Senate farm bill conferees are trying to convince their House counterparts to accept tax relief packages on biofuels and conservation measures, and a controversial racehorse depreciation provision important to Senate Minority Leader McConnell is still in the mix, according to a release Senate Finance Chairman Max Baucus issued late last week. The single biggest provision would extend biodiesel and renewable diesel tax credits through 2009 while adding jet fuel as a qualifying use of renewable fuel. These credits would cost $537 million in lost tax revenue over 10 years. “These nascent industries need more time to establish themselves before they can compete with traditional sources of fuel,” said Baucus. The package would also include a new, temporary cellulosic biofuel production credit at $1.01 per gallon available through Dec. 21, 2012, at an estimated cost of $401 million over 10 years. Baucus also noted the Senate would reduce the ethanol production credit, at a savings of $1.2 billion. “Now that the ethanol industry has matured, it is appropriate to curb the tax subsidy provided to ethanol,” Baucus said.
In addition, the Senate package includes several conservation tax breaks. Two new tax credits for landowners who voluntarily aid in the recovery of endangered species on their land would cost an estimated $300 million over 10 years. Another would extend a deduction for conservation easements for two years, costing $105 million over 10 years, while another would let nonprofit organizations issue $1.5 billion in tax-exempt timber conservation bonds for the acquisition of forest and forest lands that are subject to conservation restrictions, costing $202 million over 10 years.
The racehorse provision would adjust capital gains treatement for horses and create a uniform depreciation period of three years for all racehorses, at a cost of $93 million over 10 years. Baucus said in his release that the current depreciation schedule, in which a sporting horse bought at less than 2 years old and trained for racing must be depreciated over seven years “does not recognize that most horses held for sporting purposes end their sporting careers by age four.”
The package also would also increase the loan limit for low-interest loans to first-time farmers and ranchers under “aggie bond” programs from $250,000 to $450,000 and index that amount for inflation, at a cost of $24 million over 10 years. In addition, it would allow agricultural businesses to deduct the cost of protecting agricultural chemicals and pesticides from drug trade and national security threats at a cost of $14 million, as well as permit a tax-free exchange of stock that represents a holding of water rights at a cost of $2 million over 10 years. Furthermore, it would reduce the depreciation period for farm equipment from seven years to five years, but Baucus said the increased cost would be negligible. A provision inserted by Sen. Pat Roberts, R-Kan., would permit tax relief to the victims of tornadoes and storms that hit Greensburg, Kan., in 2007 at a cost of $61 million. Roberts said at the conference Friday he would defend the provision because he voted for aid to Gulf Coast victims of Hurricane Katrina. Another provision would provide $451 million in tax relief to the timber industry. Sen. Blanche Lincoln, D-Ark., said the timber industry in her state had been so devastated that the provision was the equivalent of disaster relief.
“The more that conferees and the public learn about this tax package, the more they’ll see it’s good agriculture policy that has a rightful place in the farm bill,” a Baucus aide said today. But when the farm bill conference resumes Tuesday, a battle is expected between the House and the Senate over the length of the provisions and whether the Senate’s accounting is proper.
This article appears in the April 26, 2008 edition of National Journal Daily PM Update.