Posts Tagged ‘Ethanol subsidies’

An end to ethanol subsidies? Maybe

June 21, 2011

About 40 percent of the U.S. corn crop is diverted to make ethanol additives to gasoline.  In a time of rising food prices, this doesn’t make sense.

Last week the U.S. Senate voted 73-27 to end the government’s 45 cents a gallon tax credit to ethanol refiners and its 54 cents a gallon tariff on imported ethanol.  Ethanol subsidies, first enacted in 1978, cost the federal government $6 billion a year.  Was the Senate’s vote a step to a more rational policy?  Maybe and maybe not.

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In a way, the vote was play-acting.  The amendment is highly unlikely to become law. The vote was on an amendment to a bill that may not pass the Senate, and, even if it survives, it  is not expected to pass the House of Representatives.  President Obama favors ethanol subsidies as part of his biofuels program, and is expected to veto the bill even if it passes.

And even if it did become law, it wouldn’t change the federal mandates requiring use of ethanol in fuel.  In fact, the Environmental Protection Agency plans to increase the ethanol content of gasoline.  No, that doesn’t make sense to me, either.

But the amendment, which had broad bi-partisan support, is important because it recognizes that tax breaks are equivalent to other subsidies.  If you lower the taxes of ethanol producers by $6 billion, and leave everything else the same, that $6 billion has to be made up by taxes on somebody else – either on you and me, or, if financed by deficit spending, on future generations.  Recognition of that fact by conservative Republicans is an important step forward, as is the willingness to question ethanol subsidies.

Many Republicans have been afraid to go against the influential Americans for Tax Reform.  Its president, Grover Norquist, asks them to sign a pledge promising not to raise income taxes and not to eliminate any special tax break without offsetting it by a cut in general tax rates.  The Senate vote represents a violation of that pledge – a completely justified violation, in my opinion.  It will be interesting to see the political consequences.