Congress failed this week to end the ethanol subsidy, largely because the subsidy is in form a tax credit. Grover Norquist therefore deems its elimination a "tax increase" and a violation of the Americans for Tax Reform's "no tax increase" pledge.
In real life, it's spending run through a tax return. The credit is refundable, as explained in IRS Publication 510 (page 24):
To the extent the alcohol fuel mixture credit, biodiesel mixture credit, renewable diesel mixture credit, alternative fuel credit, and alternative fuel mixture credit exceed taxable fuel liability, a payment is allowed and may be taken as a credit on Schedule C (Form 729), as a refund on Schedule 3 (Form 8849), or as an income tax credit...
So producers who have no taxes otherwise can file a form and get government money back, just like in a welfare office. Because the IRS functions as the welfare office, Mr. Norquist says that cutting the subsidy is a tax increase.
The episode provides a valuable lesson to corporate welfare seekers: get your subsidies through the tax code, so Grover Norquist will be on your side.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to