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Influence of Iowa, Ethanol Industry Appears to Wane

Years of political clout built on Iowa’s presidential politics, powerful Members of Congress and industry muscle vanished in minutes last week when the Senate voted by a wide margin to repeal the ethanol tax break.

The defeated look on Sen. Chuck Grassley’s face following the Thursday vote told the story of a long-running battle that has tipped in favor of ethanol’s opponents. After years when the industry was untouchable and easily protected by Members, such as Grassley, from corn-producing states, the Senate voted 73-27 to kill what opponents called a subsidy for ethanol makers.

The six-term Iowa Republican credited Thursday’s vote to demagoguery and misconceptions about ethanol and corn production, not a loss of the Hawkeye State’s political clout or industry influence.

“Nobody knows anything about ethanol. That was their success,” Grassley said during an interview immediately after the vote. “The last time it was an issue in a presidential primary would have been 2000, and then before that ’96. … But today, it’s not an issue in Iowa — it’s unrelated to this vote, this vote has nothing to do with that. It’s because Iowans are interested in the debt, and Obamacare, mostly the deficit and the economy and jobs.”

However, even Grassley conceded that opposing the tax credit might not be the death knell in the 2012 Republican presidential primary as it might have been in previous caucus contests.

In fact, as was the case in 2008, some presidential candidates running this time around are skipping Iowa altogether, banking on success in the other early states to propel them to the GOP nomination. Even former Minnesota Gov. Tim Pawlenty, who is competing hard for Iowa’s Republican delegates, has announced his opposition to the ethanol subsidy.

Of course, there’s no guarantee the repeal will become law anytime soon, and most GOP presidential contenders still plan to compete in the Iowa caucuses in hopes of gathering momentum for their bids. But, symbolically, the damage has been done.

The ethanol industry has “been helped by the fact that the Iowa caucus was the first … in the country. But I think it’s simply that, when you’re borrowing 40 cents out of every dollar, you take a sober look at the budget, and ethanol’s triple subsidy sticks out like a sore thumb,” said Senate Republican Conference Chairman Lamar Alexander (Tenn.), who ran for president in 1996. “It probably should have been addressed some time ago, but we didn’t have this big [of] a deficit problem.”

The lopsided Senate vote on a bill by Sens. Tom Coburn (R-Okla.) and Dianne Feinstein (D-Calif.) would eliminate the 45-cents-a-gallon ethanol tax subsidy, and a 54-cent tariff on imported ethanol, worth $5 billion annually. But whether the underlying bill — a reauthorization of the Economic Development Administration — clears the Senate remains uncertain. And, even if it does, the ethanol provision would likely be rejected by the House because revenue bills must originate there.

There are some reasons for optimism about the clout of both the ethanol lobby and Iowa. President Barack Obama’s position on killing the ethanol tax credit could be an issue, given Iowa’s status as a swing state and what is shaping up to be a competitive White House race in 2012. The failure of an amendment offered by Sen. John McCain (R-Ariz.) to eliminate federal funding for gas pumps that can dispense ethanol-based fuels also showed that there’s still a modicum of support for the industry on Capitol Hill.

Sen. Tom Harkin also disputed that the vote on the Coburn-Feinstein amendment has anything to do with a diminishing of Iowa’s political influence, emphasizing that the defeat of the McCain amendment proves that Congress has not abandoned ethanol.

The five-term Iowa Democrat acknowledged the significance of the margin of the vote to repeal the subsidy, but he made clear he would prefer that the U.S. move away from subsidizing ethanol production and toward supporting increased consumer access to ethanol products.

Until Thursday, the Senate had not voted on the ethanol tax credit since 2007. Both Grassley and Harkin suggested the Senate voted to repeal it because Members from urban and oil-producing states found it a safe way to prove their commitment to fiscal austerity.

“In the past, we used to be able to get 70 votes for ethanol; now we get 70 votes against it,” Harkin said. “Because of the deficit, everybody’s looking for money wherever they can find it.”

Some in the pro-ethanol community contend that the successful repeal vote is a product of industry complacency and political and policy inflexibility that set in over many years under the belief that the tax credit would never lose a repeal vote.

Ethanol backers say the industry’s and the government’s participation in helping to create a market has suffered from several widely believed falsehoods, including that the creation of the ethanol fuel market has led to higher food prices while failing to have a positive effect on the environment. Supporters argue that their focus is now on maintaining government funding to build the infrastructure that can make ethanol more available to consumers nationwide — not on the production tax credit.

Tom Buis, CEO of Growth Energy, an organization that lobbies Congress on behalf of the ethanol industry, said supporters of the corn product have to adjust their tactics in light of the new political reality.

“I think the challenge is being able to make that transition,” Buis said. “In the old days, there was just blanket support for ethanol. … Congress is now very focused on the budget deficit issue.”

Sen. Jay Rockefeller (D-W.Va.), who voted to repeal the subsidy, said the success of the Coburn-Feinstein amendment has less to do with politics and more to do with a growing understanding of the problems with the government’s ethanol policy.

But at a time of extraordinary pressure on the federal budget, it has become problematic to maintain tax breaks on industries perceived to be financially successful, which is the case with ethanol.

“For a long time people have wanted to do this,” Rockefeller said. “It was sort of untouchable because there [were] so many farmers. And now that everybody is suffering, it sort of equals out the landscape, and people say: ‘Well, everybody has to share the pain.’”

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