In ‘Black Liquor,’ a Cautionary Tale for Deficit Reduction
As a member of the “Gang of Six,” Senator Mike Crapo of Idaho has emerged as something of a hero among advocates of bipartisanship, one of three conservative Republicans working with three Democrats to cut the deficit by closing loopholes that allow businesses and households to avoid paying taxes.
Yet earlier this year, the senator made sure that a $3 billion loophole — protecting “black liquor,” an alcoholic sludge used as fuel in timber mills and factories — remained open in the negotiations over the highway bill that President Obama signed this month. Many budget experts criticize the loophole as a tax dodge because it allows the sludge to qualify for an energy subsidy created to wean the country off imported oil for vehicles, which black liquor does not do.
On Capitol Hill, lawmakers casually point to closing loopholes as the answer to much that ails the country. Negotiations to avoid automatic military spending cuts in January, to enact sweeping deficit reduction and to lower corporate and personal income tax rates all hinge on closing unidentified loopholes.
But the back-room actions on black liquor point to just how difficult it will be to lower the budget deficit through painless changes in the tax code. Even for a self-proclaimed deficit hawk like Mr. Crapo, one man’s loophole can be another’s vital constituent interest.
An Idaho company “feared losing the write-offs could affect employment decisions,” said Lindsay Nothern, a spokesman for Mr. Crapo.
Mr. Nothern would not identify the company, but Matt Van Vleet, a spokesman for Clearwater Paper, a Spokane company with a large pulp mill in north-central Idaho, confirmed that his company had gone to Mr. Crapo seeking to keep the tax break open.
“We would have felt significant pain,” he said.
Federal tax receipts are reduced by more than $1 trillion a year by various tax deductions and credits, known as tax expenditures, often tied to a policy aim. Ending them would nearly eliminate the federal deficit, which is projected to be $1.2 trillion in the current fiscal year