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February 3, 2004

U.S. Senate Tax Committee Increases Highway Funding

By John Godfrey
WASHINGTON -- The Senate Finance Committee on Monday approved legislation that will overhaul the tax treatment of the fuel additive ethanol , which would put additional funds into the federal highway trust fund.

The change means no net difference in the break ethanol producers receive, but is designed to give the federal highway trust fund credit for more fuels taxes received and thus allow Congress to spend more money on highway programs.

Finance Committee staff said the provision is an accounting change.

Sen. Jon Kyl, R-Ariz., said the proposal strangely gives the highway trust fund credit for revenues that aren't raised.

The measure is part of the tax portion of a six-year renewal of federal highway and mass transportation programs and doesn't go as far as the provisions in the stalled energy bill.

The bill doesn't include a renewable fuel standard contained in the energy bill that's stalled in the Senate. The energy bill would double ethanol production during the next decade.

The ethanol formula, sponsored by Senate Finance Chairman Charles Grassley, R-Iowa, would funnel an extra $2 billion into the Highway Trust Fund. It does this by taxing ethanol-blended gasoline at the same 18.4 cents a gallon as all other gasoline, which then will be transferred to the highway trust fund.

Currently, ethanol blended gas has a partial excise tax exemption where only 13.1 cents per gallon is transferred to the highway trust fund. Grassley's plan would replace the current 5.2 cents-per-gallon tax break for ethanol with a tax credit for ethanol producers. The cost of this tax credit drains general revenues, not the highway trust fund.

The Finance Committee bill also contains fuel tax fraud prevention and a variety of changes to excise taxes, such as repealing a 4.3-cent-per-gallon motor fuel excise tax on railroads and barges.

The bill also contains a $19 billion package of tax revenue raisers, such as increased tax shelter penalties and higher taxes on companies that move their headquarters overseas to reduce U.S. taxes, according to Senate Finance aides.

The Finance Committee also approved legislation Monday for a $3.8 billion package of provisions intended to simplify life for taxpayers.

The plan includes revisions to penalties imposed on taxpayers. It would also simplify the tax code's five separate definitions of a child or dependent.

To offset its cost, the plan would raise $3.8 billion over 10 years through a number of provisions.

One provision would extend the amount of time before a taxpayer could qualify for a suspension of interest on incomes taxes owed. Others would crack down on those using and marketing income tax shelters.

Source: Dow Jones Newswires