipartisan proposal to reshape the ethanol excise tax exemption so that ethanol-blended fuels make the same contribution to the highway trust fund as 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 highways as traditional gasoline taxes," Grassley said. "It isn't logical for a smaller portion of ethanol taxes to 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 proposal gets 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 Highway Trust 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 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.

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's highway and bridge network as regular gasoline.

"Our highway needs are great. Our dependence on imported fuel should decrease," Grassley said. "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. In 1992, he authored the first-ever wind energy production tax credit. In 1997, he led the successful effort to extend the ethanol tax credit for ten years. In February, Grassley introduced legislation with Sen. Blanche Lincoln, of Arkansas, to provide an income tax credit and excise tax rate reduction for biodiesel fuel mixtures.

"Renewable fuels like ethanol and biodiesel will improve air quality, strengthen national security, reduce the trade deficit, decrease dependence on Saddam Hussein for oil, and expand markets for agricultural products," Grassley said.

Grassley's ethanol excise tax proposal won the support of an historic coalition of highway and 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 legislation and reauthorize the federal highway and transit programs, the undersigned organizations urge you to support inclusion of a proposal by Senators Grassley and Baucus to reform the federal ethanol tax incentive in either the final Energy Bill conference report or a short-term extension of the Transportation 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 levied will be collected and remitted to the Highway Trust Fund (HTF). In simplifying the tax collection system, 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 be collected at 24.4 cents per gallon. On average, S. 1548 would generate more than $2 billion per year in additional HTF revenue, which would improve the ability of the federal government to address the 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 gasoline or diesel at the terminal, the taxes will be recorded and collected at the terminal by the position holder; and in the event renewable fuels are blended with gasoline or diesel "below the rack," then the 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 stakeholders listed below, S. 1548 is cosponsored by 21 senators, including the Senate Majority and Democratic leaders, and the chairman and ranking members of the Senate Energy and Natural Resources and Environment and Public Works Committees. The proposal was approved by the Senate Finance Committee April 2.

Senators Grassley and Baucus have worked with tax and transportation fuel delivery specialists in the petroleum industry, and the transportation and renewable fuels industries to create an effective solution to a complicated fuel delivery and tax collection system. This proposal would create an atmosphere where sound energy policy, transportation fuels delivery, and tax and transportation investment policy need not be mutually exclusive. We urge you to ensure this "win-win" proposal is 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