Se­nate slams door on ethanol sub­si­dies

The Washington Times Weekly - - Politics - BY STEPHEN DI­NAN

Sig­nal­ing that aus­ter­ity is now the pre­vail­ing attitude on Capi­tol Hill, the Se­nate de­liv­ered a stun­ning blow to a once-sacro­sanct pro­gram June 16 when it voted to end bil­lions of dol­lars that go each year to pro­duc­ers of blended ethanol.

Re­vers­ing it­self from just two days ear­lier and de­spite op­po­si­tion from the White House, a bi­par­ti­san coali­tion voted 73-27 to halt the 45-cents-per-gal­lon tax credit, which was ex­pected to to­tal $5.7 bil­lion in 2011.

Com­ing from the Se­nate, which had pre­vi­ously taken a slower ap­proach to bud­get trim­ming, it pointed to a po­ten­tial sweet spot for fu­ture bi­par­ti­san cuts: the hun­dreds of other spe­cial-in­ter­est breaks that line the tax code. It also showed that lawmakers may be fed up with the bil­lions of dol­lars paid out to sup­port farm­ers each year.

“This is go­ing to be the first of many com­ing down the line. We’ve got to change the way we carry out busi­ness,” said Sen. Dianne Fe­in­stein, Cal­i­for­nia Demo­crat, who led the charge to end the sub­sidy, along with Sen. Tom Coburn, Ok­la­homa Repub­li­can.

“We might as well get used to it now,” she said.

In the House, mean­while, lawmakers ap­proved leg­is­la­tion that blocks fed­eral dol­lars from pay­ing for spe­cial pumps to blend ethanol — some­thing ethanol back­ers said is needed to pro­duce a big enough mar­ket to make the prod­uct worth­while.

A sim­i­lar amend­ment failed in the Se­nate, though, sug­gest­ing that while tax cred­its to com­pa­nies are on the outs, con­tin­ued spend­ing on in­fra­struc­ture projects that fa­cil­i­tate al­ter­na­tive en­ergy may still have staying power.

The Se­nate vote was more sym­bolic than sub­stan­tive. The bill it­self can­not suc­ceed be­cause the ethanol pro­vi­sions af­fect taxes, and the Con­sti­tu­tion re­quires all rev­enue bills to orig­i­nate in the House.

Still, it was strik­ing that Demo­cratic cau­cus mem­bers out­num­bered Repub­li­cans 40-33 in vot­ing for the cuts. Of the 27 op­po­nents, more than half were Repub­li­cans, which seemed to con­flict with the party’s mes­sage of low­er­ing fed­eral spend­ing.

Democrats said it put those 33 Repub­li­cans on record in sup­port of end­ing at least some cor­po­rate give­aways. Democrats said that shows so-called “tax ex­pen­di­tures” should be on the ta­ble in talks over a broad debt-re­duc­tion deal.

Ahead of the vote, Corn Belt lawmakers pleaded for a go-slow ap­proach, ask­ing that the tax cred­its be trimmed down rather than cut off as of July 1. They said farm­ers and blenders have made de­ci­sions based on the credit’s avail­abil­ity, and that a sud­den cut­off would be un­fair.

“The ques­tion is not if we should do it — we will — but when, and how,” said Sen. Amy Klobuchar, Min­nesota Demo­crat, who was try­ing to craft such a slow-tran­si­tion pro­posal. She said she will keep work­ing and hopes to reach a deal with Mrs. Fe­in­stein and Mr. Coburn be­fore fi­nal ac­tion.

Pres­i­dent Obama has de­fended ethanol sup­ports, and the White House said he is op­posed to “full re­peal of that sub­sidy.”

“We would like to see re­form that would re­duce costs in terms of the sub­sidy in ques­tion here, but we did not sup­port the full re­peal,” press sec­re­tary Jay Car­ney said.

Ethanol is con­sid­ered re­new­able be­cause it is de­rived from crops. In the U.S., ethanol is usu­ally de­rived from corn, which some stud­ies show is an in­ef­fi­cient method. Other coun­tries, such as Brazil, pro­duce ethanol more ef­fi­ciently from cane sugar.

In vot­ing to end ethanol sub­si­dies, lawmakers took the first step in un­do­ing a set of sup­ports that have built up over the decades as en­vi­ron­men­tal­ists sought a cleaner en­ergy source and U.S. pol­i­cy­mak­ers wor­ried about re­liance on for­eign oil.

In ad­di­tion to the tax credit, Amer­i­can ethanol pro­duc­tion is pro­tected by a trade tar­iff, and a mar­ket for it is al­most as­sured by a gov­ern­ment man­date that re­quires that bil­lions of gal­lons of re­new­able fu­els ev­ery year be blended with gaso­line.

Mrs. Fe­in­stein called it the “triple crown of ben­e­fits.”

The tax credit was en­acted in 2004, when Repub­li­cans con­trolled the White House and Congress, as a way of con­sol­i­dat­ing a con­vo­luted set of sub­si­dies go­ing back to the 1970s. The tax ini­tially was set at 51 cents for ev­ery gal­lon of ethanol blended into gaso­line, but that was low- ered in 2008 to 45 cents.

Killing the sub­sidy on July 1, as Mrs. Fe­in­stein pro­posed, would save the gov­ern­ment $2.4 bil­lion this year.

To show just how long the battle has gone on, Sen. John McCain, an Ari­zona Repub­li­can and ar­dent op­po­nent of ethanol sup­ports, read on the Se­nate floor a state­ment he made in 1998 dur­ing a de­bate over the U.S. pol­icy.

The vote gave pub­lic view to a long-run­ning ide­o­log­i­cal fight be­hind the scenes within the Repub­li­can Party.

That fight pits pro-busi­ness Repub­li­cans, who say the gov­ern­ment has the power and re­spon­si­bil­ity to boost Amer­i­can com­pa­nies and jobs, against free-mar­ket con­ser­va­tives who say bu­reau­crats and mem­bers of Congress will never make the most cost-ef­fec­tive de­ci­sions.

Mr. Coburn laid out the choice for col­leagues on the Se­nate floor: “Can we trust mar­kets, real mar­kets, to work more ef­fec­tively than Wash­ing­ton man­dat­ing and dic­tat­ing poli­cies?”

He said the vote wasn’t about whether ethanol should be used as an al­ter­na­tive fuel, but rather whether the gov­ern­ment should pick it as a win­ner over other choices.

“The best way for ethanol to sur­vive is for it to stand on its own two feet,” he said.

A sim­i­lar fight is be­ing waged in the House over pro­pos­als to sub­si­dize con­ver­sion of the Amer­i­can truck fleet to nat­u­ral gas, of which the U.S. has am­ple sup­ply.

ASSOCIATED PRESS

Se­nate Ju­di­ciary Com­mit­tee mem­ber Amy Klobuchar, Min­nesota Demo­crat, was tr ying to craft a slow-tran­si­tion ap­proach to end­ing ethanol sup­ports.

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