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RCED-00-301R 1 (2000-09-25)

handle is hein.gao/gaobaalqt0001 and id is 1 raw text is: I GAO Accountability * Integrity * Reliability United States General Accounting Office Resources, Community, and Washington, DC 20548 Economic Development Division B-286311 September 25, 2000 The Honorable Tom Harkin Ranking Minority Member Committee on Agriculture, Nutrition, and Forestry United States Senate Subject: Petroleum and Ethanol Fuels: Tax Incentives and Related GAO Work Dear Senator Harkin: Over the years, the federal government has granted tax incentives, direct subsidies, and other support to the petroleum industry, as well as some tax and other benefits to the ethanol industry, in an effort to enhance U.S. energy supplies. The tax incentives generally decrease revenues accruing to the U.S. Treasury. In earlier reports, we addressed various issues related to these incentives, including their impact on federal revenues and effectiveness in accomplishing their objectives. You requested that we provide you with information on the tax incentives' that benefit the petroleum and ethanol2 industries. Accordingly, we are providing revenue loss estimates for tax incentives designed to encourage the exploration and production of petroleum and the production of ethanol (see enc. I). In addition to this specific information, we are providing a summary of key findings from our earlier reports on these and related issues (see enc. II). We used the enclosed material to brief your staff on June 30, 2000. A summary of the tax inc entive information follows. 'Tax incentives are federal tax provisions that grant special tax relief designed to encourage certain kinds of behavior by taxpayers or to aid taxpayers in special circumstances. The revenue losses that result from these provisions--called tax expenditures--may, in effect, be viewed as spending channeled through the tax system. The Congressional Budget and Impoundment Control Act of 1974 requires that a list of tax expenditures be included in the budget. The act defines tax expenditures as revenue losses attributable to provisions of Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability. Each year, estimates of tax expenditure revenue losses are prepared by the Department of the Treasury and by the staff of the Joint Committee on Taxation. According to the Committee, these special income tax provisions are referred to as tax expenditures because they may be considered as analogous to direct outlay programs, and the provisions and programs can be considered as alternative means of accomplishing similar budget policy objectives. 'Under the Internal Revenue Code, a tax exemption and/or tax credits are available for any biomass-derived alcohol fuel, including ethanol and methanol. However, alcohol fuel derived from petroleum or natural gas does not qualify for the exemption or the credits. GAO/RCED-00-301R Tax Incentives for Petroleum and Ethanol Fuels

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