The Senate Finance Committee voted 17 to 4 Thursday to approve a tax package that will cost $17 billion over ten years and will be added to the reauthorization of the farm bill that the Senate Agriculture Committee will take up in a couple weeks. The tax package includes a $5 billion trust fund for crop disaster assistance as well as $3 billion in tax credits to encourage conservation. These items would replace direct spending programs for these purposes and, since the Finance Committee package includes offsets, will free up funds for other purposes in the larger agriculture bill.

The largest offset is a provision that will reduce tax avoidance schemes by codifying what is known as the "economic substance doctrine," which basically means that transactions having no purpose other than to avoid taxes are void. This provision, which arguably will reduce the economic inefficiency that comes with the exploitation of tax loopholes, will raise $10 billion over ten years.

Another revenue-raising provision takes aim at tax shelters known as sale-in, lease-out (SILOs). These arrangements, which can involve an American bank buying something like a subway or sewer system in another country and "leasing" it back to the foreign government for tax advantages, were already banned starting in 2004 but that ban would retroactively apply to deals made before 2004 under this provision. Some members of Congress oppose any such retroactive changes in tax laws, but the Senate Finance Committee earlier this year tried to include this change in minimum wage and energy legislation.

Another provision raises $854 million by cutting the tax credit for ethanol from 51 cents to 46 cents a gallon when ethanol production reaches a certain level. Several amendments were approved. Jim Bunning (R-KY) delayed the markup for a couple hours before agreement was reached to include his amendment to create a 50 cent-per-gallon tax credit for fuel made from liquefied coal or natural gas. Environmental organizations point out that use of liquefied coal may actually increase global warming, underscoring the possibility that these matters are not exactly within the expertise of the Congressional tax-writing committees.

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