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