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Ethanol Subsidies Add Fuel to the Tax Debate

Opponents of federal ethanol subsidies mounted a last-minute campaign Monday to reduce the industry’s funds in the White House’s $858 billion tax package. But even if the near-term assault fails, lobbyists on both sides will be back at it next year.

Sen. Dianne Feinstein’s office told Roll Call that the California Democrat attempted again Monday afternoon to revise the pending tax bill to lower ethanol subsidies by 20 percent. Feinstein’s plan calls for decreasing a per-gallon tax credit from 45 cents to 36 cents and for other reductions that the Senator said would shave billions off the legislation’s massive price tag.

“This is bad policy and must be fixed,” Feinstein said in a statement.

The National Corn Growers Association and the American Coalition for Ethanol did not respond to requests for comment.

To press her case, Feinstein sent a letter to Majority Leader Harry Reid (Nev.) and Minority Leader Mitch McConnell (Ky.) on Monday, urging them to take up her recommendations on the ethanol subsidies. The letter was also signed by Democratic Sens. Benjamin Cardin (Md.), Barbara Boxer (Calif.), Jim Webb (Va.), Jeanne Shaheen (N.H.), Jeff Bingaman (N.M.) and Frank Lautenberg (N.J.).

“The proposed one year extension of the 45 cent-per-gallon subsidy would pay oil companies $5.3 billion to use 12 billion gallons of corn ethanol that the Federal Renewable Fuels Standard already requires them to use in 2011,” the Senators’ letter said. “We cannot afford to pay industry for following the law.”

As of Monday night, the White House-negotiated package was made up primarily of big-ticket revenue items such as tax extensions for all wage earners, unemployment insurance, education incentives and a payroll tax holiday, as well as changes to the estate tax and spending incentives for businesses.

The legislation also included smaller provisions that appeared to add legislative sugar for on-the-fence Members. The sweeteners included more than
$5 billion worth of ethanol subsidies, a “seven-year recovery period for motorsports entertainment complexes” and “special expensing rules for certain film and television productions,” according to the draft legislation.

Lawmakers of the Corn

Even GOP Members who played to their fiscally conservative base during the midterm elections are looking for the ethanol extension. For example, Sen. Chuck Grassley (R-Iowa) boasted in a press statement last week that he was “key to securing inclusion of biodiesel, ethanol production tax credits in the tax agreement.”

“Grassley fought tooth and nail to secure the inclusion of the ethanol and biodiesel provisions in the tax legislation agreement negotiated by the White House and Congressional leaders, facing efforts by some congressional majority Democrats and the White House to undermine bio-fuels production,” said a recent statement from the Senator’s office. “He also marshaled like-minded Senators to voice support for continuing these economy-boosting provisions.”

On the other side, along with Feinstein, a broad coalition of environmental, agricultural and taxpayer groups made the most noise Monday against the perceived special treatment that corn interests are receiving in the tax package. Several House Members have expressed similar criticism.

“These are things that were delayed all through this session because they weren’t important enough for Congress to come up with offsets to meet the [pay-as-you-go] implications,” said Steve Ellis, vice president at Taxpayers for Common Sense, which advocates for less government spending. “Clearly, these were not important enough to be done by Congress before, and it’s only because we’re at this last-gasp moment that we see the legislative massaging that makes the American people have contempt for Congress.”

Muddying the 2011 Tax Waters

The ethanol credit is a temporary extension that would run until Jan. 1, 2012. That means that even if Feinstein’s effort doesn’t succeed, it will tee up another big lobbying battle for next year, when frugal Republicans will take control of the House.

“We’re going to keep fighting to see that it gets dropped,” Ellis said.

Pete Sepp, executive vice president at the National Taxpayers Union, said many of the smaller tax items in the pending bill are the usual bargaining chips that Members employ annually to pass larger bills. “From a tax reform standpoint, this will definitely muddy the waters for tax simplification next year,” he added.

Bill Wilson of Americans for Limited Government called the ethanol credits and other sweeteners “a symbol of Congress’ inability to cut spending.”

“Take away all of the other fairly significant economic considerations in the bill, and we think including ethanol subsidies is absurd,” Wilson said.

Craig Cox of the Environmental Working Group said in a Monday statement that elements of the tax compromise show that it’s not just Democrats who are failing to hear the message that voters sent on Nov. 2.

“Members of Congress from the very same farm states and districts that with tea party help just ousted lawmakers engaged in wasteful spending are pushing to extend a costly handout to the corn ethanol industry that does little to reduce America’s oil use,” he said. “The next thing poured into Boston Harbor may very well be barrels of corn ethanol.”

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