In Montana, Crow tribe sees perils to 'fiscal cliff'

• A tribal tax break is one of the small issues caught up in the "fiscal cliff"
• The Crow have had a powerful ally - the Senate Finance Committee chairman
• The coal tax credit has its origins in the Energy Policy Act of 2005

CORRECTION: An earlier version of this article misquoted Patricia Power. She said the tribe would have pursued the tax credit described even if there were other options for limiting the impact of environmental rules on the Crow mining operations.

WASHINGTON -- 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% unemployment on reservations. We don't have opportunities in this sparsely populated area for casinos to help us, like many tribes do.

"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. But 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. But 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 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 sulfur emissions standards in the Clean Air Act 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. "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," said Patricia Power, the Crow tribe's Washington lobbyist.

One of the champions of the tax credit is Sen. Max Baucus, D-Mont., the home state senator who also happens to chair the tax-writing Senate Finance Committee. Power said the senator is a frequent visitor to the reservation, and knows the issue intimately.

Baucus' office did not return requests for comment. At a hearing earlier 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 does have its critics.

"Why are we giving a tax deduction for one specific tribe, which happens to be in one senator's state?" said Jason Fichtner, a senior research fellow at the free market-oriented Mercatus Center at George Mason University. "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's never been reviewed.

Many of these extenders -- Marron calls them "expirers" -- are budgetary gimmicks. By authorizing the tax breaks a couple years at a time, they look less expensive when included in the government's 10-year budget forecast. But that also means they're not very effective at encouraging investment because businesses can't be certain how long they'll last, Marron said.

"If the goal is to have an incentive for something, it should be permanent, or at least long term," Marron said.

That's been the Crow tribe's No. 1 lobbying priority for at least two years, Power said: To make the Indian coal production credit permanent. Even though the sulfur problem has ebbed, a new crisis has cut into the Crow's coal sales: a fire at the Xcel power plant in Minnesota, its top customer, shut down part of the power plant last year.

The tax credit has helped the mine stay open and find new customers.

"We see this as a pretty good deal to the federal government, because there really isn't any other game in town," Power said.