Nov. 4 (Bloomberg) -- U.S. House members are seeking to raise more money for health-care legislation by keeping Weyerhaeuser Co., Temple-Inland Inc. and other makers of pulp and paper from claiming up to $24 billion in tax credits.

The proposal would bar the companies from using an Internal Revenue Service ruling made public last month to claim a $1.01 a gallon tax credit for producing cellulosic biofuel from so- called black liquor, a wood byproduct from pulp- making.

That is more than double the 50 cents a gallon credit for burning black liquor that Congress enacted in 2005 that helped bolster profit at paper companies. That credit expires at the end of this year.

Weyerhaeuser told its shareholders Oct. 30 that the more generous tax credit has “some potential effect” on its future earnings. Austin, Texas-based Temple-Inland said it is studying whether to claim it, while International Paper Co. said it won’t seek the higher credit.

“The alternative fuel blending tax credit has a direct impact on our cellulose fibers business as does this potential cellulose biofuel tax credit,” Weyerhaeuser Chief Executive Dan Fulton told shareholders on a conference call Oct. 30. The company is based in Federal Way, Washington.

Chris Van Hollen, a Maryland Democrat who proposed the revision, said yesterday that stopping the companies from claiming the more generous credit would save an estimated $24 billion over a decade. His proposal has been added to the House Democrats’ main amendment to the health plan.

McDermott Neutral

Representative Jim McDermott, a Washington Democrat, said House members want to block the $1.01 credit as a way to raise money for the health-care plan. McDermott said he is neutral on the issue because there are no pulp mills in his district and a dwindling number in his state.

The IRS ruling said paper companies may be eligible for the higher $1.01 tax credit, which is available for three more years under federal law.

Weyerhaeuser spokesman Bruce Amundson declined to comment; Chris Mathis, a spokesman for Temple-Inland, didn’t respond to a request for comment.

“We don’t think black liquor meets all of the criteria” for the higher tax credit, Scott Milburn, a spokesman for the Washington-based American Forest & Paper Association, said in an e-mail. “Policymakers should take care to make sure legislation like this doesn’t inadvertently cause problems for renewable energy fuels and processes that are essential to improving our energy security.”

Bookkeeping

Analysts called the move by House Democrats a bookkeeping ploy to create $24 billion in supposed savings by shutting down a more generous tax credit that the companies may not have been entitled to claim.

“Charlie Rangel, in an attempt to find money to pay for health-care reform, endorsed the $1.01 a gallon credit as available to the paper companies and then promptly announced Congress would shut it down,” analysts Mark McMinimy and Anne Mathias of Concept Capital Washington Research Center wrote in a note to clients. Rangel, of New York, is the chairman of the tax-writing House Ways and Means Committee.

“In so doing, he has inadvertently opened the door (if just a little) for paper companies to claim the credit,” McMinimy and Mathias said.

Unwarranted Criticism

The criticism of Rangel was unwarranted because the analysis of the credit was performed by the staff of Congress’ nonpartisan Joint Committee on Taxation, said Matthew Beck, a spokesman for the Ways and Means panel.

The joint committee “determined that the paper companies would be eligible for the credit after looking at all the facts, and consultations with” the Treasury Department and the Environmental Protection Agency, Beck said in an e-mail.

International Paper fell 10 cents to close at $22.94 today in New York Stock Exchange composite trading. The shares have more than doubled this year. Weyerhaeuser fell 15 cents to $36.55. Temple-Inland fell 64 cents to $15.48.

In funding the health-care plan, McDermott said House Democrats want to count the savings from blocking the $1.01 credit in place of a provision that would delay some tax benefits for U.S.-based multinational corporations. The Senate intends to use the savings on multinational corporation benefits to pay for extending an $8,000 homebuyer tax credit, he said.

Senate Opposition

The 50-cent black-liquor tax credit faces opposition in the Senate, where the Democratic chairman and top Republican on the tax-writing Finance Committee said in June they wanted to stop the benefit.

Black liquor is a thick, dark liquid created when wood is transformed into pulp, which is then dried to make paper. To qualify for the original alternative-fuel tax credit, producers mix at least 0.1 percent of diesel fuel with black liquor.

Companies claimed about $2.5 billion in tax credits in the first half of this year from the 50 cents per gallon benefit.

Jeff Trinca, a forest-product industry lobbyist at Van Scoyoc & Associates in Washington, said few in the industry think paper companies can claim the more generous benefit because references to cellulosic biofuel in the U.S. tax code suggest credits can only be claimed if black liquor is used as an ingredient in transportation fuel.

“No one in the industry believes EPA or IRS would certify the use of black liquor for the credit,” Trinca said.

‘Intensely Studying’

Doyle Simons, chief executive of Temple-Inland, told his company’s shareholders the company is “intensely studying” the possibility of claiming the credits.

“We’re going to make sure we position ourselves to participate in any benefit,” he said Oct. 22.

International Paper Chief Executive John Faraci last week said on a conference call that the company wouldn’t seek the more generous credit.

“We do not believe that the pulp and paper producers qualify for these tax credits, and International Paper will not pursue these tax credits,” he said.

Kathleen Bark, a spokeswoman for the company, declined to say whether International Paper would seek the credit if it thought it could qualify.

“We don’t think it makes sense to speculate since we simply don’t believe the renewable energy we generate and use qualifies for the credit,” she said.

Memphis, Tennessee-based International Paper received more than $1 billion in black-liquor credits in the six months ended June 30, according to a July 30 statement.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net.

Last Updated: November 4, 2009 23:01 EST