Deal on Biodiesel, Beer Credits Hinges on Broad Tax Package (1)

Congressional leaders are close to a deal that would extend a slew of expired incentives for biodiesel, alcoholic beverages and short-line railroads, though it could depend on completing a broader tax compromise in time to add the provisions to a must-pass spending bill.

Top House and Senate officials negotiating through the weekend tentatively agreed to renew those “tax extenders,” including a $1-per-gallon credit for biodiesel typically made from soybeans and used cooking oil, according to three people familiar with the matter. Under the working compromise, the credits -- many of which expired almost two years ago -- would be retroactively renewed and extended through the end of 2020, said the people, who asked not to be named discussing private deliberations.

Negotiators are still working on a potential deal to fix a mistake in the 2017 tax law that would benefit Target Corp., Best Buy Co. and KFC owner Yum! Brands Inc., according to three people familiar with the discussions. A drafting error in the overhaul meant that companies have to write off renovation costs over 39 years, rather than in a single year, which greatly reduces the value of the intended tax break.

In exchange for fixing the GOP tax law, Democrats are pushing for an extension of renewable energy tax breaks. The 30% solar tax credit is set to begin phasing out in 2020. Also hanging in the balance are an extension of credits for wind power and the creation of new credits for energy storage.

The White House has been lobbying Republicans against renewing tax credits that support alternative power, making a politically contentious fight, according to two people familiar with the matter.

The tax package wasn’t expected to be ready in time to be included in the version of a government spending bill released midday Monday, though negotiators are seeking to incorporate it later in the day when House representatives consider rules for debating the legislation.

Supporters of the biodiesel tax credit, including producers of the alternative fuel and oil refiners required to use it, have warned that without renewal, more manufacturing plants could shut early next year, building on 10 closures already.

Biodiesel producers were up in trading Monday. Renewable Energy Group Inc. was up 11.9% as of 12:48 p.m.

The biofuels and tax extenders deal could depend upon Republicans and Democrats hashing out a broader compromise that could include new tax breaks for retirement savings and repealing some levies funding the Affordable Care Act.

Lawmakers negotiated over the weekend, but had failed to come to an agreement on those broader tax issues as of Monday morning, said Ashley Schapitl, a spokeswoman for Senator Ron Wyden, the top Democrat on the Senate Finance Committee. A final deal needs to be reached by Monday evening to give the House and Senate enough time to vote on the spending bill to avert a government shutdown before federal funding lapses on Friday.

In addition to the biodiesel credit, the extenders provisions would renew incentives supporting racetracks, film production, short-line railroads, alcoholic beverages and other industries.

Optimism was fading Monday among lobbyist pushing for lucrative tax breaks for electric vehicles. Negotiators weren’t considering including an expansion of that credit as of Monday afternoon and the White House was lobbying against it.

Electric-car makers such as General Motors Co. and Tesla Inc. had been asking Congress to expand a consumer tax credit for electric-vehicle purchases. That $7,500 credit is still in effect, but manufacturers are limited to claiming 200,000 of them, and both GM and Tesla have already reached the cap.

(Updates with talks about retailer tax breaks, renewable energy starting in the third paragraph)

--With assistance from Colin Wilhelm.

To contact the reporters on this story:
Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net;
Ari Natter in Washington at anatter5@bloomberg.net;
Laura Davison in Washington at ldavison4@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at jmorgan97@bloomberg.net

Laurie Asséo

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