Manager's amendment to House health care bill would end 'black liquor' credit

Comprehensive health care reform legislation came one step closer to floor consideration in the House as Democratic leaders November 4 introduced a manager's amendment to the Affordable Health Care for America Act (H.R. 3962) that would make changes to the revenue portion of the bill as well as a host of technical corrections to the broader legislation. On the revenue side, the manager's amendment makes no changes to the proposed surtax on high-income individuals – the bill's single largest offset. It does, however, include a new provision that would make "black liquor" ineligible for the cellulosic biofuel credit (CBPC), and modifies a provision in the original bill related to the worldwide interest allocation
election.


Black liquor

The manager's amendment would modify the cellulosic biofuel producer credit under section 40(b) to preclude "black liquor" from credit eligibility. The language of the provision mirrors a proposal (H.R. 3985) introduced by House Ways and Means Committee member Chris Van Hollen, D-Md., on November 3.

Black liquor is the wood pulp byproduct that paper companies use to power their mills. Much to the consternation of some in Congress, when section 6426(d)(2)(G) was clarified in 2007 to apply to "liquid fuel derived from biomass," paper mills became eligible to claim the refundable alternative fuel mixture credit (AFMC) under section 6426(e) by adding a small amount of diesel fuel to their black liquor. The AFMC is scheduled to expire on December 31, 2009. If Congress decides to extend the credit, it is generally expected to add a provision that will make black liquor ineligible.

But a new issue in the debate emerged recently when the IRS held in an internal legal memorandum (ILM 200941011) that black liquor also is eligible for the nonrefundable CBPC under section 40(b)(6), which is not scheduled to expire until December 31, 2012.

To address this, the manager's amendment makes several changes to section 40(b)(6) by renaming the credit the "second generation biofuel credit" and specifically providing that a fuel is not eligible for this credit unless it would be a liquid at room temperature after extraction of all water from the fuel. The effect of this statutory change would be that black liquor will not qualify for a nonrefundable credit under section 40(b)(6).

The proposed changes to section 40(b)(6), which would be effective for fuels sold or used after the date of enactment, are estimated to raise $24 billion over 10 years.


Worldwide interest allocation

The manager's amendment also would repeal the worldwide interest allocation election outright, rather than delaying its effective date until December 31, 2019, as originally proposed. The original provision is estimated to raise $26 billion over 10 years.

Notably, a provision to delay the effective date of the election until December 31, 2017, has been proposed as a revenue raiser in a just-passed Senate bill (H.R. 3548) that would extend unemployment insurance benefits and temporarily expand the net operating loss carryback. House passage of H.R. 3548 is likely by the end of the week and the president is expected to quickly sign it into law. (See related story in this issue for additional details.)

The revenue estimate that Van Hollen provided for his second generation biofuel producer tax credit nearly covers the revenue shortfall that would result in the health care bill if the worldwide interest allocation provision proposed in H.R. 3548 is enacted into law.


Deduction for subsidies for retiree drug benefits

The manager's amendment also would delay the effective date of the provision to reduce the deduction for retiree prescription drug expenses until after December 31, 2012. The original provision would be effective after December 31, 2010.


Timeline for action

House leaders have pledged that text of the manager's amendment, like the text of the Affordable Health Care for America Act, will be available for lawmakers to review for at least 72 hours before floor consideration begins. Under that timeline, the House likely will take up the bill at the end of the week. The manager's amendment and a full substitute offered by House Republicans will be the only amendments allowed to the measure, and both will be subject to votes.

House Democratic leadership indicated on November 4 that the chamber may work over the weekend to pass the health care bill. A vote on final passage is possible on the evening of Saturday, November 7.