The Westmoreland Coal Co. gets $2.26 from the IRS for every ton of coal it mines off the Crow Indian reservation in Montana. That mine, in turn, supports the tribe through millions in taxes and royalties -- and 100 jobs with an average salary of $75,000.
That tax credit is one of the more obscure of the dozens of tax provisions set to expire Dec. 31 as part of the so-called fiscal cliff. And tribal leaders worry that without the credit, the mine could close.
"The Crow reservation has never had much in the way of economic development for as long as we've all known it," said Bill Watt, the tribal attorney. "We have 40 percent unemployment on reservations.
"We believe coal is on our reservation for a purpose, and that is to help support the tribe."
The budgetary cost of the Indian coal-production credit is so small it doesn't show up in most Congressional Budget Office estimates. It's part of a package of "extenders" -- temporary tax breaks that benefit individuals and companies -- that cost the government $839 billion over 10 years.
Those extenders are the third component of a fiscal cliff dominated by two even bigger issues: the expiration of the Bush-era tax cuts and the effects of automatic, across-the-board spending cuts mandated by Congress in 2011. However, the extenders include some popular individual tax breaks with broad constituencies that will fight to preserve them: deductions for state and local taxes; a write-off for mortgage insurance premiums; and mass transit benefits; among others. They also include a grab bag of corporate tax breaks for wind energy, employer-provided child care and credits for hiring veterans.
The credit for production of Indian coal is one of the smallest, and it affects only three tribes -- the Crow, the Hopi and the Navajo -- but its fate is nonetheless tied to the rest of the fiscal cliff negotiations.
The coal tax credit has its origins in the Energy Policy Act of 2005. At the time, Crow coal -- which has relatively high sulfur content -- was suffering under Clean Air Act sulfur emissions standards and needed an incentive to compete. The Environmental Protection Agency suggested a grant from the Bureau of Indian Affairs, which the Crow found "insulting." The Crow didn't want welfare. They wanted to be self-sustaining. The energy bill was moving faster than the spending bill, and it was easier to get it done as a tax credit.
"I think if we had lots of time, we probably wouldn't have chosen to go this way," said Patricia Power, the Crow tribe's Washington lobbyist. "But honestly, the threat to the tribe was enormous. They were going to lose two-thirds of their budget, with no prospects to replace it at all."
One of the champions of the tax credit is Sen. Max Baucus, D-Mont., the home state senator who also chairs the tax-writing Senate Finance Committee.
Power said Baucus is a frequent reservation visitor and knows the issue intimately.
Baucus' office did not return requests for comment. At a hearing this year, Baucus said the Indian coal credit -- coupled with another credit that allows Indian tribes to write off the cost of equipment faster -- have "brought jobs and economic activity to the Crow tribe."
"But there are issues with these provisions," he said, noting that two-thirds of Oklahoma qualifies as an eligible Indian reservation under the tax code. "Perhaps the tax laws need to be better targeted."
The tax break has its critics.
"Why are we giving a tax deduction for one specific tribe, which happens to be in one senator's state?" asked Jason Fichtner, a senior research fellow at the free-market-oriented Mercatus Center at George Mason University in Virginia. "We could change this around. Instead of giving the Indian tribe a tax benefit, we should just cut them a check. Then it's more transparency and it has to go through the appropriations process."
He said the tax credit -- and others like it -- should expire so Congress can "start from scratch."
"One of the arguments for potentially going over the fiscal cliff is that all these things would expire, and we'd have to go back and discuss all of them on their own merits," Fichtner said.
The Tax Policy Center's Donald Marron told Congress this year that the Indian coal credit is one of two extenders that deserve "special scrutiny" because it has never been reviewed.
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