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Close "Splash and Dash" Loophole, Nation's Largest Taxpayer Group Says

May 19, 2008

The Honorable John Shadegg
United States House of Representatives
306 Cannon House Office Building
Washington, DC 20515

Dear Representative Shadegg:

On behalf of the 362,000 members of the National Taxpayers Union, I write in strong support of your "Splash and Dash Correction Act," H.R. 5713. This bill would close a loophole in the tax structure through which American taxpayers are subsidizing exported biodiesel fuel. This loophole not only violates Congressional intent, it also violates common-sense policy.

Current policy provides for up to a $1.00 per-gallon tax credit for blending "traditional" diesel with biodiesel. Unfortunately, the law allows biodiesel to be imported from abroad, mixed with a small amount of traditional diesel (in order to take advantage of the credit), and immediately shipped back overseas. This practice, commonly referred to as "splash and dash," has triggered an estimated $875 million in unintended tax breaks in 2007-2008.

The "Splash and Dash Correction Act" would eliminate this problem by only applying the mixing credit to fuel produced for consumption in the United States. Doing so would avoid any conflicts with World Trade Organization policy and would prevent taxpayers from subsidizing fuel produced and consumed almost entirely outside the country.

NTU continues to believe that the best energy policy is one that applies the same low taxes to all sources and subsidizes none. While markets and entrepreneurs continue to chart the path toward our energy future, politicians have proven themselves notoriously poor at prognostication. Thus, our preference would be to eliminate the mixing credit within the structure of an overhaul of the entire system, including subsidies.

Failing that, Congress should at minimum protect Americans from helping to underwrite the profit margins of foreign fuels. Credits are not an ideal way of structuring a tax system. Nonetheless, NTU recognizes the principle that their repeal should not serve to grow government. Accordingly, though H.R. 5713 constitutes positive change on its own, NTU would welcome and encourage efforts to offset the additional revenue that would flow to federal coffers as a result of its passage. We look forward to working with you to pass this important piece of legislation.


Andrew Moylan
Government Affairs Manager