Paper Industry Attempting to Rip Off Tax Payers for Billions

Paper companies, led by , have found a loop hole in the 2005 Transportation bill that they plan to exploit for billions of dollars in free money at the taxpayers expense…

Take action to stop this ridiculous waste of taxpayer money:

Here is some background on this critical issue:

Background on Billion Dollar Black Liquor Loophole

compiled by Environmental Paper Network – 828/251-8558

newly discovered tax loophole in a 2005 federal transportation bill is costing taxpayers billions of dollars, increasing consumption of fossil fuel and threatening to strike a catastrophic blow to the recycled paper collection and manufacturing industries.

1. Big paper companies could each get hundreds of millions of dollars in cash payments from the Treasury this year by taking advantage of an alternative fuels tax credit that their consultants found in the 2005 highway bill and devised a way to exploit. in March 2009 received a first payment of $71.6 MILLION for ONE MONTH of burning the fuel last year, and one report estimates they could stand to receive payment of up to 3.7 BILLION. The alternative fuels clause, which appears on page 804 of the massive 2005 highway bill, was intended primarily to increase the use of ethanol and other biofuels in cars and trucks.

2. Paper companies, in a scheme devised by consultants, are now being richly rewarded for the
long-standing practice of using a byproduct of the wood pulping process known as “black liquor”
as a fuel to run their mills. The paper companies, which had not applied for these benefits before the end of last year, have not needed to alter or improve their existing business practices to qualify for
the tax breaks. Burning the fuel known as “black liquor” dates to the 1930s, and paper companies have consumed nearly all of the byproduct since the 1990s.  In order to carry out the scheme, paper companies have been now simply ADDING a small amount of diesel fuel to each gallon of black liquor in order to be a qualifying mixed fuel type and then applying with the IRS to be registered as an “alternative fuel mixer” and to claim the credit.

3. A recent Goldman Sachs report on the loophole and its exploitation states that paper companies use of this tax credit is “the opposite of the what the lawmakers intended when creating it.” That’s because it actually results in an INCREASE in the use of fossil fuel, thanks of the schemes method of adding diesel fuel to the black liquor. Reports from JP Morgan and Goldman Sachs anticipate Congressional outrage when the loophole and the massive payments are discovered, yet, to date clear Congressional action has not occurred. Various reports estimate that the loophole could result in $8-10 BILLION in payments to the 10 largest paper companies. An average size U.S. pulp mill can burn more than 175 million gallons of black liquor a year in its recovery boilers, which implies an annual tax credit of $90 million, according to the J.P. Morgan report. (In comparison, a report the cost of a recent vote to extend the tax credit into this year estimated it would cost $61 million. This was before the paper companies figured out how to exploit it.)

4. In addition to the insult and injury to taxpayers, the massive payments are also eliminating the functioning of the free market in the paper industry and creating a disproportionate advantage for certain types of producers, eliciting frustration and anger from some segments of the industry and across Canada. This is not only dangerous for the marketplace, but the losers include more environmentally responsible producers using more efficient grades of paper or recycled paper content. Such mills, which will be critical to developing a green jobs economy, are being put at severe disadvantage. In fact, these billions of dollars of payments are encouraging the overproduction of paper, suppressed prices, and additional emissions of greenhouse gases at the most polluting and least efficient mills in America, JUST TO BURN THE FUEL AND CLAIM THE CREDIT AND COLLECT THE FREE MONEY.

5. This is a scandal of outrageous proportions costing strapped taxpayers millions, and likely billions of dollars. After suffering through financial bailouts with no clear benefit, and bonus scandals, and the
rest, to add an additional grab of billions of taxpayer dollars for no benefit to citizens deserves a strong and decisive response to close this loophole and end its perverse incentives. We are asking Congressional leaders to come to the aid of taxpayers and close this loophole.

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